How financial institutions can unlock value with transition planning

1. Integration of climate-related risks into governance and business strategy

FIs should update their internal strategies, risk appetite, frameworks and policies to ensure that they are robust and adequately address current and future changes arising from climate change as they navigate to a low-carbon future. Given the evolving nature of climate risk management practices, such business strategies, risk appetite, frameworks and policies should be regularly reviewed and updated as part of the FI’s transition planning to account for new developments and emerging best practices. These internal strategies and risk appetite statements should align with the FI’s publicly stated climate commitments and targets. 

2. Multiyear approach for transition planning 

FIs should adopt a multiyear approach for transition planning that extends beyond conventional financing or investment time frames to enable a comprehensive evaluation of climate-related risks. Point‑in‑time emissions data alone may not reflect future reductions in financed emissions — such as those arising from multiyear investments in carbon‑abatement technologies. In addition, evolving climate policies and technologies can shift transition pathways and reshape customers’ business models and risk profiles. FIs should factor these developments into their evaluation of customer exposures to ensure a forward‑looking and resilient transition strategy.   

3. Prioritization of engagement with customers and investee companies 

Active engagement with customers and investee companies (as well as in-house or external asset managers for insurers) is important to promote the adoption of mitigation and adaptation strategies as FIs transition to a net-zero economy. A key expectation is that FIs should avoid the indiscriminate withdrawal of credit, insurance coverage or investments from sectors deemed to have higher climate-related risks.

Doing so could deprive companies with credible transition plans of financing needed for decarbonization. For more effective engagement, FIs should have differentiated strategies that cater to customers and investee companies exposed to different levels and sources of climate-related risks and at different stages of readiness for climate change. 

4. Usage of forward-looking risk assessment tools 

FIs are encouraged to use a range of forward-looking tools for various areas — such as climate scenario analysis and stress testing — in their transition planning processes for risk discovery and quantification. The TPGs emphasize the importance of integrating such forward-looking results, where material, into decision-making processes. This would allow FIs to proactively identify vulnerabilities, adapt their strategies and align their risk management frameworks with the broader goal of facilitating a smooth transition to a low-carbon economy. This can include adjustments to the internal capital adequacy assessment process, stewardship approaches, sector strategies or product offerings where appropriate. 

5. Robust data implementation strategy

FIs need to develop a comprehensive data implementation strategy that enables them to reliably collect, aggregate, track and provide access to relevant environmental data for effective decision-making. Useful data points could include tracked commitments, assessments of transition and physical risks, and mitigating factors like the status of customers’ plans to address risks.  

As data availability and quality are expected to improve over time, FIs should remain agile and build systems and processes that can readily accommodate future enhancements — such as incorporating new climate-related data points or greater granularity. 

6. Consideration of environmental risks beyond climate-related risks 

FIs should consider environmental risks (such as biodiversity loss) beyond climate-related risks in transition planning . This holistic approach recognizes that various environmental risks are interlinked and could impact one another. 

Banks, asset managers and insurers in Singapore that adopt the TPGs are expected to realize various benefits. 

Expected benefits for banks in Singapore

1. Enhanced risk management 

The TPG for banks helps them systematically assess climate-related risks and integrate them into their broader strategies, frameworks and decision-making processes for improved risk management. Over time, this could help enhance the resilience of banking portfolios in the face of rising climate-related risks. 

2. Enhanced capital deployment

By increasing clarity on climate-related risks and opportunities, the TPG allows banks to direct capital more efficiently into low-carbon activities and sectors. Such enhanced capital deployment would support Singapore’s green finance ambitions and potentially unlock new lines of sustainable lending. 

3. Improved customer engagement and opportunity identification

With clear supervisory expectations, banks are empowered to proactively support and advise customers — especially those in carbon-intensive sectors or exposed to greater risks — on their transition strategies. Importantly, this would facilitate customers’ proactive management of climate-related risks, allowing banks to avoid indiscriminate withdrawal of financing. It would also allow banks to position themselves as trusted partners that work closely with customers to identify and support potential opportunities, such as sustainable financing for customers to adopt climate mitigation and adaptation measures. This would ultimately help safeguard the banking sector’s loan portfolio against future climate-related risks. 

4. Regulatory alignment and reputation

Early compliance with the MAS’s expectations and international best practices could also boost stakeholder confidence, reduce regulatory uncertainty and position banks as leaders in the sustainable finance sector. 

Expected benefits for asset managers in Singapore

1. Greater resilience of funds 

Strengthened environmental risk management through transition planning is expected to build greater resilience in funds managed by asset managers, helping to protect portfolios from future risks linked to the low-carbon transition. 

2. Practical view for effective stewardship

The TPG for asset managers encourages the risk-proportionate adoption of differentiated strategies and approaches for investee companies in different sectors and at different stages of readiness for climate change. Moreover, even for investee companies focused on climate solutions, the TPG cautions that the asset manager should still pay attention to potential correlations, such as uncertainties around technology development and adoption. Such considerations would help asset managers to better manage their legal and reputational risks and enhance long-term value creation. 

3. Increased competitiveness and alignment with global investor expectations 

Global allocators and institutional clients are increasingly demanding robust climate‑risk processes. Adoption of transition planning aligned with expectations from regulators enhances credibility, comparability and transparency — making Singapore asset managers more competitive in attracting global capital. 

Expected benefits for insurers in Singapore

1. Improved long-term risk management

The TPG for insurers provides a framework for them to enhance long-term risk management. Insurers that are able to incorporate climate-linked scenario analysis and stress testing into planning processes will be able to better price their insurance products and manage their underwriting risks over longer time horizons.

2. Product and underwriting innovation 

By working with clients on transition plans, insurers can design products that incentivize decarbonization and provide coverage for new climate-adaptive solutions. 

3. Enhanced investment strategies 

Insurers also act as major institutional investors. The TPG provides guidance on aligning investment strategies with long-term climate objectives and integrating transition considerations for insurers’ portfolios. 

Looking ahead

The three TPGs reflect the MAS’s commitment to fostering a sustainable financial ecosystem in Singapore. By guiding FIs in a comprehensive approach to transition planning that encompasses climate-related and broader environmental risks, the TPGs could help them boost resilience, foster sustainable practices and build stronger relationships with customers and investee companies. 

Their emphasis on engagement over divestment, integration of forward-looking risk assessment tools and integration into FIs’ overall governance, business strategies and risk appetite would be crucial in empowering FIs to effectively navigate the complex transition to a low-carbon economy. As the financial landscape evolves, FIs that proactively adapt with these guidelines could position themselves as leaders in responsible finance, driving innovation and contributing to a sustainable future. Ultimately, the journey toward value creation through transition planning is not just about compliance; it is about seizing the opportunity to lead in a rapidly changing world while driving long-term success and maintaining accountability to stakeholders.