MAS publishes net-zero transition planning guide for FIs

The Monetary Authority of Singapore (MAS) has released a series of consultation papers outlining proposed guidelines for transition planning by banks, insurers, and asset managers. These guidelines are aimed at facilitating the global shift toward a net-zero economy.

The “Guidelines on Transition Planning” delineate MAS' supervisory expectations for financial institutions (FIs) to establish robust transition planning processes. These processes are designed to enable effective climate change mitigation and adaptation actions by both their customers and investee companies as part of the worldwide transition to a net-zero economy.

Key expectations outlined by MAS for FIs include:

• Fis are encouraged to prioritise engagement rather than divestment as the primary mechanism for guiding their customers and investee companies through a well-ordered transition
• FIs should adopt a multi-year perspective that extends beyond typical financing or investment timeframes to comprehensively evaluate climate-related risks
• The complexities of risk drivers during the transition to a net-zero economy necessitate an integrated approach
• FIs are advised to incorporate environmental risks, including the loss of nature capital and biodiversity, into their transition planning
• FIs are expected to provide transparent and relevant information to stakeholders, enabling them to comprehend their short-, medium-, and long-term responses to material climate-related risks

The guidelines build upon MAS's existing supervisory guidance to FIs and focus on the strategic planning and risk management processes within these institutions, anticipating both risks and potential changes in business models associated with the transition. While the underlying principles of risk management are similar, the guidelines were developed with an understanding of the diverse business models and requirements of FIs in the banking, insurance, and asset management sectors.

“Indiscriminate divestment from carbon-intensive activities will not get us to a net-zero world. A large part of the global economy depends on such activities for growth and jobs. Rather, financial institutions must actively support their borrowers, insured parties, and investee companies to progressively decarbonise their activities through credible transition plans,” MAS managing director Ravi 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. This is why MAS is taking the lead in setting clear supervisory expectations on transition planning for our financial institutions,” Menon said.

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