Investors/ Regulators/ Sustainable Finance
The Monetary Authority of Singapore (MAS), the central bank and financial regulator of Singapore, announced today the issuance of a set of consultation papers with proposed guidelines on net zero transition planning for financial institutions, including banks, insurers and asset managers.
The guidelines set out MAS’ supervisory expectations for the financial institutions to have a sound transition planning process, enabling effective climate change mitigation and adaptation measures by their customers and portfolio companies to manage the transition to a net zero economy, as well as the physical effects of climate change.
One of the key expectations included in the guidelines is for financial institutions to take an engagement, rather than divestment approach to their transition planning, engaging with customers and portfolio companies on addressing physical and transition risks, and working with them to reduce their carbon footprint and build climate change resilience. According to MAS, withdrawing financing, insurance or investment from higher climate risk-exposed companies with credible transition plans could deprive them of the financing needed to decarbonize.
MAS Managing Director Ravi Menon said:
“Indiscriminate divestment from carbon-intensive activities will not get us to a net-zero world. A large part of the global economy depends on such activities for growth and jobs. Rather, financial institutions must actively support their borrowers, insured parties, and investee companies to progressively decarbonise their activities through credible transition plans.”
MAS also guided the financial institutions to take a multi-year approach to transition planning, going beyond typical financing or investment time horizons, given the longer time horizons for the manifestation of physical and transition risks.
Additional guidance from the MAS included taking a holistic approach to risk and an integrated approach to climate mitigation and adaptation measures to account for the complex interaction of physical and adaptation climate risk, as well as to consider environmental risks beyond climate-related risks – such as natural capital and biodiversity loss – and to consider the interdependencies of these environmental risks in their transition planning. Financial institutions were also guided to disclose relevant information to stakeholders to help them understand how they are responding to material climate-related risks, and the governance and processes in place to address those risks.
Menon added:
“We may have to accept short-term increases in financed, facilitated, or insurance-associated emissions arising from these plans provided these plans support climate positive outcomes consistent with a net-zero pathway. Regulators must support financial institutions in such efforts. This is why MAS is taking the lead in setting clear supervisory expectations on transition planning for our financial institutions.”
Mark founded ESG Today following a 20 year career in investment management and research. Prior to founding ESG Today, Mark worked at Delaney Capital Management (DCM) in Toronto, Canada, most recently as the firm’s head of U.S. equities. While at DCM, Mark was part of the firm’s ESG team, responsible for evaluating and tracking the sustainability factors impacting portfolio companies, and assessing the suitability of companies for portfolio inclusion. Mark also spent several years in the sell-side research industry, covering the technology and services sectors. Mark holds an MBA from Columbia University in New York, a BBA from the Schulich School of Business at York University in Toronto, and is a CFA charterholder.