The London Institute of Banking and Finance (LIBF) recommends that banks in the Middle East and North Africa move quickly to go beyond ESG reporting and acquire hard data on climate risk – both on their own exposures and their clients’ exposures.
Banks in the Mena (Middle East and North Africa) region would benefit from keeping pace with global climate risk reporting best practices if they want to avoid losing out to their international peers.
According to the LIBF report, the scale and complexity of climate change requires Mena Bank to be ready to report on climate risks now – ahead of local regulatory requirements or economic transitions.
Lowest score
In October 2022, the Task Force on Climate-Related Financial Disclosures (TCFD) revealed that only around 25% of all companies in the Middle East reported their exposure to climate change. This is the lowest score globally, followed by Latin America with 28% of all companies. Europe leads with 60%.
“Now it’s about hard data on climate exposure, about auditable climate reports and about defensible climate strategies,” said Kareem Refaay, LIBF’s managing director for the Middle East and North Africa and the GCC.
This goes further than ESG reports already published by institutions in the region. According to the report, these can provide useful information, but are only a starting point for reporting companies’ exposure to climate risk.
“Banks everywhere are hesitant to report on net zero for obvious reasons. There is a lack of data and, around the world, there is a growing recognition that the transition to net zero emissions is more complex and difficult than hoped,” explains Refaay explain.
Benefit from better reporting
LIBF analysis outlines four main reasons why MENA banks should act quickly to strengthen their climate risk reporting:
*Banks that do not meet global regulatory requirements for climate risk reporting may increasingly find that they do not meet all the standards required by their international partners.
*Mena banks that move quickly to implement processes to identify, manage and mitigate climate risk may enjoy a first-mover advantage.
*Analyzing and reporting on business risks of climate change is more demanding than reporting on ESG – it will take time to establish the right processes, train staff and implement the data and IT systems needed to capture data related to climate change risks.
*MENA banks can leverage their expertise in oil and gas to help drive the global transition to net-zero emissions.
Need to focus
“Achieving these goals will require risk management teams to focus on relevant data, even if local regulators have not yet asked for it,” Refaay added.
The authors of the report are:
• Perihan Abdelghaly, LIBF Sustainable Finance Lecturer and Program Leader, Mena Sustainable Finance Specialist;
• Andrew Cunningham, visiting professor and founder and managing director of Darien Analytics Ltd; and
• Clarisse Simonek, member of the S&P Sustainable Finance Council and CFA ESG Academic Advisor. — trade arab news agency