The Monetary Authority of Singapore ("MAS") recently published a series of Consultation Papers relating to a proposed set of Guidelines on Transition Planning, which are intended to apply to various different types of financial institutions such as banks, asset managers who have discretionary authority over the portfolios that they are managing, insurers (together, the "FIs"). The proposed guidelines are intended to supplement the Guidelines on Environmental Risk Management previously issued by the MAS on 18 December 2020.
The MAS intends for the proposed guidelines to facilitate the FI's transition planning processes as they build climate resilience and enable robust climate mitigation and adaptation measures by their customers. Transition planning refers to the internal strategic planning and risk management processes undertaken to prepare for both risks and potential changes in business models associated with the transition. As such FIs play a key role in mobilising capital in enabling their customers to transition in an orderly manner, these FIs should, through robust client engagement and stewardship processes, encourage changes (through the adoption of risk mitigation and adaptation strategies) in their customer's business strategies and risk profiles, instead of indiscriminately withdrawing credit / investments / insurance coverage (as applicable).
The proposed guidelines set out MAS' expectations of such FIs in relation to (i) governance and strategy; (ii) (for banks) customer engagement; (iii) portfolio management; (iv) forward-looking risk assessment tools; (v) data, metric and targets; (vi) implementation strategies, particularly in relation to people, processes and systems; (vii) (for asset managers and insurers) engagement and stewardship; and (viii) disclosures. The proposed guidelines also provide illustrative examples of sound practices to facilitate implementation by these FIs. For example, MAS expects such FIs to have clear, actionable and decision-useful risk appetite statements that consider risks holistically when implementing their business strategies and transitioning to a low carbon economy. In particular, FIs should consider mitigation and adaptation measures in response to transition and physical risks faced by the FI through exposure to their customers and investments.
The consultation paper is accessible at this link.
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