by jiawen
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Banks perform various functions in the economy and therefore play an important role in maintaining a sound financial system. With the increasing public concern over environmental issues, banks are facing rising pressure to better manage their environmental risks. In order to mitigate the potential financial and reputational impacts and create long-term sustainability, most of the banks begin to embrace economic, social and governance (ESG) practices that can be a value driver for their businesses. To kick start the ESG journey, it is necessary for banks to develop an effective climate risk management framework. The framework allows them to identify the material environmental risks and assess the potential adverse impacts of environmental issues. At the same time, banks can constantly monitor its exposure to material environmental risks and implement appropriate mitigating measures in a timely manner.
ESG Toolkit for Banks
Different ESG frameworks and standards are available to guide financial institutions (FIs) in integrating material ESG factors into business practices. In December 2020, the Monetary Authority of Singapore (MAS) has issuedGuidelines on Environmental Risk Management for Banks (ENRM Guidelines) to help these FIs understand their roles to play and approaches to manage the risks when engaging corporate customers. Based on a news published by The Business Times, The Association of Banks in Singapore (ABS) has recently launched the Environmental Risk Questionnaire (ERQ). The questionnaire sets out the industry baseline for banks to engage corporate clients on environmental risk issues.
More Details of the ERQ
The ERQ consists of four sections: (a) Risks; (b) Governance; (c) Metrics and; (d) Sustainable Financing. The first section requires banks to evaluate overall physical risks and transition risks of their corporate clients and identify the measures put in place to address such risks. The following step involves the assessment on the adequacy and effectiveness of their customers’ environmental risk management strategies and policies. In addition, banks should consider whether customers have implemented a set of targets and actions that forms a clear and measurable roadmap toward a low-carbon economy. Lastly, bank staff are encouraged to discuss with their customers and understand their intentions to finance its transition plan.
Summary
With the help of these tools, banks are able to manage their own exposure to climate risk and make valuable contribution in the transition to a green economy. Corporate borrowers can also understand the assessment criteria adopted by the banks and implement effective ESG strategies before entering into a lending transaction.
How We Can Help
While moving towards a more sustainable economy, Alder helps integrate the ESG framework into your business. Our services include:
- Assisting to set up ESG frameworks
- Providing support on ESG reporting
- Providing ongoing ESG advice and support
- Facilitating effective communication of the company’s ESG approach with internal and external stakeholders
- Reviewing and rating the existing governance framework
Reference Materials
Monetary Authority of Singapore (2020). ‘Guidelines on Environmental Risk Management (Banks)’. Available at: https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Commercial-Banks/Regulations-Guidance-and-Licensing/Guidelines/Guidelines-on-Environmental-Risk—Banks/Guidelines-on-Environmental-Risk-Management-for-Banks.pdf
The Association of Banks in Singapore (2022). ‘Guide for Environmental Risk Questionnaire’. Available at: https://abs.org.sg/docs/library/erq-guide.pdf
Zhu, M. (2022). ‘ABS launches initiative for banks to engage clients on environmental issues’, The Business Times, 21 April. Available at: https://www.businesstimes.com.sg/banking-finance/abs-launches-initiative-for-banks-to-engage-clients-on-environmental-issues
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With growing investor demand for transparency, more companies are publishing sustainability reports — yet many still face challenges with consistent ESG data and reporting standards. Fintech is stepping in to close these gaps. Through initiatives like MAS’s Project Greenprint, Singapore is leading the way in digital ESG reporting with platforms such as ESGenome and ESGpedia. As global frameworks like GRI and TCFD gain traction, companies are encouraged to view sustainability reporting not as a compliance task, but as a vital step toward achieving long-term resilience and net-zero goals.
Singapore is stepping up its climate action with a higher carbon tax and stronger green initiatives to drive decarbonisation. Businesses are now encouraged to manage their carbon footprint, explore carbon credits, and strengthen their ESG strategies. By taking proactive steps toward sustainability, companies can stay competitive while supporting Singapore’s transition to a low-carbon future.
Investors today increasingly prioritise companies with strong ESG practices. With growing awareness across all generations in Singapore, sustainability has become a key factor in investment decisions. Businesses that embed ESG into their strategies can enhance long-term value while contributing positively to society and the environment.
