Nearly three-quarters of Mena banks have developed ESG strategies, but more needs to be done to embed sustainability considerations into their overall operations.
The inaugural EY ESG MENA Bank Tracker, released ahead of COP28 in the UAE, tracks the progress of the top 20 banks in the region.
The study found that while most banks have ESG strategies in place, there is a need for more robust implementation. Specifically, more banks need to issue climate commitment statements, carry out materiality assessments, develop climate risk policies, and create robust ESG frameworks.
The findings show that more than 80 per cent of the banks surveyed have not issued a climate commitment statement, while just 60pc say that they carry out materiality assessments. The report also highlights that less than 20pc of the banks have developed climate risk policies, and only a fifth have created robust ESG frameworks backed up by key performance indicators.
The findings suggest that most Mena banks are not fully integrating sustainability considerations, particularly climate change, into their overall strategies. This is a missed opportunity, as sustainability is becoming increasingly important to investors, customers, and regulators.
EY Mena Financial Services Leader Charlie Alexander says: “Prioritising climate risk mitigation is crucial for banks, and the integration of ESG risk frameworks and policies into their risk management strategies needs to be accelerated. While there’s room for improvement in aligning with global best practices, the Mena region can take advantage of proactive support from regulatory bodies to enhance and evolve their ESG strategies.”
The report shows that those banks that are already making progress in aligning ESG climate risk into their commercial strategies are also ahead in the development of sustainable finance products and services.
Of the banks surveyed, 45pc have established sustainable finance frameworks, which are typically linked to environmental and social considerations.
Many of these frameworks are backed by international standards such as the International Capital Market Association’s (ICMA) Green Bond Principles (GBP), Social Bond Principles (SBP) and Sustainability-Linked Bond Principles (SLBP).
The survey shows that Mena banks compare favorably to global banks in the provision of sustainable financing products to corporate and institutional clients. A full 70pc of banks lend to renewable energy projects, and 65pc issue green, social or sustainability bonds. Furthermore, 40pc also provide sustainability-linked loans, and 15pc are involved in green repo financing.
In contrast, there is less emphasis on sustainable retail bank products. The most popular is the green or hybrid vehicle loan, provided by 35pc of banks. Additionally, 25pc of banks extend solar loans and 10pc green mortgage loans.
EY Mena sustainable finance leader Jessica Robinson says: “It’s inspiring to see many banks in the region expanding their offerings of sustainable finance products, particularly in key markets where product innovation is thriving. Nevertheless, given the Mena region’s heightened vulnerability to the effects of climate change, it’s imperative that banks act swiftly to incorporate climate risk assessments into their comprehensive risk management frameworks.”
avinash@gdnmedia.bh
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