Singapore’s financial regulator is stepping up its push for climate risk preparedness, setting new supervisory expectations for banks, insurers and asset managers to strengthen how they plan for the transition to a low-carbon economy.

The Monetary Authority of Singapore ( MAS ) issued three new guidelines on environmental risk management transition planning, outlining how financial institutions ( FIs ) should assess and manage both physical and transition risks linked to climate change.

The new framework supplements MAS’ environmental risk management guidelines first introduced in 2020 and will come into effect in September 2027 following an 18-month transition period.

The guidance is intended to strengthen the financial sector’s resilience to climate-related disruptions, the regulator says, while ensuring institutions can support their clients’ own transition pathways.

Under the new expectations, financial institutions will need to adopt more forward-looking approaches to risk management, including integrating climate considerations into governance, business models and portfolio oversight.

Institutions are also expected to engage more actively with customers and investee companies to better understand their climate risks and mitigation strategies 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.

Transition planning, the MAS also emphasizes, should be carried out in a risk-proportionate manner, reflecting the size, complexity and risk profile of each institution’s activities, as well as local operating conditions.

“These guidelines support FIs in building their risk management capabilities in response to both physical and transition risks,” notes Ho Hern Shin, the MAS’ deputy managing director for financial supervision. “The financial sector plays an important role in supporting customers as they navigate the risks from climate change. By engaging their customers and investee companies in a risk proportionate manner, FIs can build better resilience to risks and support broader financial stability.”

The guidance reflects a growing focus among global regulators on ensuring the financial system is equipped to navigate climate transition risks.

In Asia, where climate vulnerability and economic growth overlap, financial institutions are increasingly expected to integrate environmental risk analysis into capital allocation and portfolio management.

Stronger climate risk frameworks, industry observers note, could also help unlock new areas of sustainable finance.

The mobilization of capital towards nature-based solutions and ecosystem restoration, for example, is expected to become a significant investment theme across Asia, with potential annual business opportunities in the region estimated at US$4.3 trillion by 2030.

The new guidelines, the MAS notes, were developed following public consultation and engagement with industry participants, with separate frameworks tailored to the differing business models of banks, insurers and asset managers.