MAS Net Zero Transition Guidelines for FIs
The Monetary Authority of Singapore (MAS) has unveiled a series of consultation papers outlining proposals for guiding banks, insurers, and asset managers in their transition planning efforts.
These guidelines are designed to pave the way for a global shift towards a net-zero economy.
The "Guidelines on Transition Planning" articulated by MAS delineate the regulatory body's expectations for financial institutions (FIs) to establish robust transition planning processes.
These processes aim to facilitate effective measures addressing climate change mitigation and adaptation, both on the part of their customers and investee companies, in alignment with the worldwide journey toward a net-zero economy. Additionally, the guidelines address the expected tangible impacts of climate change.
MAS has outlined several pivotal expectations for FIs:
Engagement Over Divestment: Financial institutions are encouraged to prioritise engagement as the primary tool to guide their customers and investee companies through a seamless transition. The focus is on addressing the physical and transition risks associated with climate change, working collaboratively to reduce carbon footprints, and enhancing resilience against climate-related challenges. The indiscriminate withdrawal of financial support could hinder entities with credible transition and adaptation plans from securing the necessary financing for decarbonisation.
Multi-Year Approach: FIs are advised to adopt a multi-year perspective that extends beyond conventional financing and investment horizons. This approach permits a comprehensive evaluation of climate-related risks, recognising the lengthy and uncertain timeframes within which these risks may materialise. This long-term outlook is vital for assessing the sustainability of business models and portfolios.
Holistic Risk Management: Recognising the intricate interplay of risk factors during the transition to a net-zero economy, FIs are urged to adopt an integrated approach in their climate mitigation and adaptation endeavours. Collaboration with customers and investee companies is essential to navigate these complexities effectively.
Environmental Considerations: Beyond climate-related risks, the guidelines underscore the importance of addressing environmental risks associated with the loss of nature capital and biodiversity. FIs are encouraged to recognise the interdependencies between climate and nature, emphasising potential trade-offs arising from climate solutions that may inadvertently lead to environmental degradation.
Transparency and Accountability: FIs are expected to promote transparency by providing relevant and meaningful information to stakeholders. This information should shed light on how FIs are responding to material climate-related risks over the short, medium, and long term. It should also cover the governance and processes for managing these risks.
These guidelines are an extension of MAS' existing supervisory guidance to FIs and concentrate on strengthening their internal strategic planning and risk management processes. They prepare FIs for the challenges and potential shifts in business models associated with the global transition.
Mr. Ravi Menon, Managing Director of MAS, emphasised the importance of actively supporting borrowers, insured parties, and investee companies in their journey to decarbonise.
He stressed the need for transition plans to be credible and recognised that short-term increases in emissions might be acceptable if they contribute to climate-positive outcomes in line with a net-zero trajectory. Regulators, he pointed out, should play a supportive role in these financial institutions' efforts.