The Green Finance Industry Taskforce (GFIT or the Taskforce) of MAS proposed the taxonomy for Singapore-based financial institutions to identify and classify activities that can be considered green or transitioning toward green. The comment period on this consultation will end on March 11, 2021. The Taskforce also launched a handbook on implementing environmental risk management for asset managers, banks, and insurers. In addition, the Taskforce is exploring technology solutions for financial institutions to enhance the quality of their climate-related disclosures. The Taskforce aims to pilot innovations that seek to solve the challenges in mobilizing green finance across sectors. These resources will complement the taxonomy and 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
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleHKMA Keeps Countercyclical Capital Buffer at 1%
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.