Singapore’s central bank issued new supervisory guidelines requiring banks, insurers and asset managers to strengthen how they assess and manage risks tied to climate change, as regulators sharpen their focus on the financial sector’s readiness for both physical and transition threats.
The Monetary Authority of Singapore (MAS) said the three Guidelines on Environmental Risk Management – Transition Planning set out its expectations for financial institutions to build more robust processes for dealing with climate-related risks across their businesses and portfolios.
The new guidance, issued separately for banks, insurers and asset managers, supplements MAS’ broader environmental risk management guidelines introduced in 2020.
The regulator said the latest addendum is aimed at helping financial institutions improve risk assessment and risk management capabilities as climate-related pressures intensify.
Under the guidelines, financial institutions are expected to establish transition planning processes in a risk-proportionate way, taking into account factors such as the risk profile of their business models and the local circumstances of their operations.
MAS said firms should assess and manage both physical risks, such as those arising from extreme weather and longer-term environmental shifts, and transition risks linked to the global move toward a lower-carbon economy.
That will require institutions to adapt their business models, governance frameworks and risk management practices in a more forward-looking manner.
The regulator also signaled that lenders, insurers and investors should work more closely with customers and investee companies to understand their exposure to climate-related risks and how they are managing them.
MAS said such engagement is intended to reduce the risk of blanket pullbacks in credit, insurance coverage or investment, which could undermine broader financial stability.
At the same time, MAS said financial institutions should take a proportionate approach when gathering data, considering the materiality of risks faced by customers and investee companies.
The central bank added that firms are expected to keep pace with evolving knowledge and capabilities in measuring and managing climate-related risks, especially as data quality and analytical methods continue to improve.
The guidelines reflect differences in business models across banks, insurers and asset managers, and incorporate feedback from an earlier public consultation and industry engagement, MAS said.
The rules will take effect in September 2027, giving the industry an 18-month transition period to prepare.
“These guidelines support FIs in building their risk management capabilities in response to both physical and transition risks,” Ho Hern Shin, MAS deputy managing director for financial supervision, said in a statement.