MAS encourages engagement over divestment in net zero transition


The Monetary Authority of Singapore (MAS) has issued consultation papers outlining guidelines for net zero transition planning for FIs. 

According to ESG Today, one of the primary expectations set forth in these guidelines is for institutions to adopt an engagement approach rather than a divestment strategy. This means financial bodies should actively collaborate with their customers and portfolio companies to address climate-related risks and work together to decrease their carbon footprint.

MAS emphasises that indiscriminate divestment from carbon-intensive sectors might hinder the world’s progression towards a net-zero state, as many sectors that are carbon-intensive are pivotal for global economic growth and employment.

MAS suggests financial institutions adopt a long-term perspective when planning their transition, which may exceed the usual financing or investment timelines. This recommendation stems from the understanding that the realisation of physical and transition risks associated with climate change will occur over extended periods.

Financial entities should adopt a comprehensive risk strategy, considering not only climate-related risks but also other environmental threats like biodiversity loss and the depletion of natural resources.

To maintain transparency, financial institutions are advised to disclose pertinent information to stakeholders. This information should provide insights into the institutions’ responses to significant climate-related threats and their governance and strategies to manage these risks.

MAS Managing Director Ravi Menon said, “Indiscriminate divestment from carbon-intensive activities will not get us to a net-zero world. A large part of the global economy depends on such activities for growth and jobs. Rather, financial institutions must actively support their borrowers, insured parties, and investee companies to progressively decarbonise their activities through credible transition plans.”

Menon added, “We may have to accept short-term increases in financed, facilitated, or insurance-associated emissions arising from these plans provided these plans support climate positive outcomes consistent with a net-zero pathway. Regulators must support financial institutions in such efforts. This is why MAS is taking the lead in setting clear supervisory expectations on transition planning for our financial institutions.”

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