Advancements in ESG standards integration within banking sector: CBE’s Sub Governor

Hossam Mounir
11 Min Read

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 international objectives for sustainable development.

Regarding carbon emissions, all banking institutions were asked to conduct measurements of the carbon footprint associated with their headquarters in 2022, as per the regulations. The purpose of this was to elevate the banks’ consciousness regarding their direct emissions (Scope 1) and to catalyse a broader institutional reflection on their environmental impact. This requirement helps enhance the financial sector’s accountability and transparency in environmental stewardship.

In addition to this, capacity building is a fundamental pillar of the CBE’s strategy for promoting sustainable finance, in collaboration with the Egyptian Banking Institute (EBI) and various international organisations dedicated to providing training and technical assistance designed to enhance the capabilities of banks and financial institutions in managing climate risks. This effort emphasises CBE’s commitment to amplifying public awareness about the critical role of sustainable finance in our collective future.

Collaborations and Partnerships play a vital role domestically as they ensure alignment with Egypt’s climate goals, and internationally, through engagement in forums like the NGFS, allowing the CBE to share experiences and adopt global best practices. This global collaboration enriches our understanding and approach to green finance, positioning the Egyptian financial sector as a proactive contributor to global environmental objectives.

All these aforementioned measures are in alignment with the broader objectives of the national sustainable development strategy, Egypt Vision 2030 & the National Climate Change Strategy (NCCS 2050) ensuring that the country’s financial sector not only contributes to but also benefits from sustainable development goals. Within this broader vision, the Central Bank of Egypt plays a crucial role by encouraging the private sector to mobilize finance by directing financial flows towards sustainable projects and activities that contribute to environmental protection and the transition to a low-carbon economy.


How has the CBE utilized the NGFS’s initiatives in its domestic financial strategies? Can you provide specific instances?


The CBE has significantly leveraged the work of the NGFS in advancing its domestic journey towards integrating climate change considerations into its financial system. A testament to its commitment is the CBE’s active participation in various NGFS working groups, which has been instrumental in building the central bank’s capacities in various crucial areas.

Being part of these working groups allows the CBE to stay at the forefront of global best practices and innovations in green finance. This participation is a strategic engagement that has enabled the CBE to absorb a wealth of knowledge and expertise, directly influencing its policy-making and regulatory frameworks. For example, through its involvement in the NGFS, the CBE has gained insights into developing and implementing regulatory guidelines for the banking sector.

One concrete example of the NGFS’s influence on the CBE’s practices is the adoption of the NGFS climate scenarios for stress testing. These scenarios provide a benchmark for the CBE to assess the resilience of Egypt’s banking sector to various climate-related risks. The stress testing framework, inspired by the NGFS, allows the CBE to simulate different climate pathways and their potential impact on financial institutions, including physical risks associated with climate change and transition risks during the shift to a low-carbon economy. These stress tests enable the CBE to quantify the potential financial exposure of banks showing the potential impact of climate-related risks on the banks’ liquidity, credit, reputational and market risk. Secondly, the insights gained from these stress tests guide the CBE in advising banks on enhancing their risk management practices, particularly in terms of incorporating climate risks into their strategic planning and decision-making processes.

The engagement with the NGFS has also facilitated the CBE’s efforts in capacity building within the Egyptian financial sector. Through workshops, training sessions, and shared research facilitated by the NGFS, the CBE has been able to enhance the understanding and capabilities of local financial institutions regarding climate risks and sustainable finance.


As we conclude our interview, what final thoughts or messages would you like to share?

I would like to commend the NGFS for its unwavering commitment to integrating climate considerations into the global financial landscape. The collaborative efforts and shared wisdom of this network have been instrumental in guiding the CBE along its journey toward a more sustainable and resilient financial sector.

The NGFS’ influence on methodologies used for climate risk assessment and for encouraging collective action puts it in a unique position to encourage the inclusion of developing and low-income countries within their frameworks. Therefore, we recommend that the NGFS:

– Create simplified climate stress tests and scenario analyses that can be easily integrated into developing economies’ financial stability assessments, considering the varying technical capacities and data availability.

– Provide cross-border exposure on climate risk management, by encouraging more members to share their experiences and challenges, so that countries at the beginning of their journey do not have to reinvent the wheel.

– Support the uptake of the unified disclosure standards for climate risk (ISSB IFRS 2) by member institutions to ensure global coherence and increase the availability of cross-border data.

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