- Banks have a critical role in financing the transition to the low carbon economy, as well as identifying and managing climate risks related to business activities
- Sustainability has shifted from an ethical issue to an existential question for UAE banks
Dubai, October 25, 2021: Environmental, social, and governance (ESG) issues as well as their associated opportunities are becoming increasingly relevant for financial institutions. For banks, sustainability is not just an ethical issue, but may soon become an economic and existential question. This is among the key findings of a new KPMG report on ESG risks in UAE banks.
Abbas Basrai, Head of Financial Services at KPMG Lower Gulf said: “ESG issues continue to gain the attention of consumers, investors, and other stakeholders who are urging businesses throughout the economy to transition to a low-carbon environment. Gathering appropriate metrics and reporting on ESG strategies are becoming business imperatives today. While ESG risk is not a fully stand-alone category, it exerts influence on financial and non-financial risks present in a bank to varying degrees.”
“Integrating ESG as part of the way to do business can create new opportunities and serve to attract and retain customers. Embedding ESG as a part of all business decisions, based on a deep understanding of stakeholder expectations, can contribute to broader strategic objectives and be a significant competitive differentiator,” he added.
The KPMG report highlights the UAE’s initiatives to address ESG issues and drive sustainability under the framework of the UAE Vision 2021, in alignment with the UAE Green Agenda 2030-2015, the Dubai Plan 2021, the Paris Agreement, and the 17 UN Sustainable Development Goals (SDGs).
The UAE’s Security and Commodities Authority (SCA) has issued guidelines for public-listed joint stock companies (PJSC) to comply with specific ESG disclosures, including publishing an annual sustainability report. The PJSCs are also required to comply with the Global Reporting Initiative (GRI) standards. The KPMG report notes that the Dubai Financial Market (DFM) has updated its Shari’a standards to cater to sustainability, covering the issuance of green sukuk, shares, and green investment funds. DFM has also been involved in advocacy work and has launched numerous initiatives with national agencies for the adoption of ESG integration and disclosure.
The KPMG report looks at various ESG factors and sustainability issues within the UAE banking sector, highlighting possibilities to embed them into risk management frameworks, in particular stress testing, and showing parallels to the Covid-19 crisis.
According to the KPMG report, ESG risks can affect the bank directly (for example, storm damage to bank buildings), but also affect customers (for instance change in sales opportunities, production disruptions, etc.) which could lead to higher loan defaults. The Covid-19 crisis and its impact on banks has much in common with ESG risks. Banks can leverage their experience with the pandemic to better cope with future sustainability related challenges.
Notes to Editors
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