MAS publishes net-zero transition plan guidelines

The Monetary Authority of Singapore (MAS) has released consultation papers outlining transition planning guidelines for banks, insurers and asset managers, facilitating the transition to a net-zero economy.

The guidelines build on MAS’s existing framework on environmental risk management published last year. They include additional granularity on internal strategic planning and risk management processes, recognising the different business models and needs of various financial institutions.

Ravi Menon, managing director of MAS, said that “indiscriminate divestment from carbon-intensive activities will not get us to a net-zero world”.

Rather than divesting from customers with high climate-related risks, MAS underlined that it expects financial institutions to engage and collaborate with customers and investee companies to implement effective measures to reduce their carbon footprint.

MAS also stated that the withdrawal of credit, insurance coverage, or investments by financial institutions will deprive entities of credible transition and adaptation plans of the financing needed to decarbonise.

Menon said: “We may have to accept short-term increases in financed, facilitated, or insurance-associated emissions arising from these plans, provided these plans support climate-positive outcomes consistent with a net-zero pathway. Regulators must support financial institutions in such efforts.”

MAS recommends financial institutions take a multi-year approach, beyond the typical financing or investment time horizons to facilitate a more comprehensive assessment of climate-related risks. The guidelines also state that an integrated approach to climate mitigation and adaptation should be taken as a “holistic treatment of risk enables better risk discovery”.

Acknowledgment of financial risks beyond climate has grown in recent years. Last month, the Taskforce on Nature-Related Financial Disclosures published recommendations for companies on explaining nature-related risks to investors. “The loss of nature capital and biodiversity must be recognised and addressed as related but distinct environmental risks to be managed,” MAS recommends.

As well as disclosing meaningful and relevant reports to help stakeholders understand short, medium and long-term climate-related risks, financial institutions are expected to consider the “important interdependencies between climate and nature, in addition to the potential trade-offs such as environmental degradation arising from the pursuit of climate solutions”.

Singapore’s central bank also recently announced that it seeks to incentivise the phaseout of coal power plants. MAS has invited parties to submit comments on the proposals by 18 December.