15 minute read 13 Nov 2023
green eco friendly building

How MENA banks are bridging gaps to progress their ESG performance

Charlie Alexander

EY MENA Financial Services Leader

Experienced global financial services professional. Worked in Europe, Asia-Pacific and MENA. Building lasting relations by doing the right thing. Travel and sports fan. Husband and father of three.

Jessica Robinson

MENA Sustainable Finance Leader

A global expert on ESG, advising financial institutions, institutional investors, governments, regulators, sustainable finance, investment practices, climate and carbon finance.

15 minute read 13 Nov 2023

Show resources

The latest EY ESG MENA Bank Tracker 2023 tracks the collective progress of the top 20 banks across the MENA region.

In brief

  • ESG strategies in MENA banks are common but lack depth and governance.
  • Sustainable finance activities are on the rise, with a focus on lending to corporate clients.
  • Climate risk management and international sustainability participation need improvement among MENA banks.

With MENA countries working toward net-zero commitments, they will be expected to play an active supporting role. Regulatory authorities in the MENA region are now working on sustainable finance regulations and guidance, including potential sustainable taxonomies, and it’s likely that some countries will soon make disclosure of environmental, social and governance (ESG) risks mandatory. Therefore, banks will be required to engage with companies in their loan portfolios to chart an ambitious climate transition.

The article is based on a survey that reviews how far the 20 largest banks in MENA have progressed in putting ESG at the center of their business strategy. Many banks have been stepping up their provision of sustainable finance products. At the same time, there are gaps in terms of integrating climate risk and broader ESG risk into their overall risk management frameworks. With the MENA region highly vulnerable to climate change, these medium to long-term risks are material.

The sooner that banks start making climate risk assessments, the sooner they will understand the risks that they face. Yet this is not just about risk, first movers have an opportunity to increase profitability and improve brand loyalty by providing innovative sustainable finance products for priority sectors and companies. This study is designed to help banks benchmark themselves against their peer group and inform policymakers and regulators in MENA, with the aim of encouraging changes.

(Chapter breaker)

Chapter 1

The progress and development of ESG strategy and governance

While MENA banks are planning ESG strategies, the progress toward real change is uneven.

Almost three-quarters of MENA banks have introduced ESG strategies, yet it is notable that far fewer have robust ESG governance and accountability frameworks that promote rigorous implementation.

A carefully conceived ESG strategy is an important foundation. It is both a way of aligning ESG objectives with the bank’s broader business strategy and a preparation for new ESG regulations. In a key finding, our analysis shows that 70% of the banks reviewed have published ESG strategies. Of the remaining 30%, half intend to introduce a strategy and the balance is not disclosing any plans yet.

Among those with ESG strategies, though, progress toward rigorous implementation remains uneven. Encouragingly, half of all the banks surveyed describe the main pillars that support their ESG strategy. Specific pillars vary depending on a bank’s approach and priorities, but MENA banks generally encompass the following:

  • Preserving the environment
  • Committing to fight climate change
  • Fostering ethics in activities and relationships with employees and suppliers
  • Engaging with stakeholders and communities
  • Promoting sustainable financing

A further 20% regarded as top performers specify robust ESG frameworks backed by key performance indicators for measuring ESG implementation.

Gaps in ESG governance

While banks are making progress in introducing ESG strategies, fewer have ESG governance structures extending to the board or senior management level. This suggests they may lack the support and means to drive the execution of ESG measures throughout the bank.

ESG MENA graphic 01

More than half (55%) of the banks reviewed have a formal ESG committee at the board level (20%) or at the management level (35%), showing that they are moving toward having accountability at senior levels. Yet approaching half do not have any type of ESG committee at any level.

What is more, this picture of governance gaps extends throughout the banks. Notably, while many MENA banks have set up ESG working groups and committees for operations and decision-making, only a third (35%) have appointed a Chief Sustainability Officer (CSO).

Finally, only a fifth (20%) of banks have explicitly linked senior executive remuneration to ESG targets. By not doing so, MENA banks are falling behind international peers: banks elsewhere increasingly link variable remuneration to ESG performance.

  • Call to action

    Banks should focus on ESG strategic thinking and direction, embedding ESG into broader commercial strategies and business plans.
    They should back this with robust governance and oversight covering ESG’s risks and opportunities, as well as progress on ESG implementation.

    Globally, ESG has become an essential part of a bank’s broader strategy — both for designing future commercial pathways and navigating new regulations. Banks need sharply defined ESG strategies so that ESG considerations are integrated into core operations and decision-making. More challenging issues such as committing to and achieving net zero will often require fundamental changes to a bank’s strategy, and therefore it is crucial that the board and senior management lead this change if it is to be integrated at all levels of the bank.

    To establish an effective governance structure or framework, there needs to be clear roles and responsibilities and accountability across business lines. This should be supported by a well-resourced sustainability team with the right capacity and skills, such as climate risk stress testing capabilities, to achieve sustainability ambitions.

    What’s more, banks should peg the remuneration of senior leaders to effective integration and implementation of ESG. Doing so creates a strong incentive for senior leaders to prioritize and drive sustainable practices throughout the organization.

(Chapter breaker)

Chapter 2

Stepping up sustainable finance

MENA banks are increasing their offerings of sustainable finance when making investment or lending decisions.

The establishment of sustainable finance frameworks by 45% of the banks surveyed, typically linked to environmental and social consideration is the evidence of how MENA banks are shaping its progress. These frameworks tend to be backed by international standards such as the International Capital Market Association’s (ICMA), Green Bond Principles (GBP), Social Bond Principles (SBP) and Sustainability-Linked Bond Principles (SLBP) but banks should seek second-party validation to improve investor confidence.

In fact, more than half of the banks surveyed provide sustainable finance, and a further 10% of the sample do so without having a formal framework. In general, they are lending to projects in the fields of renewable energy, low-carbon buildings and employment generation. When it comes to providing sustainable financing products to corporate and institutional clients, MENA bank’s offerings compare favorably with global banks.

To that end:

ESG MENA graphic 02

There is less emphasis on sustainable retail bank products. The most popular is the green or hybrid vehicle loan, provided by 35% of banks. Additionally, 25% of banks extend solar loans and 10% green mortgage loans.

However, there is room for growth in all types of sustainable financing products, as indicated by the fact that only 25% of surveyed banks have set sustainable finance targets. Most of these (20%) plan to commit capital to green projects such as renewable energy and green buildings, while the balance (5%) aims to grow their ESG-specific lending. These targets matter because they drive banks to create ESG-aligned product offerings and actively market them.

  • Call to action

    Across MENA, governments are driving climate agendas with national net-zero commitments. Alongside COP28, this means demand for sustainable finance in the MENA region is likely to increase. This represents a significant opportunity for banks in MENA to aggressively grow their sustainable finance portfolios. There has been a huge demand for sustainable finance products elsewhere in the world, with banks often exceeding their targets for these products. Banks in the region should look to expand their product offerings for corporate clients by providing ESG advisory and underwriting services, sustainable trade and supply chain finance, sustainable repos and carbon-specific tools. Meanwhile, they can offer retail clients sustainable cards, green deposits, sustainability-linked loans and ESG risk tools.

    What’s more, banks will have an important role to play once a voluntary carbon market is established in the region. They will issue, validate and circulate carbon credits, in this way complimenting borrowers’ decarbonization efforts and enabling the diversification of funds to high-impact projects.

(Chapter breaker)

Chapter 3

Climate risk management at an early stage

Climate change in the MENA region is now a major risk for financial institutions.

Significant effort needs to be made to improve resilience for financial institutions. Rising temperatures are expected to have serious repercussions for the region’s agriculture, energy, water, coastlines and tourism. Yet few banks appear to have integrated climate risk into their risk management frameworks.

More than 80% of the banks surveyed do not have a climate risk policy or a commitment statement. Consequently, there is little evidence to suggest climate risks are being analyzed or mitigated.

This stands in sharp contrast to the concerns of the global banking community. Most MENA banks do not embed sustainability considerations, especially climate change, into their overall strategies.

As a result, most of them have not calculated their financed emissions, do not know their exposure to high-emitting sectors, and have not set a timebound commitment to achieving net zero. Further, less than 30% of the banks surveyed have set sectoral-level climate risk ambitions (exclusion lists, winding down of exposures to high greenhouse gas (GHG) emitting sectors, etc.)

Currently, the actions of MENA banks are primarily driven by local and subsidiary jurisdiction regulations, international best practices and pressure from international counterparties in jurisdictions with strict regulations on climate risk management. Even though most of the regulatory guidance in MENA is on a voluntary basis today, effective climate risk management will require significant preparatory actions. For this reason, CEOs and CROs need to act immediately to improve climate risk management.

  • Call to action

    Climate change creates pervasive risks and impacts that could be surprising and irreversible. Financial institutions will play a critical role in the fight against climate change, which starts with assessing climate-related risks and opportunities. Climate risk assessments are an iterative journey, taking several years to develop and integrate. The sooner MENA banks begin this journey, the faster they will understand the risks they face. Additionally, the banks leading in this area will find opportunities to increase profitability by developing new products.

    MENA regulatory bodies have already started signaling that banks must adequately manage climate risks, which often involves looking out as far as 30 years.

    The following are some of the immediate key priorities for banks:

    • Embed climate risk assessment in lending and investing decision-making.
    • Integrate climate risk within the overall risk management framework of the bank by updating policies, processes and procedures.
    • Conduct climate risk stress testing using internal climate scenarios (as well as regulatory, if applicable) to test the resilience of the bank’s strategy.
    • Set targets for climate risks in line with overall business strategy.
    • Identify the climate-sensitive sectors that the bank is exposed to (e.g., oil and gas, agriculture, power generation) and develop strategies to manage risks.
    • Calculate scope 1, 2 and 3 GHG emissions and assess related risks.
(Chapter breaker)

Chapter 4

ESG risk integration lags regulatory expectations

MENA banks are integrating ESG within their risk management practices with a narrow scope that lags regulatory expectations.

Even though most of the regulatory guidance in MENA is on a voluntary basis today, the regulators expect banks to be fully prepared for a future mandate to integrate all material risks in their risk management framework, including ESG risks.

Approximately 60% of the banks surveyed claim to integrate ESG into risk management, however, only 40% of banks surveyed have an ESG policy, risk statement or undertake ESG risk assessments. Further, just 60% of the banks conduct ESG materiality assessments. This analysis demonstrates inadequate coverage of all the components required for full integration of ESG within risk management frameworks. In conclusion, there is a lot of CEOs and CROs who can do to broaden the ESG risks considered and integrate them into enterprise risk management frameworks.

  • Call to action

    Further action is required to fully integrate ESG risks into enterprise risk management frameworks. Many leading banks in MENA are still exposed to environmental and social risks, as over half of the banks assessed do not undertake an ESG risk assessment or frame an ESG risk policy or statement.

    To address this, banks should prioritize the integration of ESG risk assessment and management into their overall risk management frameworks. This involves identifying, assessing and monitoring ESG risks, including climate-related risks, and developing policies and statements that guide their approach to managing these risks.

(Chapter breaker)

Chapter 5

Journey toward net zero

When it comes to reducing their own environmental footprints, banks in MENA are making progress.

Qualitative analysis indicates that 19 of the 20 banks surveyed have introduced some measures to cut carbon and reduce waste in operations. However, few are currently attempting the challenging task of doing so throughout their value chains.

Common measures include energy-saving strategies, purchases of renewable energy, recycling and steps to reduce water consumption. Some banks have green buildings at headquarters and branch levels, with Leadership in Energy and Environmental Design (LEED) ratings. LEED provides a framework for healthy, efficient and cost-saving green buildings.

Yet this activity is not matched by a commitment to reporting their progress within formal frameworks related to scopes 1 and 2. Just 45% of surveyed banks are committed to measuring and reporting scope 1 and scope 2 emissions. Moreover, under half of the banks have formal targets for cutting carbon toward net zero, or generally shrinking their environmental footprints.

When it comes to scope 3 emissions, which encompass banks’ entire value chains, only 30% are committed to reporting. Banks are reducing their footprints through:

  • Energy efficiency
  • Waste management
  • Sustainable procurement
  • Call to action

    Banks must start baselining and reporting both scope 1 and 2 emissions as a minimum activity, with the aim to step up to scope 3 in the next two years.

    Scope 3 (category 15) is especially crucial as 99% of a bank’s carbon footprint relates to its financed emissions.

    Turning to their longer-term goals, banks will need to introduce net-zero targets to match their countries’ commitments. They must plan and undertake adequate measures to reach their targets.

(Chapter breaker)

Chapter 6

Low engagement with global sustainability initiatives

Being more environmentally sustainable means banks must redesign their business models.

Climate change requires banks to look into the future and decide how to respond. That makes international engagement important. Banks can learn about best practices from their peers, while also influencing emerging norms and standards.

However, participation of MENA banks in international sustainability frameworks is low. Only five out of the banks surveyed, which represents 20%, have signed up to the UN Principles for Responsible Banking (PRB), the world’s foremost sustainable banking framework with 356 signatories in total.

Membership of other initiatives is even lower. Just 10% of MENA banks have signed the equator principles and only 5% have joined the Net-Zero Banking Alliance (NZBA). Besides, none of the banks surveyed have signed up for the Paris Agreement Capital Transition Assessment (PACTA) or the Banking Environment Initiative (BEI).

For context, beyond the scope of our survey, 29 MENA banks have signed up to the PRB. Only four have joined the NZBA, as of September 2023 which has 130 banking signatories.

  • Call to action

    Banks should consider the advantages of signing up for global sustainability initiatives like the PRB.

    By doing so they can learn from peers how best to align their businesses with the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement.

(Chapter breaker)

Chapter 7

ESG disclosure likely to drive future progress

Aligning with ESG disclosure standards is rapidly becoming essential.

EY analysis finds that 70% of the banks surveyed now publicly disclose their ESG metrics and related information, either through annual reports or sustainability reports. They are likely to increase the scope of reporting in the future, which is likely to lead to greater ESG progress.

Equally important, many have signed up to international reporting standards. Notably, 65% report their alignment with GRI sustainability reporting standards for banks in their annual reports, which is compulsory in the UAE.

Meanwhile, 30% and 5% respectively report in line with the SASB and Task Force on Climate-related Financial Disclosures (TCFD). Anecdotally, several banks have committed to adopting TCFD standards in the future, while one of the banks surveyed has committed to adopting the Partnership for Carbon Accounting Financials (PCAF) standard to calculate financed emissions.

As standards are adopted more widely, stakeholders will have a much clearer picture of a bank’s sustainability performance, which in turn will increase pressure on banks to improve that performance. However, a number of banks may be poorly prepared to do so.

  • Call to action

    It is expected that regulators and central banks in MENA will rapidly catch up with their global peers and will soon require similar disclosure standards from regulated financial institutions. This particularly relates to climate risk.

    Given the likely introduction of mandatory requirements driven in part by the momentum around COP28, banks should begin preparing sooner rather than later, particularly as ESG reporting is likely to become quite onerous rather quickly. The expectations for reporting on an international level are becoming more prescriptive and complex, which can be seen in the International Sustainability Standards Board’s (ISSB) recent standards. ESG and sustainability are crucial elements for the financial performance of banks and standard setters are trying to enhance their alignment.

    We are starting to see a shift globally to expect limited assurance of ESG and sustainability reports (e.g., Corporate Sustainability Reporting Directive (CSRD) in Europe). This means banks will need to promote a robust internal control environment for reporting, which should be established now ahead of the movement to mandatory assurance.


As COP28 will highlight, climate change is a pressing issue for banks in MENA. It will serve as an opportunity to engage with regulators and peers, as well as to learn more about best practices in terms of integrating ESG’s opportunities and risks into strategy and operations.

It is no exaggeration to argue that COP28 represents a new era for banks in MENA — one in which ESG will become far more of a priority. It is a time of change in which successful banks will be those that not only understand the risks but also grasp the business opportunity. ESG is far more than a compliance issue — it is also an opportunity to gain a competitive advantage through sharpening risk management and winning new clients.

  • Methodology

    Based on publicly available information, our tracker provides an in-depth analysis of ESG strategy, financing, leadership, risk management and progress for the top 20 banks in MENA. The report outlines the gaps and action areas for MENA banks to progress their ESG performance while advancing their sustainable finance products and services.


Banks in the MENA region are making progress in adopting ESG strategies, with nearly three-quarters having them in place. The strategies are in the early stages of development, and there is room for enhancing their depth and maturity. Sustainable financing activities, such as lending for renewable energy projects and green bonds are on the rise. Despite climate change being a significant risk, few banks have integrated it into their risk management frameworks. ESG risk integration often falls short of emerging regulatory expectations. While some banks are reducing their environmental footprint, there's opportunity for enhancement in reporting emissions. Overall, greater ESG disclosure and adherence to international standards are seen as drivers of positive change.

About this article

Charlie Alexander

EY MENA Financial Services Leader

Experienced global financial services professional. Worked in Europe, Asia-Pacific and MENA. Building lasting relations by doing the right thing. Travel and sports fan. Husband and father of three.

Jessica Robinson

MENA Sustainable Finance Leader

A global expert on ESG, advising financial institutions, institutional investors, governments, regulators, sustainable finance, investment practices, climate and carbon finance.