The Monetary Authority of Singapore (MAS) published information papers on environmental risk management for banks, insurers, and asset managers; these papers set out the progress in implementing the MAS guidelines on environmental risk management.
The information papers are based on a thematic review conducted by MAS in 2021 on selected banks, insurers, and asset managers (collectively, financial institutions). They highlight emerging and/or good practices by financial institutions and identify areas where further work is needed. MAS recognizes that banks are at varying stages of putting in place the relevant risk management processes. Majority of the banks expected themselves to be in full compliance with the MAS guidelines on environmental risk management come June 2022, while the rest were committed to accelerating their implementation. Apart from addressing the climate-related risks, banks have yet to make meaningful progress to address other environmental risk factors, such as biodiversity loss. MAS will continue to partner with banks to accelerate their efforts in:
- Translating their environmental risk strategy and risk appetite into concrete milestones and tangible targets for action; these include actions to be taken within the bank to support progress toward more sustainable operations and to steward their clients’ transition in accordance with science-based transition pathways.
- Deepening the understanding of the potential impact and consequences of environmental risk, both within their own institution and from their financed emissions. Within banks, this would include building forward-looking risk assessment capability, further work on risks manifesting beyond credit risks, and developing an understanding of environmental risks beyond climate change. In relation to financed emissions, this would include building awareness among clients and financing the change necessary to avert materialization of credit events related to environmental risk.
- Designing and executing necessary changes to internal and external processes to effect and sustain meaningful outcomes, including embedding environmental risk considerations into business-as-usual process to mitigate potential risks arising from greenwashing and transition washing.
- Being accountable to stakeholders in relation to the environmental risk by disclosing and explaining potential impact on business and risk implications. This would include clearly communicating the implications on the bank and its clients arising from financing decisions and the bank’s progress in meeting decarbonization targets (including financed emissions).
Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, Climate Change Risk, ESG, Credit Risk, Greenwashing, Disclosures, 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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