Singapore aims to peak its carbon emissions around 2030 and achieve net zero as soon as viable after 2050. Climate change presents two significant risks to the financial system. Physical risk arises from the impact of climate-related natural catastrophes and widespread environmental degradation. Transition risk arises from the process of adjustment to an environmentally sustainable economy, including changes in public policies, disruptive technological developments, and shifts in consumer and investor preferences. At the same time, the financial sector plays a key role in the fight against climate change. Finance is key to unlocking a sustainable future. It can support the transition to a less carbon intensive economy and channel capital to green technologies and infrastructure. This is why MAS is incorporating climate change and environmental sustainability across all its functions. As central bank and financial regulator, MAS is working with financial institutions to strengthen the Singapore financial sector’s resilience against environmental risks. 1/9  BIS central bankers' speeches  As promoter of Singapore as an international financial centre, we are working with financial institutions to develop a vibrant green finance ecosystem to support Asia’s transition to a low-carbon future. As the guardian of Singapore’s official foreign reserves, MAS is integrating climate risks and opportunities into its investment framework. As an organisation, MAS is reducing its own carbon and environmental footprint to support Singapore’s broader climate ambitions and commitments. A FINANCIAL SECTOR RESILIENT AGAINST ENVIRONMENTAL RISKS Let me begin with strengthening financial sector resilience against environmental risks.

We aim to: reduce risks to the portfolio across different climate scenarios; seize investment opportunities from the transition to a lower carbon future; and support the transition of portfolio companies. MAS has analysed the potential impact of climate change on the OFR over a 20-year horizon. This was done across three plausible climate scenarios that incorporated both physical and transition risk factors. The exercise informed us that climate change will dampen expected returns – especially for 5/9  BIS central bankers' speeches  equities – and will present risks that will need to be managed. For scenarios assuming faster decarbonisation, companies and assets will be exposed to higher transition risks such as the stranding of fossil fuel-related assets. For scenarios assuming slow progress on climate action, there will be greater physical risks due to climate hazards and changes in climatic conditions. We are developing a climate sign-posting toolkit to help us understand the most likely transition pathways. Government policies to manage climate transition will have the greatest and most immediate impact on company earnings and their distributions to investors. Our initial efforts on building a climate-resilient reserves portfolio are therefore focused on equities. MAS is developing a climate risk overlay programme for its equity portfolio. Such an overlay programme will reduce exposures to carbon intensive sectors, such as energy, materials and utilities. But instead of simply avoiding carbon intensive sectors, we will maintain some exposure to companies within these sectors that are likely to make a successful transition.