On 25 June 2020, the Monetary Authority of Singapore (MAS) launched consultations on a series of Proposed Guidelines on Environmental Risk Management (the Guidelines) tailored to financial institutions (FIs) in three sectors: asset management, banking and insurance. The Guidelines are intended to drive the transition to an environmentally sustainable economy by enhancing the integration of environmental risk considerations in FIs' financing and investment decisions and promoting new opportunities for green financing. 

This Legal Update will focus on the Guidelines as they relate to asset managers.

Defining Environmental Risk

According to the MAS, the broad category of environmental risk encompasses the following three risk channels:

  • Physical risk arising from the impact of weather events and long-term or widespread environmental changes (e.g., water scarcity and the rising frequency and severity of extreme weather events, which can impair the value of assets and/or impact supply chains);
  • Transitional risk arising from the adjustment to an environmentally sustainable economy, including shifts in public policies, technological developments and shifts in consumer or investor preferences (e.g., the transition to a low-carbon economy can impair the profitability of companies in carbon-intensive businesses); and
  • Reputational risk arising when asset managers make investments into companies that have a negative impact on the environment, creating a negative perception of the asset manager that may adversely affect its ability to maintain or grow AUM.

With the multifaceted nature of environmental risk and the potentially significant impact it can have on asset values in mind, the MAS notes that it is crucial for asset managers to ensure the resilience of their customers' assets against such risk. 


The Guidelines will apply to registered fund management companies, as well as the holders of a capital markets licence for fund management and real estate investment trust management, in Singapore. The MAS recognises that asset managers vary in terms of scale, scope and business model, and asset managers are therefore permitted to implement the Guidelines "in a way that is commensurate with the size and nature of [their] activities". In any event, the Guidelines will only apply to asset managers that have discretionary authority over the investments of the funds/mandates they are managing. 

The Guidelines

The Guidelines address environmental risk management practices in the following categories:

  • Governance and Strategy: The Guidelines clarify that asset managers are required to identify, address and monitor material environmental risks pursuant to certain existing risk management regulations in Singapore. Accordingly, the Board of Directors and senior management should oversee the integration of environmental risk into existing risk management frameworks. Specifically:

    • the Board (or a committee thereof) is responsible for approving an environmental risk management framework and related policies, setting the roles and responsibilities of the Board and senior management with respect to the framework and ensuring that management has adequate expertise and resources for managing environmental risk; and
    • senior managers are responsible for developing, implementing and reviewing the framework, establishing an escalation process for managing environmental risk and allocating resources appropriately. 
  • Research and Portfolio Construction: Asset managers should embed environmental risk considerations in research and portfolio construction processes and are encouraged to refer to international standards and frameworks (e.g., the Global Reporting Initiative) when considering transition and physical risks at an individual asset and/or portfolio level. The Guidelines provide illustrative examples for asset managers to reference when considering the materiality of environmental risk for different asset classes, including:

    • fixed income investments, in which asset managers should consider environmental indicators from external data providers, in addition to such information provided by the issuer, to obtain a more holistic view of environmental risk; and
    • direct real estate investments, in which asset managers should consider operational indicators (e.g., greenhouse gas emissions and energy, water and waste management data), extreme weather events, and the effects that both of these factors may have on tenant demand.

    At all times, asset managers must also be mindful of limits that their customers may set on exposure to specific sectors or types of activities, like sector limits on investments in the fossil fuel industry or caps on portfolio-wide carbon emissions.

  • Portfolio Risk Management: Asset managers should monitor, assess and manage the material potential and actual impacts of environmental risk on both individual investments and portfolios on an ongoing basis. Further, asset managers should develop capabilities in scenario analysis to evaluate portfolio resilience under different environmental risk scenarios (e.g., with sensitivity to a diverse array of changes from temperature increases to sea level rise) and engage in capacity building by providing environmental risk management training to staff.
  • Stewardship: Asset managers should actively shape the corporate behaviour of their investee companies through engagement, proxy voting and sector collaboration. Strategies for engagement include raising environmental issues with investee companies to increase their awareness of related risks and opportunities and independently gathering information to supplement investee companies' own environmental risk disclosures.
  • Disclosure: Asset managers should disclose their environmental risk management approach to stakeholders, and are encouraged to disclose the potential impact of material environmental risks with reference to quantitative metrics. Asset managers may refer to international reporting frameworks, like the recommendations of the Task-Force on Climate-related Financial Disclosures, when preparing such disclosures. 


Responses to the MAS consultations are due by 7 August 2020. The MAS has proposed a 12 month transition period, beginning once the Guidelines are finalised, for FIs to implement the Guidelines. 

A "Force for Good"

Asset managers can expect the MAS to continue to pay attention to environmental issues —the regulator notes in these consultations that "climate change is a key priority, as it poses an existential challenge for Singapore". As the effects of climate change become better understood globally, regulators around the world are more likely to turn their attention toward environmental risk management practices as well. Hopefully, the development and implementation of similar guidelines in other jurisdictions will enable more FIs to, as the MAS notes, "act as a 'force for good' in the transition to an environmentally sustainable economy by channelling capital through their financing, underwriting and investment activities."