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Africa and Middle East banking sectors nurture sustainable finance growth

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Sustainable finance is growing across the Africa and the Middle East region, home to countries most vulnerable to climate change and dependent on fossil fuels. In an interview, Dr. Dalia Abdelkader, chief sustainability officer at Commercial International Bank (CIB), gives her view on the progress being made across the region, and the role of the CSO in helping to drive this.

Governments, financial institutions and corporates across MEA are increasingly joining the global rush to raise green and sustainable finance, which is expected to breach $1 trillion again this year after doing so for the first time in 2021.

Driving this is the need to finance the sustainable transition in countries that are not only some of the most vulnerable to rising global temperatures, but also heavily reliant on hydrocarbon power.

It’s a powerful combination of factors, which together with national governments’ carbon reduction commitments, is supporting demand across MEA for sustainable finance, from green and sustainability-linked bonds and loans to Sukuk.

This doesn’t only take regulations – financial institutions must take on responsibility. Compliance does not get them to deliver on sustainability. That happens when they start to realise the business case and how the environmental, social and governance dimensions of sustainability impact their bottom line, mitigate the risk and drive revenues
Dr. Dalia Abdelkader, chief sustainability officer, CIB
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So far, total issuance from the Middle East North Africa (MENA) region alone – recorded at $18.64 billion in 2021 – only makes up only a small proportion of the global total, but that proportion is expected to continue to expand rapidly over the coming years. It has to.

“Africa and Middle East region in particular are extremely vulnerable to climate change,” says Abdelkader. “We’re talking about a population that in some countries are on the brink of starvation, that are facing droughts and water scarcity, and wrestling with a lack of access to power. These are very significant issues and finance can help address and mitigate them.”

Importantly, she adds, many financial regulators and institutions in the region are now seeing that sustainability is not an issue that is an optional consideration, it is, rather, a new “imperative, which has led to change and momentum in the regulatory landscape to support growth and development in sustainable finance.”

Such progress is positive, but it’s not entirely unilateral. Some countries in the region are, for instance, pushing harder than others to put in place the regulatory framework that positions sustainability, and the provision of sustainable finance, at the core of banks’ operations.

Regulatory maturity

Egypt is one country that is pushing hard.

On November 3, just ahead of COP27, the Central Bank of Egypt introduced new sustainable finance regulations, an important development that should help support the role of the banking sector in helping the country achieve its Vision 2030 strategy and UN Sustainable Development Goals.

Some of the key requirements of the new regulations include requiring banks to establish an independent department for sustainability and sustainable finance, as well as having lenders integrate policies and procedures for sustainable finance within their credit and investment policies.

Together with this, the regulations are designed to help direct banks towards financing more sustainable projects, enhance investment opportunities, and require banks to prepare periodical sustainability reports and consult environmental experts in assessing large corporate projects.

“This is a major shift in the market and for all banks in the country regardless of their size or level of maturity,” says Abdelkader

Together with Egypt, Abdelkader says there are five other countries that are showing good progress on developing their markets in sustainable finance – Morocco, Bahrain, Jordan, Tunisia and the United Arab Emirates (UAE).

“The regulatory landscape is becoming very mature in this region with different levels of intensity from mandatory to voluntary regimes. All of these countries have sustainable development strategies and some countries, such as Egypt, also have a climate strategy in place,” says Abdelkader.

She adds, however: “This doesn’t only take regulations – financial institutions must take on responsibility. Compliance does not get them to deliver on sustainability. That happens when they start to realise the business case and how the environmental, social and governance dimensions of sustainability impact their bottom line, mitigate the risk and drive revenues.”

CSO role

If there is an executive role within any organisation that plays an important role – perhaps the most important – in driving the business case of sustainability, the chief sustainability officer is it.

In recent years, there has been an explosion in hiring activity around CSOs among banks and other companies across industries, creating a war for talent in this area.

At its core, the CSO takes the lead in figuring out the practical application of sustainability across an organisation’s operations – taking it from concept or principle to implementation and operationalisation.

Put another way, Deloitte, the auditor and consultancy, says the CSO is emerging as the “sense-maker in chief” in the organisation.

“They are being asked to interpret changes in the external sustainability environment and work out the strategic consequences for their firm. The CSO is also charged with influencing, communicating and cutting through the organisational complexity to allow their firm to deliver on ESG commitments,” says Deloitte.

Abdelkader shares this view, adding: “Increasingly companies need someone who is focused on managing the external challenges that emerge in this fast-paced, complex environment,” she says. “Many of these environmental risks are unfamiliar to banks, so the CSO needs to step-in, provide that knowledge and leadership, and try and strike a balance between addressing the external threats and managing growth sustainably.”

This isn’t easy to achieve, with a key challenge often being the need to manage so many different stakeholders, says Abdelkader

“Its no longer the case where the relationship is between the bank, the client and the regulator. Now you have civil society, academia, younger more demanding generations, and an expanding group of environmental stakeholders to also engage and interact with. You need someone to manage this.”