Status: Will be live at 12/19/2023 09:00
IIF Responds to MAS Consultation on Transition Planning Guidelines
On Monday, December 18, the Institute of International Finance (IIF) submitted a response to the Monetary Authority of Singapore (MAS) Consultation on Transition Planning Guidelines for Banks, Insurers, and Asset Managers.
IIF members appreciate MAS’s initiative to consult with stakeholders on its proposed Guidelines on
Transition Planning. The topic of financial institution transition planning, and how prudential supervisors engage with it, is still nascent. The IIF considers the work of the MAS in this sphere to be extremely important and potentially precedent setting.
Broadly, the IIF and its members support the MAS’s efforts to develop, consult on and clearly set out their supervisory expectations in relation to transition planning by supervised financial institutions. This is helpful as many financial institutions are developing and implementing transition plans, which is occurring in the context of evolving expectations from different market-based initiatives and stakeholder groups. IIF members appreciate the opportunity to offer suggestions on how the MAS can tailor its guidance to achieve its objectives, in consideration of how global financial institutions are approaching transition planning.
The response contains five key messages:
- Need to avoid overestimation of the role of financial institutions in supporting real economy decarbonization: Aspects of the consultation are based on an underlying theory of change about the potential relationship between transition planning, transition finance, and corporate activities, which misrepresents the capacity for financial institutions to have direct or indirect influence on real economy decarbonization outcomes.
- Risks associated with use of supervisory tools to actively motivate real economy transition outcomes: Prudential authorities generally should avoid seeking to influence a supervised firm’s choice of legitimate business activities, beyond the scope of their prudential mandate. IIF members would highlight that transition planning should not be considered as a prudential risk management tool for financial institutions or by supervisors.
- Conflation of transition planning and risk management: IIF members find transition planning and climate-related risk management to be distinct processes with different objectives, metrics and tools. Many IIF members also consider it important to highlight that transition planning is distinct from other types of core climate-related risk management activities, which have different objectives, approaches, metrics and tools. However, a financial institution’s risk function may be involved in governance and oversight of transition planning and in understanding the impact of business strategy (e.g., with respect to reputation or financial risk).
- MAS should avoid expecting financial institutions to integrate broader environmental risk with climate-related transition planning: Significant work remains to better understand the relationship between nature- and climate-related issues. Integrating nature and broader environmental assessments with climate-related transition planning is challenging due to the lack of a one-to-one relationship between actions that have a positive impact on nature and actions that reduce GHG emissions.
- Suggested clarification of implementation expectations and global coordination: It would be helpful for the MAS to revise its expectations for implementation of aspects of the guidelines (currently 12 months), especially in areas where methodologies are nascent. MAS should clarify that the guidelines do not require global financial institutions to adopt sub-targets or distinct transition plans for their MAS-regulated subsidiaries. At the global level, IIF members would encourage the MAS to work through the global standard-setting bodies, and in partnership with other supervisors, to ensure that a common set of supervisory approaches for engaging with financial institutions on transition planning are developed.
The IIF's comment letter draws on messages in the October 2023 report entitled “The Role of the Financial Sector in the Net Zero Transition: Assessing Implications for Policy, Supervision and Market Frameworks.”