BrazilThree quarters of top 20 banks in MENA have ESG strategies
Banks in the Middle East and North Africa (MENA) are increasingly embracing ESG as a key mantra of doing business – yet at the same time, they are struggling to put words into action. This is according to research from EY.
The inaugural ‘ESG MENA Bank Tracker’ report by EY found that nearly three-quarters of the MENA banks currently have well-developed ESG strategies in place.
“This showcases the growing recognition of the significance of ESG factors in the region’s banking sector and underscoring the commitment of MENA banks to sustainability and responsible financial practices,” said Charlie Alexander, who leads EY’s Financial Services practice in the MENA region.
Despite the boardroom buy-in, there remain however a number of notable gaps on the strategic front, said EY. For example: more than 80% of the banks surveyed have not issued a climate commitment statement, while 40% do not carry out materiality assessments. The report also highlights that less than 20% of the banks have developed climate risk policies, and only a fifth have created robust ESG frameworks backed up by key performance indicators.
For Alexander, this points at the fact that banks still have a way to go in “embedding sustainability considerations – particularly climate change – into their overall strategies.”
“It’s essential to bridge the gap in implementing ESG strategies at the board level. There’s an opportunity for banks in the region to make significant progress by adopting fully transparent ESG practices with clear responsibilities, accountability, and robust measurement tools. 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.”
To come to its findings, EY tracked the collective progress of the top 20 banks in MENA on their environmental, social and governance factors – collectively known as ESG.
Sustainable finance
The report also found that MENA-based banks compare favourably to global banks in the provision of sustainable financing products to corporate and institutional clients. A full 70% of banks lend to renewable energy projects, and 65% issue green, social or sustainability bonds. Furthermore, 40% also provide sustainability-linked loans, and 15% are involved in green repo financing.
A 2022 study by the US team of EY said that sustainable finance is one of the fastest growing asset classes in the banking industry, as banks tap into the shift towards green investing by investors, as well as respond to pressure from analysts, regulators, and politicians.
“It’s inspiring to see many banks in the region expanding their offerings of sustainable finance products, particularly in key markets,” said Jessica Robinson, MENA Sustainable Finance Leader at EY.
“Nevertheless, given the MENA region’s heightened vulnerability to the effects of climate change, it is imperative that banks act swiftly to incorporate climate risk assessments into their comprehensive risk management frameworks. There is room for improvement among major financial institutions in fully grasping, managing, and seamlessly integrating climate risk assessments within their governance structures and commercial strategies.”
Banks in the region can also step up their sustainable finance offering towards retail customers, among others through sustainable cards, green deposits, sustainability-linked loans and ESG risk tools.
It’s not the first time that research shows the ‘strategy to execution gap’ at banks in the ESG domain: a 2021 study from Mazars among European banks similarly highlighted the issue. Building further momentum is not just a cause of doing good, it in fact can also hike up margins and financial rewards.
