Develop Responsible Financing Policies to Address Climate Risks Posed by High Climate-Risk Sectors

Mr Louis Ng Kok Kwang asked the Prime Minister (a) what policies is MAS studying to address climate risks posed by the high climate-risk sectors that have been identified in the Guidelines to Responsible Financing Practices published by the Association of Banks in Singapore in 2018; and (b) whether the Ministry can share how the MAS will be working with banks to develop their responsible financing policies in relation to these high climate-risk sectors.

The Monetary Authority of Singapore's (MAS) objective is to ensure that financial institutions manage their climate-related risks well, and support our economy's transition to a sustainable and low carbon future. To do so, MAS is issuing new supervisory guidance that incorporates best practices on environmental risk management developed by global regulators, including at the Network for Greening the Financial System. MAS' proposed Guidelines on Environmental Risk Management1, which has undergone public consultation, will be finalised in Q4 2020. It will set out clear expectations for banks to implement environmentally responsible financing policies and practices, and includes:

(a) Boards and senior management should maintain effective oversight of banks' management of environmental risk and address material environmental risk in their risk appetite framework;

(b) For sectors that pose higher environmental risk, develop sector-specific policies, setting out banks' expectations on customers, taking into account relevant sustainability standards and certification schemes. Banks should also engage these customers to support their transition towards sustainable business practices over time; and

(c) Disclose their approaches to managing environmental risk, and the impact of environmental risk on their financial performance, including quantitative metrics such as exposures to sectors with higher environmental risk. This will enable investors to better assess the banks' environmental risk exposures.

Our approach is therefore not to outrightly disallow financial institutions from serving industries that are subject to climate-related risks at this stage. Instead, MAS expects financial institutions to assess their exposures to these industries, mitigate risks, work with each higher-risk customer to improve its environmental risk profile, and ensure there is senior level oversight on these issues. This approach strikes a better balance between supporting sustainable development, and recognising that many of these industries still play a role in the broader economic and social development needs of the region.

MAS is engaging the banks on how they intend to implement the Guidelines. We are collaborating with fellow regulators to develop climate risk measurement methodologies and metrics. We will also continue to promote the best practices among banks on environmental risk analysis and management.