Singapore’s Financial Institutions Urged to Enhance Environmental Risk Management Policies
The Monetary Authority of Singapore (MAS) has issued three guidelines aimed at enhancing the resilience of financial institutions in managing environmental risks. The guidelines came into effect on December 8 and set out sound risk management practices for banks, insurers, and asset managers.
What are Environmental Risks?
According to the guidelines, environmental risk refers to any risk that could have a significant impact on an institution’s operations or reputation due to environmental factors such as: * Climate change * Natural disasters * Pollution
The guidelines aim to ensure that financial institutions are equipped to manage these risks effectively and maintain their stability in the face of potential environmental shocks.
Who Does the Guidelines Apply To?
The guidelines apply to all: * Banks * Merchant banks * Finance companies * Insurers * Asset managers
operating in Singapore. These institutions are required to assess and monitor environmental risk in their lending, investment, and underwriting activities.
Examples of Implementation
- Banks are expected to apply the guidelines to both existing and new credit facilities and capital market transactions.
- Insurers must put in place appropriate processes and systems to monitor, assess, and manage the potential and actual impact of environmental risk on individual investments and portfolios. They must also consider engaging with companies individually and asset managers to help shape corporate behavior positively.
- Asset managers are expected to apply the guidelines to their investment activities, including real estate investment trusts (REITs) and segregated mandates. They must convey their expectations on environmental risk management to sub-managers and advisors and put in place processes to assess and monitor compliance with these expectations.
Implementation Timeline
The MAS has given financial institutions 18 months to implement the guidelines, recognizing that they may face initial challenges in doing so. During this period, institutions are expected to: * Demonstrate evidence of implementation progress * Make their first disclosure on environmental risk management as soon as practicable after the guidelines have been issued
Disclosure Framework
The guidelines also provide a framework for financial institutions to disclose their environmental risk management practices and outcomes. This is expected to enhance transparency and accountability in the sector.
For more information, please visit the MAS website at www.mas.gov.sg.