A Monetary Authority of Singapore (MAS) study of the exposure of Singapore’s banks and insurers to climate-related transition risks has found that nearly a third of the country’s financial assets are vulnerable. Published as part of its annual financial stability review, the central bank exercise also found that climate change could emerge as a threat to global financial stability within the next three to five years.
The MAS research exercise identified both climate change and the spread of cryptocurrencies as emerging vulnerabilities to Singapore’s financial system. “While these risks may be less pronounced at this juncture, they warrant close monitoring and an active assessment of options due to their potential to rapidly develop and materialise into significant financial stability risks,” the central bank said.
Increasing awareness of the scale and urgency of the climate crisis could trigger an abrupt reassessment physical and transition risks, leading to a steep rise in risk premiums across a wide range of high-carbon assets, the report found. “It is thus imperative for financial institutions and authorities to build up capabilities to better assess, manage and mitigate the impact of these climate risks on their assets,” the MAS said.
The study found that sectors most exposed to these risks include fossil fuels, utilities, energy-intensive manufacturing, housing, transport and agriculture. Approximately 30% of bank loans were extended to these sectors, an exposure similar to that of European Union banks.
This is the first research exercise to assess climate-related financial sector risk in Singapore’s financial sector. It is part of MAS efforts to promote a green finance ecosystem in the city state, organised around green taxonomies, the supervision of climate-related risks, and financial innovations such as the development of new digital platforms offering high quality sustainability data.
This page was last updated December 9, 2021
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