To achieve sustainable development, the Central Bank of Kuwait has issued directives and guidelines to local banks on sustainable financing, in light of the increasing interest in this area and within the framework of CBK’s support for the concept of sustainable development.
According to a local Arabic daily this is done to promote and implement sustainable financing in the banking sector in light of the New Kuwait 2035 vision.
The directives include defining the importance of sustainable financing, defining the three sustainability criteria, which are environmental, social, and governance standards, and finally the most important principles and basic directives that banks should take into account with regard to sustainable financing and sustainability factors.
The most important principles and basic directives that local banks should take into account with regard to sustainable financing and sustainability factors focus on the following:
— Include environmental, social and corporate governance (ESG) factors in the bank’s governance and risk management strategy, so that it includes elements of sustainable financing, taking into consideration setting clear objectives for the bank under the umbrella of sustainable financing.
— Include elements of sustainability in what can be considered sustainable products and tools according to what is issued or issued from approved standards that can be used to determine the character of sustainability.
— Paying attention to issuing financing products and tools that are compatible with green financing activities and other projects that have benefits for both the environment and the climate.
— Supporting financial inclusion in general and facilitating access to financial services.
— Enhancing the bank’s environmental, social and corporate governance performance by providing new and innovative financial solutions and banking products, and supporting sustainability in all of the bank’s activities.
— Laying down the necessary basics for defining the risks of climate change, and encouraging the financing of projects that contribute to positive participation in issues related to aspects of climate change.
— Raising awareness and developing the capabilities of the Bank’s employees and training them in order to deepen their knowledge of the means of applying sustainable financing.
— Applying the principle of sustainability to the bank’s operations and internal activities by measuring the carbon footprint resulting from buildings and branches, improving waste management, adopting water and energy efficiency standards, and adopting environmentally friendly buildings that reduce electricity consumption.
— In cases where lending and investment decisions have a substantial impact on environmental, social and corporate governance, banks take into account the necessary considerations when studying and analyzing these cases and taking the appropriate decisions in their regard.
— To emphasize the importance of financial stability within the framework of directives related to sustainable financing, banks take into account the essential impact of environmental, social and corporate governance (ESC) standards on banks’ performance and financial stability; governance failures and poor risk management were key factors that, in combination with other factors, contributed to the global financial crisis in 2008.
— Emphasizing the importance of transparency with regard to the guiding principles of sustainable financing, banks issue annual reports on sustainability (the “sustainability report”), or include in their annual reports that are published on their websites a special section on sustainability, which explains the bank’s activities in matters of environmental impact and social and economic, in a way that enables stakeholders to assess the level of sustainability of the bank during the reporting period.
— Working to identify and measure the risks associated with climate change, taking this into account when conducting the Internal Capital Adequacy Assessment Process (ICAAP) to face the risks of the second pillar.
— The decisions taken in relation to the bank’s policies and work procedures regarding sustainable financing must be approved by the Board of Directors. And since climate-related financial risks are among the environmental factors of the sustainability criteria, banks must also be involved in the activity.
The daily added, in the context of applying these guidelines, refer to what was stated in the document of the Basel Committee on Banking Supervision on the principles of effective management and supervision of climate-related financial risks.
The three sustainability criteria include:
Environmental factors – the external factors that have effects on the operation of the facility and its revenues, which are not exclusively affected by market mechanisms, as well as the impact of the business of these facilities on the environment. And with the multiplicity of these environmental factors (which may be determined in detail in the light of international standards).
Social factors – are related to various topics, including providing job opportunities, improving working conditions that include equal wages, the rights of all workers without discrimination, human capital, taking into account the impact on local communities, the health and well-being of employees, consumer protection, and taking into account the privacy and confidentiality of data.
Corporate Governance — is related to the rights and responsibilities of each of the board of directors of the establishment, its senior executive management, its shareholders and stakeholders, and issues that fall under governance related to the necessity of a diversity in the experiences of the boards of directors, in addition to professional practices and related controls in the areas of governance, including controls bonuses and wages, combating corruption, and limiting the factors that affect the stability of the establishment’s conditions.