MAS launched three consultations on the guidelines for management of environmental risk by banks, insurers, and asset managers. The guidelines, which were co-created with financial institutions and industry associations, set out the supervisory expectations of MAS for financial institutions in their governance, risk management, and disclosure of environmental risk. The comment period for these consultations ends on August 07, 2020. MAS also proposed to provide a transition period of 12 months after the guidelines are issued, for financial institutions to assess and implement the guidelines as appropriate to reflect the evolving nature and maturity of risk management practices.
The guidelines are tailored to each sector based on the business activities and risk management practices. In the banking sector, the guidelines apply to all banks, merchant banks, and finance companies. MAS recognizes that the scale, scope, and business models of banks can be different. A bank should implement these guidelines in a way that is commensurate with the size and nature of its activities as well as its risk profile. MAS proposes to apply the guidelines to banks’ extension of credit to corporate customers and underwriting for capital market transactions. A bank should also apply the guidelines to other activities that expose it to material environmental risk. In particular, banks with material investment activities should refer to the relevant sections of the Guidelines on Environmental Risk Management for Asset Managers, for sound practices on the management of environmental risk with respect to investments. The following are the key highlights of the proposed guidelines for banks:
- Governance—MAS also proposes that the Board ensure that environmental risk, where material, is addressed in the bank’s risk appetite framework, so that environmental risk exposures beyond the bank’s risk appetite can be promptly recognized and addressed. MAS further proposes that where environmental risk is deemed material to a bank, the bank should designate a senior management member or a committee to oversee environmental risk.
- Risk management—MAS proposes that banks should identify, assess, mitigate, and monitor material environmental risk at both the customer and portfolio levels. MAS also proposes for the bank to develop capabilities in scenario analysis and stress testing to assess the impact of environmental risk on its risk profile and business strategies, and explore its resilience to financial losses.
- Disclosures—MAS proposes that a bank disclose, at least annually, its approach to managing environmental risk and the potential impact of material environmental risk on the bank. The latter includes quantitative metrics such as exposures to sectors with higher environmental risk. A bank’s disclosure may be consolidated at the group or head office level. MAS also proposes that banks take reference from international reporting frameworks, including the FSB’s Task Force on Climate-related Financial Disclosures (TCFD), to guide their environmental risk disclosures. The TCFD recommendations provide a useful framework for the disclosure of climate-related risks.
The guidelines aim to enhance the resilience of financial institutions to environmental risk and to strengthen the role of the financial sector in supporting the transition to an environmentally sustainable economy, in Singapore and in the region. This is part of the Green Finance Action Plan of MAS to become a leading global center for green finance. The guidelines serve as a call to action for financial institutions to help drive the transition to an environmentally sustainable economy, by enhancing the integration of environmental risk considerations in financial institutions' financing and investment decisions and promoting new opportunities for green financing.
Comment Due Date: August 07, 2020
Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, ESG, Governance, Disclosure, Green Finance Action Plan, Climate Change Risk, 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.
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