Assessment of Climate Risk in Monetary Authority of Singapore’s Annual Industry-Wide Stress Test

Mr Deputy Speaker, the Monetary Authority of Singapore (MAS) takes climate change-related risks seriously as a financial supervisor. Financial institutions are potentially exposed to such risks, because they provide financing and insurance services to businesses that can be impacted by a wide range of climate change-related events, including natural catastrophes. There are also risks arising from changes to public policies, technologies, or consumer preferences that can impact businesses significantly.

Climate change is therefore increasingly relevant to financial institutions, both because the risks will be on their balance-sheets and because they will play a role in enabling their customers and the economy at large to make a transition – here in Singapore as well as abroad.

MAS is, in fact, a founding member of the global Network for Greening the Financial System, which develops best practices for a more sustainable financial industry. Locally, we will be issuing a consultation paper on Environmental Risk Management guidelines for various financial institutions in the first quarter of this year.

MAS has already started to stress test for climate change-related risks. For example, in the 2018 Industry-Wide Stress Test, MAS subjected insurers to a scenario featuring extreme flooding and they had to consider the impact of higher claims on their balance sheets arising from damage to insured properties.

But the methodologies for stress testing climate change-related risk are still at a nascent stage, as international regulators all recognise. The Bank of England, as mentioned by Mr Ng, has acknowledged that central banks and the financial sector are still building capacity to model financial risks arising from climate change. The IMF, too, is working to improve its climate change-related stress scenarios.

MAS is working towards incorporating a broader range of climate change-related risks in thematic scenarios as part of a future Industry-Wide Stress Test.

Just one follow-up question, I am just wondering whether if we can also get our financial institutions to report on the amount of emissions they are financing. That way we can also see just how at-risk they are.

Today, that is not the rule, as far as I know. But I think many of our financial institutions see it as in their own interest to report it because shareholders and stakeholders are all watching the data. I think in the end, this will succeed when we can converge commercial interest with social good and environmental good. What is very positive and optimistic is that, such a convergence is happening. It will happen in terms of stress tests, it will happen in terms of their financial evaluation of certain deals, of certain investments; and all these are happening and I think it will be within their own interest to disclose those data.

Mr Deputy Speaker, could I ask the Minister if MAS is considering consulting with experts in civil society in the development of these scenarios, these stress test scenarios?

I do not see why not, but for the time being, the priority is actually a much more basic one, which is there is not even the data to conduct a proper stress test. You really need to collect the data, the climate-related data, how does it impact the financial institutions and then you can do the stress test. I think as we do that, that is why I said it is at the nascent stage, the taxonomy has not been worked out. When it is all worked out, I am sure then there will be more conversations, including with civil society.