Singapore’s financial regulator will set supervisory expectations to guide financial institutions and their clients in their decarbonization efforts.

The guidance on transition planning will cover financial institutions’ governance frameworks and client engagement processes to manage climate-related financial risks and enable transition in the real economy towards net zero, the Monetary Authority of Singapore (MAS) says.

Speaking at an industry conference in the city-state, senior minister and MAS chairman Tharman Shanmugaratnam highlights the need for financial supervisors to motivate financial institutions and their customers to bring forward their actions to support longer-term climate-positive outcomes.

Financial institutions working with clients on green and transition finance should not indiscriminately de-risk from particular sectors, Shanmugaratnam says, but instead carefully assess clients’ transition plans and provide the needed financing for transition where the plans are credible.

In reviewing financial institutions’ implementation of transition plans, the regulator says it will recognize that a short-term increase in financed emissions may arise due to actions supporting climate-positive outcomes in the longer term.

The MAS, together with the financial industry, will establish the Singapore Sustainable Finance Association (SSFA) to build an ecosystem for green and transition finance.

The SSFA will include representatives from financial institutions, financial industry associations, relevant corporates and service providers such as ESG rating agencies. The Association of Banks in Singapore is leading the coordination and setting up of the SSFA.

The new association will initially focus on actions to scale voluntary carbon markets, transition finance, and blended finance.