According to the London Institute of Banking & Finance (LIBF), Middle East and North Africa (MENA), banks should hurry beyond ESG reporting and obtain hard data on climate risk – data on their own exposure as well as that of their clients.
Banks in the MENA region would benefit from keeping pace with global best practices on climate risk reporting to avoid losing ground to international counterparts.
According to a new LIBF report, the enormity and complexity of climate change necessitate MENA banks to prepare for climate risk reporting today, ahead of local regulatory mandates or economic shifts.
The Task Force on Climate-Related Financial Disclosure (TCFD) revealed in October 2022 that only about 25% of all Middle Eastern corporations report their exposure to climate change. That was the lowest score internationally, with South America coming in second with 28% of all enterprises. Europe led the way with 60%.
This goes beyond the ESG reports that institutions in the region already produce. According to the LIBF report, they can give helpful information but are only a starting point for reporting on a firm’s exposure to climate risk.
The LIBF analysis provides four primary reasons why MENA banks should improve their climate risk reporting as soon as possible:
1. Banks that are not in compliance with global regulatory requirements for climate risk reporting may increasingly find themselves failing to achieve all of the standards demanded by international partners.
2. MENA banks that move quickly to implement processes to identify, manage and mitigate climate risk will likely enjoy a first-mover advantage.
3. Analyzing and reporting on climate change business risks is more demanding than ESG reporting – it requires time to put up the necessary processes, train personnel, and build the data and IT systems needed to capture data relevant to climate change exposure.
4. MENA banks may leverage their oil and gas expertise to help inform the global transition to net zero.
“Now it’s about hard numbers on climate exposure, about auditable climate reporting and about a defensible climate strategy,” said Kareem Refaay, LIBF’s Managing Director, MENA and GCC.
This goes much further than the ESG reports that institutions in the region already issue. These can provide useful information but are just a starting point for reporting on a firm’s exposure to climate risk, according to the LIBF report.
“There are obvious reasons for banks everywhere to be hesitant about net zero reporting. Data is lacking and, world-wide, there is an increasing realisation that transition to net zero is both more complex and more difficult than hoped,” explained Refaay.
