Nearly three-quarters of the MENA banks have developed ESG (Environmental, Social, and Governance) strategies, signalling a growing awareness of the significance of ESG factors in the regional banking sector, consultancy firm EY said in its inaugural “ESG MENA Bank Tracker” report.

Despite this, over 80% of the surveyed banks have yet to issue a climate commitment statement. In addition, 60% conduct materiality assessments and less than 20% have developed climate risk policies. Only a fifth have created robust ESG frameworks backed by key performance indicators.

The tracker, released before the opening of COP28 in the UAE on November 30, tracks the collective progress of the top 20 banks across the MENA region in Bahrain, Jordan, Saudi Arabia, Kuwait, Morocco, Qatar, and the UAE.

The study is a benchmarking tool for banks, offering insights for policymakers and regulators seeking to align with the region’s net zero commitments.

Of the banks surveyed, 45% have established sustainable finance frameworks, typically linked to environmental and social considerations. Many of these frameworks are backed by international standards such as the International Capital Market Association’s Green Bond Principles, Social Bond Principles and Sustainability-Linked Bond Principles.

According to the EY survey, MENA banks compare favorably to global banks in providing sustainable financing products to corporate and institutional clients.

Almost 70% of banks lend to renewable energy projects, while 65% issue green, social or sustainability bonds. Furthermore, 40% provide sustainability-linked loans, and 15% engage in green repo financing.

However, there needs to be more emphasis on sustainable retail bank products. The most popular is the green or hybrid vehicle loan, provided by 35% of banks. Additionally, 25% of banks extend solar loans and 10% green mortgage loans.

Given the MENA region’s heightened vulnerability to climate change, banks must act swiftly to incorporate climate risk assessments into their comprehensive risk management frameworks, said Jessica Robinson, EY MENA Sustainable Finance Leader.

She added that major financial institutions have room for improvement in fully grasping, managing, and seamlessly integrating climate risk assessments within their governance structures and commercial strategies.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)