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.

A taxonomy that includes both green and transition activities can support a progressive shift to greater sustainability. In Singapore, the green finance industry task force I mentioned earlier is developing such a taxonomy to guide our financial institutions. It sets out a “traffic light” system to classify sustainable activities as green, transition activities as yellow, and highly carbon intensive activities as red. MAS has been working with the industry to promote green finance solutions. MAS has introduced grant schemes to defray the costs of issuing sustainable bonds and green and sustainability-linked loans that are in line with international standards. Funds raised through such bonds and loans will support investments in green projects. We are supporting initiatives to foster efficient markets to trade carbon credits. Carbon credits help to channel funds from firms with hard-to-abate emissions to projects that reduce or remove emissions. Voluntary carbon credits will be an important complement to decarbonisation efforts, especially in Asia where transition issues need to be tackled. MAS is supporting industry efforts to build the infrastructure for a liquid and transparent voluntary carbon credit market in Asia. DBS Bank, SGX, Temasek, and Standard Chartered have announced plans to launch 4/9  BIS central bankers' speeches  Climate Impact X, an international marketplace for high-quality carbon offsets generated from nature-based solutions in Southeast Asia. MAS is promoting Green FinTech – harnessing technology to enable trusted and efficient sustainable finance flows. The lack of access to trusted high-quality data on a project’s carbon emissions is probably the biggest impediment to green finance.