From reality to ambition

While most financial institutions have made good progress in formalising roles and responsibilities of the BSM in environmental risk governance, reporting to BSM on environmental risk matters could be further enhanced, including in areas such as developing quantitative key risk indicators for reporting and communicating results of scenario analysis to inform strategy (including risk appetite) setting.​

Financial institutions generally have established policies and frameworks to document their approach towards managing environmental risk, with many leveraging head office's frameworks and policies (where they are part of a group) to accelerate ENRM implementation. However, the extent of head office reliance varies amongst foreign-headquartered financial institutions, with Asian banks generally facing more challenges when placing reliance. Degree of integration within the wider enterprise risk management framework varies as well, with most banks focusing mainly on credit risk management at the moment.

Transition planning is at an early stage for banks and asset managers in Singapore, with more progress where they are part of a group in which carbon reduction commitments have been made. Locally, most banks have yet to establish transition finance strategies, and customer engagement plans or formal risk mitigation measures for customers that do not manage environmental risk adequately. Meanwhile, few asset managers surveyed have set transition-related targets. These would be areas of focus for financial institutions as they progress beyond environmental risk management to transition planning at the business and strategic levels.

With the exception of a number of smaller financial institutions, the majority of respondents have embarked on quantitative climate scenario analyses, albeit in varying stages of maturity and coverage. Close to half of respondents rely on external vendors and platforms as they are still developing capabilities internally, and more than a third of banks rely on the analyses performed at the group level rather than perform local assessments. A phased approach focusing on the high risk sectors and asset classes (for asset managers) is commonly observed.

Most financial institutions have made public disclosures of their approach towards environmental risk management. TCFD is the most commonly referenced disclosure framework presently, but a good number of financial institutions have set their eyes on TNFD and ISSB. On emissions reporting, business travel and financed emissions are the most commonly disclosed Scope 3 emissions amongst banks and asset managers. Only 15% of asset managers have obtained external assurance over their disclosures, compared to 63% for banks (albeit mostly at the group level).