The Monetary Authority of Singapore has introduced new supervisory guidelines requiring banks, insurers and asset managers to embed climate transition planning within their core risk management frameworks. The move expands the regulator’s Environmental Risk Management framework first introduced in 2020 and signals a more structured approach to managing climate-related financial risks.

The new rules clarify supervisory expectations on how institutions should assess both physical climate risks and transition risks arising from the global shift toward lower-carbon economies. Implementation will take effect in September 2027 following an 18-month transition period.

 

Embedding Transition Planning into Risk Governance

 

Under the updated framework, financial institutions are expected to treat climate transition planning as an integral component of governance, risk management and long-term strategy. This includes evaluating how decarbonisation pathways, policy shifts and technological disruption could affect asset values, credit exposures and underwriting performance.

Institutions must assess exposures to sectors facing structural transition pressures, including energy, transport and heavy industry. MAS emphasises that assessments should be proportionate to an institution’s size, complexity and risk profile.

The regulator also expects firms to strengthen internal capabilities in climate risk analytics. As data quality, modelling techniques and scenario methodologies continue to evolve, institutions are required to enhance measurement tools and improve forward-looking risk assessments rather than relying solely on historical indicators.

 

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Client Engagement Over Abrupt Withdrawal

 

A central feature of the guidance is the emphasis on engagement rather than rapid divestment. MAS cautions against indiscriminate withdrawal of financing, insurance coverage or investment from carbon-intensive sectors without thorough risk evaluation.

Instead, financial institutions are encouraged to engage customers and investee companies to understand their transition strategies, emissions pathways and risk exposures. The regulator views structured engagement as a means to support orderly decarbonisation while preserving financial stability.

Institutions are advised to apply a materiality-based approach when gathering climate data, focusing on areas where risk concentrations are most significant. This reflects an effort to balance prudential oversight with practical implementation constraints.

 

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Sector-Specific Supervisory Expectations

 

MAS has issued tailored guidance for banks, insurers and asset managers to reflect differences in business models and exposure channels. For banks, transition risk may manifest through credit quality and collateral valuation. For insurers, underwriting and investment portfolios are key channels. Asset managers face portfolio construction and fiduciary