The Monetary Authority of Singapore ("MAS") recently completed its consultation on a set of three proposed Guidelines on Environmental Risk Management for banks,1 insurers,2 and asset managers ("AMs")3 respectively (collectively, financial institutions ("FIs")). The guidelines are part of the MAS's Green Finance Action Plan to become a leading global centre for green finance, which was announced last year,4 and which aims to inter alia build financial system resilience to environmental risk.5 This update puts the guidelines in context and outlines the proposed requirements.

Environmental Risks and Opportunities

Environmental risk may be presented in the forms of physical risk (eg, business disruption and damage to property caused by acute impacts such extreme weather events; and decline in labour, capital, and agriculture productivity caused by chronic impacts particularly from increased temperatures, sea levels rise, and precipitation) and/or transition risk (eg, investment and adaptation from companies, households and governments as policies and regulations, technology developments, and consumer preferences, make the unprecedented6 adjustment to an environmentally sustainable economy).

These physical and transitional risks can translate into credit risk, market risk, and liquidity risk, and operational risk for banks; and market risk, operational risk, insurance risk, and liquidity risk for insurers. For AMs, the value of their investments in companies impacted by physical risk may be impaired and disruption to business models; and changes in market or consumer demand may expose their investment portfolios to volatility and downside risk.

Reputational risk can also arise from financing or providing insurance coverage for customers or investing in businesses that carry on activities which have a negative impact on the environment. Conversely, the anticipated physical environmental changes and transition to an environmentally sustainable economy also present opportunities for firms, eg, construction/refurbishment of climate resilient plants and infrastructure; electrification of transport; shift to renewable energy production; and adoption of circular models of production and consumption. FIs can play a key role in catalysing the channelling of capital through their financing, underwriting, and investment activities towards these opportunities.

Network for Greening the Financial System

The MAS is not the only financial regulator working to strengthen the financial system's resilience to environmental risk. In recent years, it has been working closely with like-minded supervisors to develop best practices for supervisors and FIs to manage the impact of this risk. A number of central banks and supervisors, including the MAS, had voluntarily grouped together to launch the Network for Greening the Financial System ("NGFS") in 2017 to "share best practices and contribute to the development of environment and climate risk management in the financial sector and to mobilise mainstream finance to support the transition towards a sustainable economy".7 It currently has 69 members and 13 observers.8

Members of the NGFS have acknowledged that "climate-related risks are a source of financial risk. It is therefore within the mandates of central banks and supervisors to ensure the financial system is resilient to these risks". While climate change is only one of many sources of structural change affecting the financial system, it has distinctive characteristics that mean it needs to be considered and managed differently, including its far-reaching impact in breadth and magnitude, its foreseeability, its dependence on short actions. The NGFS also recognised a "strong risk that climate-related financial risks are not fully reflected in asset valuations". Its recommendations to central banks and supervisors, whether or not members of the NGFS, included integrating climate-related risks into financial stability monitoring and micro-supervision; and achieving robust and internationally consistent climate and environment related disclosure in line with the recommendations of the Taskforce on Climate-related Financial Disclosures ("TCFD").9 The task force was created in 2015 by the G20 Financial Stability Board to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The recommended framework is structured around:

  1. Governance;
  2. Strategy;
  3. Risk management; and
  4. Metrics and targets;

to facilitate disclosures that will support more appropriate pricing of risks and allocation of capital in the global economy.10

Following up on its earlier recommendations, the NGFS recently set out recommendations for NGFS members and the broader community of banking and insurance supervisors to integrate climate-related and environmental risks into their work. These include,

[setting] supervisory expectations to create transparency for financial institutions in relation to the supervisors' understanding of a prudent approach to climate-related and environmental risks; [and ensuring] adequate management of climate-related and environmental risks by financial institutions and [taking] mitigating action where appropriate.11

The NGFS has also published a first set of representative climate scenarios, with the aim of providing a common reference framework for central banks and supervisors to explore and understand physical and transition risks in climate scenarios under varying assumptions.12 The scenarios were chosen to show a range of lower and higher risk outcomes, and include:

  1. Orderly: Early, ambitious action to a net zero CO2 emissions economy;
  2. Disorderly: Action that is late, disruptive, sudden and/or unanticipated; and
  3. Hot house world: Limited action leads to a hot house world with significant global warming and, as a result, strongly increased exposure to physical risks.

A fourth scenario – 'too little, too late' scenario – with both high transition and physical risks was not included in the first iteration.

Other central banks and supervisors have also updated or are updating their supervisory expectations to include environmental risk management by financial institutions. For example, last year, the Bank of England's Prudential Regulation Authority ("PRA") published its Supervisory Statement, setting out its expectations of insurers' and banks' strategic approach to managing the financial risks from climate change in the areas of governance, risk management, scenario analysis, and disclosure.13 In June this year, the Hong Kong Monetary Authority ("HKMA") published a White Paper and announced its ongoing development of supervisory expectations and requirements regarding the development of green and sustainable banking. The Authority also shared some initial thinking and possible actions that authorised institutions may take to address climate-related issues, including principles and actions in the areas of governance, strategy, risk management, and disclosure.14

Climate-related risks are not the only looming environmental risk that should be on the financial sector's radar. The signification deterioration of biodiversity and ecosystem services and threat of extinction of between half a million and a million plant and animal species worldwide as a consequence of changing land and sea use, overexploitation of ecosystems, climate change, pollution and invasive species also pose severe economic consequences that translate into physical and transition risks for financial institutions.15 A Task Force on Nature-related Financial Disclosures ("TNFD") informal working group was formed in July 2020 at the initiative of the United Nations Development Programme, the United Nations Environment Programme, and two non-governmental organisations, World Wide Fund for Nature and Global Canopy. The TNFD has noted that humanity has already wiped out 83% of wild mammals and half of all plants and severely altered three-quarters of ice-free land and two-thirds of marine environments. It also cited the World Economic Forum's estimate that more than 50% of global GDP, is moderately or highly dependent on nature. The working group will focus on the reporting, metrics, and data needs of financial institutions that will enable them to better understand their risks, dependencies and impacts on nature and biodiversity; and develop in collaboration with the corporate sector, reporting frameworks. It has the support of the UK and Swiss governments and the endorsement of at least 10 financial institutions, including DBS Bank. TNFD partners are currently engaging with stakeholders, including the NGFS, on its work.16

Existing Risk Management Regulatory Landscape for FIs

FIs are already required to identify, address and monitor risks associated with their business activities. It is the responsibility of the Board of Directors of an FI to oversee the governance of risk in the institution and ensure that the senior management maintains a sound system of risk management and internal controls for identifying, measuring, evaluating, monitoring, reporting and controlling or mitigating risks regularly. It is also the Board's responsibility to determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.17 The senior management of an FI is also responsible for implementing the policies and procedures for conducting the risk strategy and policies approved by the Board; and ensuring that the FI has effective risk management and control processes, reliable risk measurement and reporting systems, and competent staff for sound risk management.18 The Board and senior management should also be actively involved in the formulation and review of an FI's stress testing programmes. These programmes should be forward-looking and commensurate with the institution's risk profile.19 Banks in Singapore that are incorporated in Singapore must also disclose in the financial review section of their financial statements, information about their risk management.20

Licensed insurers21 are required to establish enterprise risk management frameworks that inter alia identifies and quantifies all reasonably foreseeable and relevant material risks to which they are or are likely to become exposed. They must also have risk management policies outlining how all relevant and material categories of risk are managed, both in their business strategies and day-to-day operations, and risk tolerance statements.22 Licensed insurers23 must make annual public disclosures of their enterprise risk management framework and qualitative and quantitative information on all their reasonably foreseeable and relevant material insurance risk exposures, and the management of such risk exposures.24 MAS had also subjected insurers to climate change-related risk in its 2018 industry-wide stress test.25

Licensed fund management companies ("LFMCs") and registered fund management companies ("RFMCs") are respectively required to put in place a risk management framework to identify, address and monitor the risks associated with customers' assets that they manage, which is appropriate to the nature, scale and complexity of the assets.26 Real estate investment trust ("REIT") managers are also required to identify, address and monitor the risks associated with their business activities in a manner that is commensurate with their nature, scale and complexity.27

Companies may have to include in their financial reporting, environmental risks that have a significant financial impact on their performance, reputation or relationships, eg, if asset values are affected by environmental impairment, or provisions have to be made for environmental expenditures or liabilities. Singapore Exchange-listed companies, including FIs, are also required, on a comply or explain basis, to submit annual sustainability reports setting out their material environmental, social, and governance risks and opportunities, and how these are being managed.28

The Proposed Guidelines

The proposed guidelines thus expand on and deepen existing expectations and standards of good practice vis-à-vis risk management by setting out the MAS' explicit supervisory expectations on environmental risk, with a view to enhancing FIs' resilience to environmental risk and strengthening the financial sector's role in supporting the transition to an environmentally sustainable economy, in Singapore and in the region.

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1. MAS, Consultation Paper on Proposed Guidelines on Environmental Risk Management for Banks (25 June 2020) (

2. MAS, Consultation Paper on Proposed Guidelines on Environmental Risk Management for Insurers (25 June 2020) (

3. MAS, Consultation Paper on Proposed Guidelines on Environmental Risk Management for Asset Managers (25 June 2020) (

4. MAS, "Sustainable Finance" (

5. "Green Finance for a Sustainable World" - Keynote Speech by Mr Ong Ye Kung, Minister for Education, Singapore and Board Member, Monetary Authority of Singapore, at SFF x SWITCH 2019 on 11 November 2019" (

6. According to the United Nations Environment Programme ("UNEP"), global emissions must fall by 7.6% every year from now until 2030 to achieve a 66% probability of staying within the 1.5oC temperature goal of the Paris Agreement and avoid catastrophic climate change. See UNEP, Emissions Gap Report 2019 (2019) ( For comparison, it is estimated that even with the COVID-19 pandemic, global emissions for 2020 will only be reduced by only between 4.2% and 7.5%. See Corinne Le Quere, et al, "Temporary Reduction in Daily Global CO2 Emissions During the COVID-19 Forced Confinement" (2020) Nature Climate Change 10:647 ( 

7. NGFS, "Origin and Purpose" (

8. NGFS, "Membership" (

9. NGFS, A Call for Action: Climate Change as a Source of Financial Risk (April 2019) (

10. TCFD, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017) (

11. NGFS, Guide for Supervisors: Integrating Climate-related and Environmental Risks into Prudential Supervision (May 2020), p 5 (

12. See NGFS, NGFS Climate Scenarios for Central Banks and Supervisors (24 June 2020) (; and NGFS, Guide to Climate Scenario Analysis for Central Banks and Supervisors (24 June 2020) (

13. PRA, Supervisory Statement SS3/19 on Enhancing Banks' and Insurers' Approaches to Managing the Financial Risks from Climate Change (April 2019) (

14. HKMA, White Paper on Green and Sustainable Banking (June 2020) (

15. Joris van Toor, et al, Indebted to Nature: Exploring Biodiversity Risks for the Dutch Financial Sector

(De Nederlandsche Bank & Planbureau voor de Leefomgeving, June 2020) (

16. TNFD, "Bringing Together a Task Force on Nature-related Financial Disclosures" (

17. MAS, Guidelines on Risk Management Practices - Board and Senior Management (March 2013) (

18. MAS, Guidelines on Risk Management Practices - Board and Senior Management (March 2013) (

19. MAS, Guidelines on Risk Management Practices - Board and Senior Management (March 2013) (

20. MAS Notice 608 on Disclosure in Financial Statements (1 March 2006) (

21. Other than captive insurers and marine mutual insurers.

22. MAS Notice 126 Enterprise Risk Management for Insurers (last revised 5 March 2020) ( In MAS, Guidance On Insurers' Own Risk and Solvency Assessments (July 2017) (, the MAS urged insurers to give greater attention to emerging risks such as environmental risk when identifying and assessing mandatory risks under MAS 126. See also MAS, Guidelines on Risk Management Practices for Insurance Business - Core Activities (March 2013) (; and MAS Notice 125 on Investments of Insurers (last revised 22 April 2013) (

23. Except for captive insurers, marine mutual insurers and run-off insurers.

24. MAS Notice 124 on Public Notice Disclosure Requirements (last revised 19 December 2018) (

25. MAS, "Greening the Financial System" (

26. See regulations 13(B)(1)(a) and 54A of the Securities and Futures (Licensing and Conduct of Business) Regulations Cap 289, RG10 (2004 Rev Ed) ("SF(LCB)R").

27. See rg 13 of the SF(LCB)R.

28. Rules 711A and 711B, SGX Mainboard Rules and Catalist Rules.

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