MAS guidelines on environmental risk management for asset ...

The MAS defines environmental risk as a risk that can financially impact funds/mandates by asset managers through two risks: Physical risk: ... ProgressbarInsightMonetaryAuthorityofSingaporeguidelinesonenvironmentalriskmanagementforassetmanagersXanderHuangShareiconArrowiconInsight24August2021MonetaryAuthorityofSingaporeguidelinesonenvironmentalriskmanagementforassetmanagersXanderHuangShareIconshareInthisbriefingnote,weunpacksomeofthekeyconsiderationsforassetmanagerstoprepareinadvancetoabidebytheguidelinesonenvironmentalriskmanagementforassetmanagers.ClosebuttonSharethispageSharethispageononeoftheselectedplaformsbeloworcopythelink.SocialIconSocialIconSocialIconSocialIconSocialIconOn8December2020,theMonetaryAuthorityofSingapore(MAS)issuedGuidelinesonEnvironmentalRiskManagementaimedatassetmanagers.Theguidelinesareintendedtodrivethetransitiontoagreeneconomythroughintegratingenvironmentalriskconsiderationsininvestmentdecisions.Atransitionperiodof18monthsendingJune2022isallowed,bywhichallassetmanagersareexpectedtocomply.Whoisimpacted?LFMCREITRFMCAllholdersofacapitalmarketsserviceslicenceforfundmanagementRealestateinvestmenttrustmanagementRegisteredfundmanagementcompaniesItisimportanttonotethattheguidelinesapplytomanagersthathavediscretionaryauthorityovertheinvestmentsandmandatestheyaremanaging.Additionally,evenifamanagerdelegatestheinvestmentmanagementtoasub-manageroradvisor,itultimatelyretainstheoverallresponsibilityforenvironmentalriskmanagement,andmusthavepoliciesandproceduresinplaceforthemonitoringofdelegates.Whatisenvironmentalrisk?TheMASdefinesenvironmentalriskasariskthatcanfinanciallyimpactfunds/mandatesbyassetmanagersthroughtworisks:Physicalrisk:impactofweathereventsandlong-termorwidespreadenvironmentalchanges.Transitionrisk:adjustmenttoanenvironmentallysustainableeconomy,includingchangesinpublicpolicies,disruptivetechnologicaldevelopments,andshiftsinconsumerandinvestorpreferences.Whowouldmanageenvironmentalrisk?TheMASlistfivekeyareasforassetmanagerstolookintofortheircompliancewiththeguidelines:GovernanceandstrategyAccordionIcon-Plus/MinusBoardsApproveanenvironmentalriskmanagementframeworkandpoliciesSetclearrolesandresponsibilitiesfortheBoardEnsuredirectorshaveanadequateunderstandingofenvironmentalriskEnsureseniormanagementhastheappropriateexpertisetomanageenvironmentalriskSeniormanagementEnsurethedevelopmentandimplementationofanenvironmentalriskmanagementframework,includingaswellastoolsandmetricstomonitorexposurestoenvironmentalriskRegularreviewoftheeffectivenessoftheframeworkanditstoolsEstablishaninternalescalationprocessAllocateadequateresourceswithexpertisetomanageenvironmentalriskTimelyupdatestotheBoardonenvironmentalriskissuesResearchandportfolioconstructionAccordionIcon-Plus/MinusEmbedenvironmentalriskconsiderationswhenmaterialthrough,forexample,theevaluationoftheenvironmentalrisk’simpactonaninvestment’slong-termreturnpotentialEnvironmentalrisktobeassessedatindividualassetandportfoliolevels,throughtheuseofinternationalframeworkssuchastheGlobalReportingInitiative(GRI)ortheTask-ForceonClimate-relatedFinancialDisclosure(TFCD)UseofexternalandinternalresearchDifferencesnotedbetweenactiveandpassivemanagers,wherethelatterwouldfocusmoreonbenchmarkingandtheformerwouldbemoreinvolvedattheleveloftheinvesteecompany’sgovernanceandenvironmentalriskframeworkPortfolioriskmanagementAccordionIcon-Plus/MinusOngoingmonitoringSetprocessesandsystemstomonitorandmanageenvironmentalrisksoninvestmentsandportfoliosonanongoingbasis,wheretheenvironmentalriskisconsideredmaterial.Managerswillbeexpectedtore-assessrisksandmakedecisionsbasedontheoutcomeofsuchrisks.ScenarioanalysisAssetmanagerswillbeexpectedtodevelopanddocumentscenarioanalysesandtheirassumptionswheretheenvironmentalriskisconsideredmaterial.Scenariosrangefromshorttolongtermtimeframesandfocusonphysicalandtransitionrisks,witharegularreviewofassumptionsmade.Assetmanagersarealsoexpectedtoincludequalitativeassessments,especiallyifdataislimited.CapacitybuildingAssetmanagerswillbeexpectedtoprovidecapacityandtraininginternallytoassessandmanageenvironmentalrisk.StewardshipAccordionIcon-Plus/MinusExpectationtoactivelysupport,engage,andcollaboratewithinvesteecompanies,notablythroughproxyvoting,ontheirtransitiontowardsmoresustainablepractices.Mitigantsonenvironmentalrisksatinvesteecompanyarethewillingnesstoimproveitspractices,therelationshipwiththeassetmanagerandthealignmentwiththemanager’senvironmentalriskstrategy.Managersarealsoexpectedtocollaboratewiththeirpeers,asrecommendedinthePRI.RealEstatemanagersshouldalsopromoteintroducingwater/wasteefficienciesaswellasobtaininggreenbuildingcertificationsforunderlyinginvestments.DisclosureAccordionIcon-Plus/MinusClearandmeaningfuldisclosurestoexistingandpotentialcustomers,withmetricsbeingheavilyencouraged.Thedisclosurescouldbeconsolidatedatgrouporheadoffice.Disclosuresshouldbemadeinaccordancewithinternationalstandards,notablytheTCFD’sdisclosuresframework.Disclosuresareexpectedtobereviewedonaregularbasistoimprovetheircomprehensivenesstostakeholders.HowcanSanneassist?Let'stalk...Shouldyourequireourexpertservicesandneedassistanceontheimplicationsoftheabove,wewouldbedelightedtospeakwithyoutodiscusshowSannecanassist.PleasecontactXander,PaulorKarliendirectly.OurExpertiseBackgroundimageLink-SocialIconLink-SocialIconXanderHuangHeadofBusinessDevelopment,Singapore-SingaporeCardlink-GotoaspecificpageBackgroundimageLink-SocialIconLink-SocialIconPaulSéjournantAssociateDirector,ProductDevelopment-UnitedKingdomCardlink-GotoaspecificpageBackgroundimageLink-SocialIconLink-SocialIconLink-SocialIconKarlienDeBruinGlobalHeadofESG-SouthAfricaCardlink-GotoaspecificpageSwiperScrollbarAbouttheAuthorXanderHuangHeadofBusinessDevelopment,SingaporeSingaporeXanderjoinedSannein2019.InhisroleasHeadofBusinessDevelopment,Singapore,XanderisresponsibleforexpandingSanne'scustomerbaseandpresenceintheAPACregion,developingsalesstrategiesandenhancingSanne'sprofilewithintheregion.MoreabouttheauthorOtherinsightsfromXanderHuangImageInsight1July2021APREAInvestors'Outreach:NewNormal–TheFutureofRealEstateintheAPACRegionCardlink-GotoaspecificpageImageInsight15April2021TheFutureofRealEstateAlternativesCardlink-Gotoaspecificpage