Are You Prepared to Comply with MAS Environmental Risk Management Guidelines?

The Monetary Authority of Singapore (“MAS”) consulted on June 2020, on the proposed guidelines to enhance fund managers’ resilience to and management of environmental risk. The response to the said consultation was released on 8th December 2020. The Environmental Risk Management Guidelines were published on the same day.

Applicability

The environmental risk management guidelines would be applicable to all asset managers that have discretionary authority over the investments of the funds/mandates that they are managing. Fund managers who do not have discretionary authority over the funds/mandates they manager are not required to meet the environmental risk management guidelines requirements.

The environmental risk management guidelines clarifies that the guidelines are not just limited to funds/mandates that have an environmental focus and that the guidelines are also applicable to funds/mandates with passive strategies.

Asset managers are required to adhere to the environmental risk management guidelines in a way that that commensurate with the size and nature of their activities.

Global asset managers, may adapt to their group’s environmental risk management framework and policies if they meet the principles set out in the environmental risk management guidelines issued by MAS.

Asset managers are required to implement the environmental risk management guidelines in a risk proportionate manner in accordance to their size, nature of business and funds/mandates managed.

Timeline

Environmental Risk Management Guidelines were Asset managers have a transition period of 18 months from December 8, 2020 to adhere to the guidelines. MAS will start engaging larger asset managers on their implementation progress from Q2 2021 onwards.

Key Requirements

• Board and senior management should oversee the integration of environmental considerations into asset manager’s strategies, business plans and protocols
• Implement policies to monitor exposures to environmental risk
• Ensure proper oversight and ensure adequate disclosures are provided
• Ensure effective escalation measures put in place to address material environmental exposures

Research and Portfolio Construction

• Develop risk management framework and put in place robust policies and processes to manage environmental risk
• Material risks must be identified, assessed and mitigated at both an individual investment and portfolio level
• Evaluate potential impact of material environmental risk on an investment’s return potential when carrying out research and portfolio construction
• Develop sector-specific guidance to aid its investment personnel in understanding their risks
• Measure and manage environmental risk factors that are present in a portfolio on an aggregate basis, where material

Portfolio Risk Management

• Need to develop capabilities in scenario analysis to evaluate portfolio resilience and evaluation under different environmental risk scenarios
• Make adjustments to portfolio after analysis and adopt practice of disclosures where required
• Equip staff with training to assess, manage and monitor environmental risks in a timely manner

Stewardship

• Exercise stewardship to shape corporate behaviour of invest companies through engagement, proxy voting and sector collaboration
• Support investee companies’ efforts to transition toward more sustainable business practices over time
• Maintain proper documentation to support engagement efforts
• Report on stewardship initiatives

Disclosures

• Disclose how one intends to approach environmental risks in clear and precise manner to stakeholders including existing and potential customers
• Ensure disclosures are in accordance to international reporting frameworks and review disclosures regularly

How Can Argus Global (Now Waystone Compliance) Assist?

We, at Argus Global (now Waystone Compliance), are a team of consultants who specialize in regulatory compliance for financial institutions. We assist to do the following:

• Draft and incorporate environmental risk management policies and procedures into Compliance Manual and Risk Management Framework
• Conduct gap analysis on existing policies against environmental risk management guidelines and provide recommendation for improvements
• Provide regulatory advice on key steps to take to address and implement the environmental risk management guidelines

Please reach out to us for an initial discussion at [email protected].