While the US is still debating whether financial institutions should be allowed to consider ESG factors, other countries are making such considerations mandatory. Most recently, the Monetary Authority of Singapore (MAS) issued three new guidelines on environmental risk management. These include requirements for financial institutions to assess and manage transition and climate-related risks. A press release from MAS states:
“The Guidelines support FIs in building effective risk assessment and risk management capabilities for better resilience against climate-related risks. FIs should establish a transition planning process in a risk proportionate manner, taking into consideration various factors, such as the risk profile of their business models and the local circumstances of their business operations. In particular, MAS expects FIs to:
- Assess and manage the risks associated with both physical and transition risks arising from climate change by adapting their business models, governance and risk management practices in a forward-looking manner;
- Engage their customers and investee companies to better understand the climate-related risks they face and their management of such risks, so as to avoid the indiscriminate withdrawal of credit, insurance coverage, or investments, and support broader financial stability. In doing so, FIs should consider the risk materiality of their customers and investee companies when collecting data; and
- Keep pace with the development of knowledge and capabilities relating to the measurement and management of climate-related risks, as data and methodologies around the understanding of such risks continue to improve.”
Singapore’s geography makes it particularly vulnerable to climate-related disruptions. As a low-lying island nation, rising sea levels and severe weather events pose serious threats to the country. As countries closest to climate impacts grapple with environmental risk management, we should take note. In today’s interconnected global economy, climate risks anywhere can impact supply chains and disrupt operations.
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