The Monetary Authority of Singapore (MAS) has issued new supervisory guidelines requiring banks, insurers and asset managers to incorporate climate transition planning into their risk management frameworks.
The new Guidelines on Environmental Risk Management – Transition Planning outline how financial institutions should assess and manage climate-related risks linked to both physical climate impacts and the global shift toward low-carbon economies.
MAS said the guidelines are designed to strengthen the resilience of Singapore’s financial system by ensuring that financial institutions proactively evaluate how climate change could affect their operations, portfolios and long-term strategies.
The new framework expands on MAS’ Environmental Risk Management guidelines introduced in 2020, which first established expectations for financial institutions to address environmental and climate risks.
Under the updated guidance, institutions must take a more structured and forward-looking approach to climate transition planning as part of their governance, risk management and business strategy processes.
The rules will take effect in September 2027, following an 18-month transition period intended to give financial institutions time to build systems, analytical tools and governance structures needed to comply with the new requirements.
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Climate Risk Becomes a Core Financial Risk
The new MAS guidelines reflect a growing recognition among global financial regulators that climate change represents a significant financial stability risk.
As climate policies tighten and economies transition toward lower carbon energy systems, financial institutions increasingly face risks linked to both environmental events and the economic impacts of decarbonisation.
MAS expects financial institutions to assess two major categories of climate risk:
Physical risks, which arise from climate-related events such as extreme weather, flooding, heatwaves and rising sea levels.
Transition risks, which result from the economic adjustments associated with reducing greenhouse gas emissions, including changes in regulation, market preferences, technology and energy systems.
The regulator said financial institutions should incorporate these risks into their broader risk management frameworks and evaluate how they could affect business models, investment portfolios and lending exposures over time.
MAS said financial institutions must adopt a forward-looking perspective, recognising that climate risks will evolve as global decarbonisation policies and technologies develop.
Transition Planning Moves to the Center of Risk Management
A central element of the new guidelines is the introduction of structured climate transition planning.
MAS expects financial institutions to evaluate how their business activities and financial exposures could be affected by the transition to a lower-carbon economy.
This includes assessing exposures to sectors facing structural transition pressures such as:
- Energy production
- Transportation
- Heavy industry
- Infrastructure and construction
- Agriculture and natural resource industries
Institutions must evaluate whether their portfolios are exposed to industries that could face declining demand, higher regulatory costs or technological disruption as climate policies evolve.
MAS said financial institutions should develop transition plans that consider how they will manage these exposures while maintaining financial resilience.
The regulator emphasized that transition planning should be proportionate to the size and risk profile of each institution.
Larger institutions with complex portfolios may require more sophisticated climate analytics and scenario modelling, while smaller firms may adopt simpler approaches aligned with their operational scale.
MAS also encouraged institutions to strengthen internal capabilities to measure climate risks as data availability and modelling techniques continue to improve.
Client Engagement Encouraged Instead of Abrupt Divestment
Another key feature of the guidelines is MAS’ emphasis on engagement with clients and portfolio companies rather than sudden financial withdrawal from carbon-intensive sectors.
MAS said abrupt divestment could create unintended economic disruption and potentially weaken financial stability.
Instead, the regulator encourages financial institutions to engage actively with clients and investee companies to better understand their climate exposures and transition strategies.
This engagement could involve discussions on decarbonisation pathways, emissions reduction targets and long-term climate resilience strategies.
By working with clients rather than withdrawing funding immediately, financial institutions may help facilitate a more orderly transition to a lower-carbon economy.
MAS also recommended that institutions take a risk materiality approach when collecting climate-related data, focusing efforts on exposures where climate risks are most significant.
Strengthening Climate Risk Expertise
MAS acknowledged that climate risk measurement remains an evolving discipline, with data limitations and methodological challenges still present across the financial industry.
As a result, the regulator is encouraging financial institutions to continue building internal expertise in climate risk analytics.
This may involve developing capabilities in areas such as:
- Climate scenario analysis
- Portfolio emissions measurement
- Transition risk modelling
- Climate stress testing
- Data collection and reporting frameworks
MAS said institutions should continuously update their methodologies as climate science, economic modelling and regulatory expectations evolve.
The regulator also highlighted the importance of strong governance structures to oversee climate risk management.
Financial institutions are expected to integrate climate considerations into board-level decision-making, risk management committees and strategic planning processes.
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Separate Guidance for Banks, Insurers and Asset Managers
Recognising that climate risks affect different parts of the financial sector in distinct ways, MAS issued separate sets of guidelines for banks, insurers and asset managers.
Each framework reflects the different ways climate risks can affect financial institutions depending on their business models.
For banks, the guidelines focus on managing climate risks within lending portfolios and evaluating exposure to carbon-intensive sectors.
Banks are expected to assess how climate policies and technological changes could affect borrowers’ ability to repay loans.
For insurers, the guidance addresses risks associated with underwriting climate-related damages, such as property losses linked to extreme weather events.
Climate change could increase insurance claims and affect pricing models, requiring insurers to reassess their exposure to climate-sensitive risks.
For asset managers, the guidelines focus on integrating climate considerations into investment strategies and portfolio management processes.
Asset managers are encouraged to engage with investee companies on climate transition plans and emissions reduction strategies.
MAS said the differentiated approach reflects the need to tailor climate risk frameworks to the operational realities of each financial sector.
Policy Developed Through Industry Consultation
The guidelines were developed following a public consultation process and extensive engagement with financial institutions operating in Singapore.
MAS said feedback from industry stakeholders helped shape the final framework.
The regulator acknowledged that many financial institutions have already begun integrating climate risk considerations into their risk management processes.
The new guidance aims to standardize expectations across the financial sector while allowing flexibility for institutions to adapt the framework to their specific business operations.
MAS said the 18-month transition period will allow firms to implement the necessary systems and governance structures before the rules take effect in 2027.
Financial Sector Seen as Key to Climate Transition
MAS officials emphasized that the financial sector plays a critical role in supporting the broader economic transition toward a lower-carbon future.
Ho Hern Shin, Deputy Managing Director for Financial Supervision at MAS, said the guidelines are intended to strengthen the financial sector’s ability to manage climate risks while supporting economic stability.
“These guidelines support financial institutions in building their risk management capabilities in response to both physical and transition risks,” Ho said.
“The financial sector plays an important role in supporting customers as they navigate the risks from climate change.”
She added that engagement between financial institutions and their clients could help improve resilience across the broader economy.
“By engaging their customers and investee companies in a risk-proportionate manner, financial institutions can build better resilience to risks and support broader financial stability,” she said.
Singapore Strengthens Role in Sustainable Finance
The introduction of the transition planning guidelines also reflects Singapore’s broader efforts to position itself as a leading hub for sustainable finance.
Singapore has been actively developing policies aimed at integrating climate risk considerations into financial markets and strengthening the resilience of its financial system.
MAS has previously launched initiatives supporting green finance, climate risk disclosure and sustainable investment frameworks.
The regulator has also participated in global financial initiatives focused on climate risk management, including international regulatory networks and sustainable finance collaborations.
The new transition planning guidelines represent another step in aligning Singapore’s financial sector with evolving global climate risk management standards.
Outlook
The introduction of the new MAS transition planning guidelines highlights how climate change is increasingly being treated as a core financial stability issue rather than solely an environmental concern.
Across the world, financial regulators are strengthening expectations for how banks, insurers and asset managers assess climate risks and prepare for the economic transition toward lower-carbon energy systems.
By requiring structured climate transition planning, MAS is seeking to ensure that financial institutions operating in Singapore are better equipped to manage long-term climate risks while supporting broader economic stability.
The guidelines also reflect a broader shift in regulatory thinking toward forward-looking risk assessment, where institutions must evaluate not only current exposures but also potential future disruptions linked to climate policies, technological change and market transformation.
As global climate policies continue to evolve, financial institutions are likely to face increasing pressure to demonstrate that their portfolios and business models are resilient to climate-related risks.
For Singapore, the new framework represents an effort to maintain the stability of its financial system while strengthening its position as a global center for sustainable finance.
The coming years will show how effectively financial institutions integrate climate transition planning into their risk management systems and whether such regulatory frameworks can help smooth the economic transition toward a lower-carbon global economy.
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By: Rosemary Wambui
10th March 2026
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