SINGAPORE: The Monetary Authority of Singapore (MAS) will be issuing a consultation paper on environmental risk management guidelines for various financial institutions in the first quarter of this year, said Education Minister Ong Ye Kung in Parliament on Tuesday (Feb 4).
Mr Ong, who is also a MAS board member, said the financial regulator takes climate change-related risks “seriously” and is a founding member of the Network for Greening the Financial System, which develops best practices for a more sustainable financial industry.
“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 said.
There are also risks arising from changes to public policies, technologies, or consumer preferences that can impact businesses significantly, the minister added.
“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.”
Mr Ong was responding to a parliamentary question from Nee Soon GRC MP Louis Ng, who wanted to know if the Government plans to include climate risk, particularly climate change-related risk, in the MAS annual industry-wide stress test.
Doing so would be in line with what the Bank of England is doing and what the International Monetary Fund (IMF) recommends for central banks, Mr Ng’s question added.
In his reply, Mr Ong said the MAS has already started to stress test for climate change-related risks.
For example, in its 2018 test, it subjected insurers to a scenario featuring extreme flooding, requiring them to consider the impact of higher claims on their balance sheets arising from damage to insured properties.
But the methodologies for stress testing climate change-related risk are still at a nascent stage, said Mr Ong citing sentiments from international regulators.
“The Bank of England … acknowledged that central banks and the financial sector are still building capacity to model financial risks arising from climate change,” he said.
“The IMF too is working to improve its climate change-related stress scenarios.”
In Singapore, MAS is working towards incorporating a broader range of climate change-related risks in thematic scenarios as part of its future industry-wide stress test, said Mr Ong.