Singapore plans to include a broader range of climate change-related risks in a future stress test of its financial industry, a government minister said.
The Monetary Authority of Singapore plans to issue a consultation paper during the first quarter on environmental risk guidelines for various financial institutions, Ong Ye Kung said Tuesday in a written reply to a parliamentary question.
Global central banks are increasingly involved in the debate over climate change, particularly through the Network for Greening the Financial System, of which the MAS is a founding member. In 2019, the group created a set of guidelines that urges peers to price in climate change risk when regulating financial companies and to invest with sustainability goals in mind for their own portfolios.
Last year, the Bank of England published a discussion paper on stress tests planned for 2021 saying it will examine the effect on its financial institutions of three possible scenarios: an abrupt transition to lower emissions, a smooth transition, and a world with no transition whatsoever where physical risks are higher.
The MAS “takes climate change-related risks seriously as a financial supervisor,” Ong said. “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.”
The MAS has already started to stress test for climate risks, Ong said. For example, in its 2018 test, it subjected insurers to a scenario involving extreme flooding, requiring them to consider the impact on their balance sheets of higher claims from damage to property,