Singapore Regulator Issues New Guidelines on Environmental Risk Management – Transition Planning
Introduction
On 5 March 2026, the Monetary Authority of Singapore (“MAS”) issued three new Guidelines on Environmental Risk Management – Transition Planning (the “Guidelines”) setting out its supervisory expectations for banks, insurers and asset managers respectively (collectively, “FIs”) to manage climate-related transition and physical risks as part of a sound transition planning process. The Guidelines build on existing expectations for FIs set out in the Guidelines on Environmental Risk Management issued in 2020[1] and will take effect from September 2027, following an 18-month transition period.
What is Transition Planning?
The Guidelines define "transition planning" as the internal risk management processes and strategic planning undertaken by an entity to prepare for climate-related risks and potential changes in business models associated with climate change. A "transition plan" refers to the documented output of this process and may be internal documents or externally disclosed.
Scope of Application
The Guidelines apply to different categories of FIs with tailored expectations based on their activities:
- Banks. The Guidelines are applicable to banks extending credit to corporate customers, underwriting capital market transactions, and other activities that expose banks to material environmental risk. Banks with material investment activities should refer to the relevant sections of the Guidelines for asset managers for sound transition planning practices with respect to investments.
- Insurers. The Guidelines are applicable to insurers providing insurance coverage to corporate customers, insurers’ investment activities, and other activities that expose insurers to material environmental risk.
- Asset managers. The Guidelines are applicable to asset managers which have discretionary authority over the investment portfolios they are managing. If asset managers delegate investment management to sub-managers or advisors, they should communicate their expectations on climate-related risk management to the sub-managers or advisors, and put in place processes to monitor the sub-managers’ or advisors’ alignment with these expectations.
FIs that are branches or subsidiaries of global groups may take guidance from their group’s transition planning as long as the group’s transition planning approach meets the expectations set out in the Guidelines.
Key Objectives
The Guidelines’ primary objective is for FIs to implement sound internal processes that:
- Adequately address climate-related risks. FIs must assess and manage risks associated with both physical and transition risks arising from climate change, as these will ultimately impact traditional risk types such as credit risk, underwriting risk, and market risk. FIs should have a structured, risk-proportionate process to engage customers, asset managers and investees (as applicable) on the material climate-related risks they face and their management of such risks. Where FIs have chosen to set targets, they must have sound internal processes to manage material risks arising from those targets.
- Facilitate climate-related risk management by customers and investees, thereby supporting broader financial stability. Notably, MAS expects FIs to avoid indiscriminate withdrawal of credit, insurance coverage, or investments from customers or investees with higher climate-related risks. Such indiscriminate action could increase the risk of stranded assets, widen protection gaps (in the case of insurers), and contribute to a disorderly transition detrimental to the financial system.
Governance and Strategy
The Guidelines place significant emphasis on board and senior management accountability. Decisions made by the Board of Directors (the “Board”) and senior management around business strategy and risk appetite should consider how current and future changes in the operating environment arising from climate change will impact the FI's risk profile. The Board is responsible for ensuring that the FI's risk appetite, framework, and policies adequately address business strategy and risks as the FI navigates climate-related changes.
Senior management should actively ensure that climate-related business strategy and risk appetite are effectively embedded within operations, including by establishing a robust governance process covering key climate-related assumptions, dependencies, and residual risks. FIs should establish a clear tone from the top around the need to address climate-related risks, clear lines of communication and escalation across functions to address climate-related risks, consistency between internal strategies and risk appetite statements and publicly communicated climate-related strategies and commitments, and mechanisms to align internal behaviour to address climate-related risk (such as through performance measurement, remuneration policy, and incentive structures).
Transition planning should be viewed as an iterative process, with FIs regularly reviewing their approach, risk appetite, and risk framework for continued appropriateness and effectiveness, while incorporating industry developments and emerging best practices in a timely manner.
Risk Management Requirements
Customer Engagement
For banks and insurers, customer engagement is positioned as a means to manage climate-related risks arising from its exposures to its customers. Banks and insurers should have a structured process to engage customers on climate-related risks they face and their responses, encouraging customers identified as vulnerable to transition and/or physical risks to proactively manage these risks.
Banks and insurers should engage customers on a risk-proportionate basis, this may include adjusting frequency and intensity of engagement in relation to the level of risk posed by the customer. Climate-related risk data collection should likewise be proportionate, with banks and insurers differentiating the extent and granularity of climate-related risk data collected based on risk materiality, with small- and medium sized enterprise SME customers potentially subject to lesser data collection requirements than large customers posing material climate-related risks.
FIs should not indiscriminately divest or withdraw financing, insurance coverage or investments (as applicable) from customers or investees with exposure to higher climate-related risks.
Engagement and Stewardship
For asset managers specifically, active engagement and stewardship is positioned as a means to facilitate risk management measures taken by investee companies, thereby mitigating portfolios' exposure to climate-related risks. Asset managers should develop engagement and stewardship plans with clear objectives and define its approach towards engagement and stewardship and equip its staff to effectively engage investee companies by ensuring that they have sufficient understanding of sectoral and jurisdictional specificities and developments. Asset managers should have a structured process to engage investee companies on the climate-related risks they face and their responses to such risk, encouraging those identified as vulnerable to transition and/or physical risks to proactively manage these risks. Engagement should be conducted on a risk-proportionate basis, with adjustments in frequency and intensity of engagement in relation to the level of risk posed by the investee company.
Portfolio Management and Sectoral Approaches
FIs should account for sectoral specificities and take differentiated approaches for sectors posing higher climate-related risks in transition planning. FIs should also factor in different counterparty characteristics, including different levels and sources of climate-related risks and different stages of readiness, and its jurisdictional operating environments. Where customers or sectors are exposed to high physical risk, banks and insurers should consider these risks at an appropriate level of granularity. Asset managers can consider the adequacy of an investee company’s actions in managing climate-related risks (including from their respective supply chains) and the exposure of an investee company to transition and physical risks over the short-, medium-, and long-term.
Forward-Looking Risk Assessment Tools
FIs are expected to employ forward-looking tools such as scenario analysis and stress testing in its transition planning process for risk discovery and quantification. The impact of climate-related risks on portfolios should be considered under a range of plausible scenarios, with results incorporated into planning and risk management processes so as to trigger appropriate management actions. For banks and insurers specifically, this includes incorporation into internal capital adequacy assessment processes. FIs should continue developing capabilities in climate scenario analysis and stress testing, referencing leading industry practices where possible. Climate risk modelling frameworks should be developed for different asset classes with appropriate granularity and for varying time horizons.
Data and Metrics
FIs should recognise the inherent limitations of proxy data to bridge data gaps when performing climate-related risk assessments and document decisions on proxy data choices, including sources, assumptions, methodologies, and limitations. The use of proxy data should not detract from longer-term efforts to obtain primary data that is more decision-useful.
FIs should utilise metrics to track risk exposures and determine alignment with its risk appetite (for banks and insurers) or its business strategy and the portfolios’ investment strategies (for asset managers), and associated targets where relevant. In selecting metrics, FIs should clearly identify scope and coverage, consider business and risk profile at appropriate granularity, recognise metric limitations, monitor metrics with a multi-year risk perspective, and review risk metrics periodically for continued relevance.
FIs should also consider the impact of any targets set or lack thereof on its business strategy and risk profile (or risk profile of the investment portfolio that it manages, in the case of asset managers), with residual risks identified and addressed. Where FIs have published decarbonisation targets, they should clearly identify and calibrate the customer segments, investment segments and/or the portfolios (as applicable) in scope, take a multi-year perspective by supplementing point-in-time data, assess whether targets could impact overall risk profile, and regularly review targets for continued relevance.
Implementation Strategy
FIs should equip staff with adequate expertise through capacity building and training to assess, manage, and monitor climate-related risks. Regular review of internal governance and processes, including risk management frameworks, is expected to enable systematic management of climate-related risks.
FIs should develop and implement a data strategy to build, maintain, and analyse relevant climate-related data. Systems should be in place to reliably collect, aggregate, and provide accessibility of relevant climate-related data across the organisation, with mechanisms to facilitate improvement of data-related processes over time. As data availability and quality improve over time, FIs should build systems and processes capable of accommodating future enhancements.
Practical Implications and Next Steps
MAS has acknowledged that current data and methodology constraints may limit an FIs' ability to implement certain aspects of the transition planning processes in the immediate term. However, this should not deter FIs from making progress, including enhancing data availability. FIs are expected to implement the Guidelines on a risk-proportionate basis and take an iterative approach to enhance transition planning over time.
As capacity, capabilities, and data availability improve, FIs should continue efforts to address environmental risks beyond climate-related risks, recognising that these risks are often interlinked, and to the extent possible consider whether additional data collection and risk management measures to address other environmental risks may be needed.
Given the Guidelines take effect from September 2027, FIs operating in Singapore should take several steps to prepare for compliance. These may include commencing gap analyses against the new requirements, reviewing and enhancing governance structures and board oversight arrangements, and developing or refining transition planning processes and documentation. FIs may also look into establishing or strengthening customer/ investee engagement frameworks, investing in data infrastructure and analytical capabilities, and training relevant staff on climate-related risk assessment and management.
[1] Guidelines on Environmental Risk Management for banks , insurers and asset managers .
