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Tuesday, January 31, 2023

Launch Partners

Central Bank of Kuwait tells local banks to begin sustainability reporting

The Central Bank of Kuwait (CBK) has issued a circular with a set of directives to serve as guidelines on sustainable finance for the banking industry in accordance with the ‘New Kuwait’ Vision 2035.

Local banks are required to develop a framework to apply the proposed guidelines. The national development plan, which is adapted to the UN SDGs, strives to position the country as a financial and trade hub.

Highlighting the role of financial institutions in achieving the SDGs, the guidelines detail the definition of sustainable finance and ESG standards and forward principles and directives for local banks to consider with regard to sustainable financing and sustainability factors.

Environmental factors are defined as external factors that have effects on the operation of a facility and its revenues; social factors are defined as relating to, among others, providing job opportunities and improving working conditions; while governance factors are defined as relating to the rights and responsibilities of the board of directors.

The guidelines propose a triple sustainability governance approach, which is a combination of the ESG standards it outlines. Complying with the definition of at least one aspect of ESG is one of the criteria for sustainability as per the circular.

In addition to complying with the central bank’s guidelines, local banks are also required to reference the Basel Committee on Banking Supervision’s principles for the effective management and supervision of climate-related financial risks, which was issued in June this year.

The CBK’s document outlines 13 principles or directives. The directives range from including ESG considerations in a bank’s governance and risk management strategy and defining climate risk and providing products that contribute positively to climate change to measuring the sustainability of a bank’s internal operation through its carbon footprint.

The document also requires banks to issue annual reports on sustainability or include a section on sustainability within the bank’s annual report. The sustainability report is required to be published and available on the bank’s website under a section dedicated to sustainability.

In conjunction with the circular, the CBK has announced that it will give priority in its fintech regulatory sandbox to testing products and services that support sustainability standards. The regulatory sandbox, with its framework launched in 2018, has three current participants and two graduates.

Kuwait is one of the largest Islamic banking markets with assets representing 45.5% of sector assets as of the first half of 2022, according to Fitch Ratings.

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2 COMMENTS

  1. The regulatory sandbox, with its framework launched in 2018, has three current participants and two graduates.

    Which are those 5 ?

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