As the global conversation about battling climate change continues, the MAS has issued three sets of guidelines for consultation – one each for banks, insurers and asset managers – which set out how financial institutions (FIs) can enhance their environmental risk management practices.
The Environmental Risk Management Guidelines aim to enhance FIs’ resilience to environmental risk, and strengthen the financial sector’s role in supporting the transition to an environmentally sustainable economy, both in Singapore and in the wider region. According to the MAS, FIs “can act as a ‘force for good’ in the transition towards an environmentally sustainable economy”. This is part of the Authority’s Green Finance Action Plan to become a leading global centre for green finance.
The guidelines – drafted in collaboration with FIs and industry associations – set out MAS’ supervisory expectations with respect to governance, risk management, and disclosure of environmental risk. We summarise these below, as they apply to the asset management sector.
MAS Environmental Risk Management Guidelines – a summary
It’s anticipated that the guidelines will apply to all CMSL holders, RFMCs, and Managers of REITs.
The MAS understands that the regulated activity of fund management can encompass different roles including investment management, advisory, or acting in a research capacity. To this end, the guidelines will generally be applicable only to those that have discretionary authority over the investments of the funds/mandates under their management.
Environmental Risk Management Guidelines – scope
The guidelines focus on three categories: governance, risk management and disclosure.
Boards and Senior Management of FIs will be expected to incorporate environmental considerations into their strategies, business plans, and product offerings, and maintain effective oversight of the management of environmental risk. On a practical level, FMCs will need to put in place an environmental risk management framework and supporting policies, both on an enterprise level and with respect to the portfolios they manage.
Risk management requirements
FIs will be expected to put in place policies and processes to assess, monitor, and manage environmental risk – both at an enterprise level and with respect to the portfolios they manage. An example cited by the MAS is for FMCs to evaluate the potential impact of material environmental risk on an investment’s return potential when carrying out research and portfolio construction. The MAS also expects FMCs to exercise sound stewardship of investee companies, influencing those companies in transitioning to sustainable business practices.
The MAS will encourage FMCs to make regular and meaningful disclosure of their environmental risks, so as to enhance market discipline by investors. This may include quantitative metrics such as exposures to sectors with higher environmental risk. Helpfully, the FMC’s disclosures may be incorporated into the group or head office’s disclosures.
The MAS welcomes all feedback from the public and industry alike, with a deadline of 7th August. Once implemented, there will be a transition period of 12 months for FMCs to assess and implement the guidelines as appropriate.