MAS Taskforce Proposes Green Taxonomy, Issues Risk Management Handbook

Consultation on green and transition taxonomy

The consultation seeks feedback on the Taskforce's recommendations on the environmental objectives, focus sectors, and a “traffic-light” system, which sets out how activities can be classified as green, yellow (transition), or red according to their level of alignment with environmental objectives. The consultation discusses the merits of a taxonomy for Singapore-based financial institutions, with particular relevance to those active across ASEAN, sets out a basic approach to a taxonomy, identifies economic sectors important to Singapore and Association of Southeast Asian Nations (ASEAN) and that would particularly benefit from such classification, and poses follow-up questions. The consultation provides an introduction to the directional design of a taxonomy. It discusses the environmental objectives of the taxonomy, the sectors that may be covered, the economic activities within those sectors, and the general approach to classification.

The key purpose of developing a green taxonomy for Singapore-based financial institutions is to encourage the flow of capital to support the low-carbon transition needed to avoid catastrophic climate change and to support the environmental objectives of Singapore and the ASEAN nations, which are serviced by Singapore-based financial institutions. Compared to other taxonomies, a key feature of the proposed taxonomy is that it encompasses transition activities that allow for a progressive shift toward greater sustainability while taking into account starting positions and supporting inclusive economic and social development. The taxonomy references international best practices and adapts them to the Asian context where relevant. The Green Finance Industry Taskforce will develop, in its next phase of work, a combination of principle-based criteria and quantifiable thresholds for activities. This will provide clarity and ease the implementation of the taxonomy by financial institutions.

Handbook on implementing environmental risk management

The handbook on implementation of environmental risk management outlines the financial risks arising from environmental risks, the various transmission channels, and the need for a green taxonomy to help financial institutions play a key role in directing capital flows toward sustainable economic activities. The handbook also focuses on effective integration and implementation of environmental risks into the governance framework for financial institutions. Good practices in environmental risk governance include board accountability and oversight, clear delineation of roles and responsibilities for senior management, integration of environmental risk into risk frameworks and policies, board approved risk appetite, and reporting metrics and capacity building. The handbook outlines the steps that financial institutions can take to embed environmental and climate-related financial risk into their risk management processes, make informed decisions, and improve their resilience. The handbook also showcases case studies of effective environmental and climate-related financial disclosures. Effective disclosures allow financial institutions to provide greater transparency on the impact of financially material environmental risks on their business.

Comment Due Date: March 11, 2021

Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, ESG, Climate Change Risk, Climate-Related Disclosures, Disclosures, Reporting, GFIT, Sustainable Finance, Sustainable Taxonomy, MAS