Sherif Lokman, the Sub Governor for Financial Inclusion and Sustainability at the Central Bank of Egypt (CBE), has affirmed the bank’s substantial strides in assimilating environmental, social, and governance (ESG) criteria into the banking industry’s operations.
During a dialogue with the Network for Greening the Financial System (NGFS), Lokman highlighted that CBE’s participation in the network is indicative of the banking sector’s pivotal contribution to the green economy. He further stressed that the professional development of the Egyptian banking sector’s workforce is a foundational aspect of the CBE’s strategy to bolster sustainable finance.
When did the CBE join the NGFS, and why?
The CBE joined the NGFS in May 2022. The decision was driven by the state’s strategy to achieve sustainable development goals (SDGs). It recognises the significant role of the financial sector in promoting a green economy and aligning with international best practices.
The NGFS, which had 138 members globally as of March 2024, aims to support the United Nations’ sustainable goals and the principles of the Paris Agreement. Its focus is on enhancing the banking sector’s role in managing environmental risks and supporting green projects.
The NGFS membership provides the CBE with access to a global knowledge base and expertise, best practices for integrating climate risks into financial stability monitoring, and micro-supervision. It also offers capacity-building opportunities through workshops, training, and research on the financial impacts of climate change.
Collaboration within the NGFS allows members to work on projects that green the financial system and influence global financial standards and policies. It supports the integration of climate risks into risk management frameworks and guides scenario analysis and stress testing for financial institutions.
The NGFS promotes sustainable practices by providing data and metrics for managing climate-related financial risks, guiding policy measures, and integrating climate change considerations into monetary policy.
The NGFS fosters a global network and community among central banks, enhancing stakeholder engagement with financial institutions, policymakers, and international organisations. This collective approach supports tackling climate change challenges and facilitates a sustainable economic transition.
Can you share with us the key elements of the CBE’s climate strategy and how it fits into the broader national strategy?
The CBE has significantly advanced the integration of Environmental, Social, and Governance (ESG) factors within Egypt’s financial ecosystem. This progress began in July 2021 with the issuance of the Sustainable Finance Guiding Principles, aimed at deepening the understanding and adoption of sustainable finance practices. By focusing on embedding ESG considerations into banking operations, these principles highlight the importance of managing environmental and social risks effectively, highlighting climate change risk management.
Subsequently, the CBE through its collaboration with the International Finance Corporation in 2022, undertook a sustainable finance gap analysis to assess the opportunities and gaps in the banking sector. Accordingly, following these efforts, the CBE issued the Binding Regulations on Sustainable Finance in November 2022, a key component of the regulatory framework, to enhance the assessment and management of environmental and social (E&S) financial risks. As part of this framework, banks were mandated to integrate E&S policies and procedures, especially those addressing climate risks, into their operations. Additionally, it also required banks to consult with environmental experts to assess the environmental impacts of large corporations’ projects seeking finance, demonstrating a proactive approach towards environmental stewardship.
Simultaneously, the CBE furthered its commitment by developing a unique data collection framework, mandating banks to submit three types of periodic reports: (i) a quarterly report detailing their environmental and social lending portfolio, (ii) a semi-annual report evaluating their compliance with guiding principles and regulations alongside their climate risk management efforts, and (iii) an annual report in alignment with Global Reporting Initiative (GRI) standards. This annual report provides a holistic view of the banks’ strategies for sustainability, ensuring a comprehensive approach to the adoption of sustainable finance within Egypt’s banking sector. This comprehensive strategy reflects the CBE’s overarching commitment to align Egypt’s financial sector with global best practices in sustainable finance, ensuring its alignment with both national and…
Read More: Advancements in ESG standards integration within banking sector: CBE’s Sub