MAS looking to issue environmental risk management paper to financial institutions in 2020 Q1


Education Minister Ong Ye Kung announced in Parliament on Tuesday (4 Feb) that the Monetary Authority of Singapore (MAS) is looking to issue to various financial institutions a consultation paper addressing environmental risk management guidelines in Q1 of this year.

Mr Ong, who is both the founding member of the Network for Greening the Financial System as well as a board member of MAS, remarked that financial regulators takes climate change risks “seriously”. The Network is also responsible for ensuring a more sustainable financial industry by developing best practices in line with that goal.

“Financial institutions are potentially exposed to such risks, because they provide financing and insurance services to businesses that can be impacted by a wide range of climate change-related events, including natural catastrophes,” he added.

According to Mr Ong, businesses can also be significantly impacted by risks coming from changes in consumer preferences, public policies and technologies: “Climate change is therefore increasingly relevant to financial institutions, both because the risks will be on their balance-sheets and because they will play a role in enabling their customers and the economy at large to make a transition – here in Singapore as well as abroad.”

He was replying to the query by Nee Soon GRC MP Louis Ng about whether the government has plans to incorporate climate and climate-related risks within the annual industry-wide stress test conducted by MAS.

Mr Ng pointed out that including climate risks in the stress test is similar to what the Bank of England is doing, which is also what the International Monetary Fund recommends central banks to do.

Climate change-related risks have already been incorporated into the stress test by MAS, Mr Ong mentioned in his reply. In 2018, the stress test that was carried out saw insurers being subjected to an extreme flooding scenario which brought about damages to insured properties. Insurers then had to deal with the hit on their balance sheets due to the increased claims.

In light of this, the methodologies adopted in stress testing climate change-related risk are still in the early developmental stages based on the sentiments from internal regulators, Mr Ong noted.

“The Bank of England…acknowledged that central banks and the financial sector are still building capacity to model financial risks arising from climate change…The IMF too is working to improve its climate change-related stress scenarios,” he concluded.

In the case of Singapore’s future industry-wide stress test, a broader scope of climate change-related risks will be included in the thematic scenarios by MAS.

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