MAS eyes financial sector transition plans, discourages divestment

The Monetary Authority of Singapore (MAS) is preparing supervisory expectations on transition planning by financial institutions, according to a statement published on Thursday.

The central bank said it recognises that “a short-term increase in financed emissions may arise due to actions supporting longer-term climate positive outcomes” but that financial institutions “should not indiscriminately de-risk from particular sectors”.

Financial institutions should instead assess client transition plans and only provide transition finance when the plans are found to be credible, said MAS.

The MAS directive will cover the governance framework of financial institutions and their client engagement process on managing climate-related financial risks and the green transition. A consultation paper on the topic is due to be released later this year.

MAS has been contacted for more details regarding the initiative.

The supervisor also announced an upcoming financial sector initiative to scale voluntary carbon markets, transition finance and blended finance.

The new grouping will be called the Singapore Sustainable Finance Association (SSFA) and will include representatives from financial institutions, trade bodies and service providers such as ESG rating agencies.

The announcement comes soon after MAS confirmed the inclusion of coal plant phase-outs as a green activity under Singapore’s upcoming taxonomy.

Global supervisory and regulatory bodies are increasingly paying attention to transition planning for both financial and non-financial sectors. Climate central banking body the NGFS, which is chaired by outgoing MAS managing director Ravi Menon, recently published a global stocktake of transition planning best practice and its relevance to central bank mandates.

Separately, the European Commission (EC) is expected to propose ways of integrating transition finance elements into its existing sustainable finance regulatory framework, as part of a broader ESG policy package which will be released on Tuesday.

Sustainable finance thinktank E3G has suggested that the release could recognise transition activities which will be taxonomy-aligned within a five-year period or longer, and could position the taxonomy as a benchmark to assess entity investment plans.

It also expects efforts by the EC to link transition finance to the EU’s upcoming corporate reporting regime, the EU Green Bond Standard, and banking reporting and prudential rules.