The forthcoming guidelines will set supervisory expectations to steer financial institutions’ transition planning processes to facilitate decarbonisation efforts by their clients.

By Paul A. Davies, Farhana Sharmeen, Michael D. Green, and Shi Cheng Chong 

On 8 June 2023, the Monetary Authority of Singapore (MAS) announced that it will set guidelines to steer financial institutions’ transition planning processes to facilitate, in turn, their clients’ credible decarbonisation efforts.

The guidelines will cover financial institutions’ governance frameworks and client engagement processes in order to manage climate-related financial risks and enable transition towards net zero.

In particular, MAS highlights that financial institutions should not indiscriminately de-risk from particular sectors. Instead, financial institutions should assess the relevant client’s transition plans and provide the financing needed for transition provided that such plans are credible. Mr. Tharman Shanmugaratnam, Senior Minister and Coordinating Minister for Social Policies, and Chairman of MAS, noted the need to incentivise financial institutions and their customers to support longer-term climate-positive outcomes. Such incentives may involve short-term increases in the financial institutions’ financed emissions as a result of actions supporting longer-term climate-positive outcomes.

Additionally, MAS announced that it will work with the financial industry to establish the Singapore Sustainable Finance Association (SSFA). The SSFA will include representatives from financial institutions, financial industry associations, relevant corporates, and service providers such as ESG rating agencies in order to build a vibrant ecosystem for green and transition finance. The SSFA will initially focus on initiatives to scale voluntary carbon markets, transition finance, and blended finance.

Next Steps

MAS has noted that a consultation paper on the guidelines on credible transition planning will be issued later this year.

Latham & Watkins will continue to monitor developments in this area.