Forum on Financial stability and climate change

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Forum on Financial stability and climate change

نشاط الاتحاد
العدد 497 - نيسان/أبريل 2022

Forum on Financial stability and climate change

Resilient Economy for Better Planet

Meeting Rationale:

Climate change has considerable consequences on our planet, economy, and financial systems. As a result, climate change is crucial to the Union of Arab Banks ‘objective of ensuring financial stability among its member banks, while also promoting economic growth throughout the Arab region.

Therefore, the Union of Arab Banks (UAB) organized its first time conference in UN Office Geneva after being accredited special consultative status in 2019 to create awareness and understanding within the financial industry on climate change impacts. The forum has brought together regional and international experts, practitioners, bankers and regulators to explore the impact posed by climate risk on financial stability and supervision.

Background Information:

Climate change has become one of the biggest challenges faced by both the policymakers and the business community (Carney, 2015; Mercer climate change study, 2015; WEF, 2017) and is threatening the implementation of the SDGs, especially in developing countries.

At best, prospects of achieving the 2030 Agenda will be delayed without a strong structural implementation of the SDGs, particularly in developing countries (UNCTAD, 2015).Financing continues to be a major obstacle to the 2030 Agenda’s implementation for sustainable development.

By transitioning to a more resilient, inclusive, and green economy, the financial industry is anticipated to play a critical role in financing the 2030 Sustainable Development Agenda. Financial institutions and markets would contribute to the continuing global structural transition toward sustainable development by efficiently mobilizing public and private resources to more socially, ecologically, and economically sustainable activities. The Arab countries’ finance gap for achieving the SDGs is anticipated to be at least 230 billion USD each year, highlighting the region’s urgent need for action (UNEP FI 2021).

Meeting Flow:

The meeting started on Wednesday 13th of April 2022 with an opening remark from Dr.Joseph Torbey, Chairman of the World Union of Arab Bankers, and Mr. Wissam Fattouh, Secretary General of UAB, followed by a key note speech of Mr.Peter Simon, Managing director of World Savings and Retail Banking Institute WSBI and European Savings and Retail Banking Group ESBG.

Dr. Joseph Torbey, Chairman of the World Union of Arab Bankers emphasized the banking sector’s great responsibility as the primary financier of economic sectors and activities in most countries – to be strict in financing projects or investments that are harmful to the environment, and to include environmental considerations and standards among the conditions for providing credit. Dr. Torbey stressed on the prominent role of the Union of Arab Banks in promoting an Arab green economy, by encouraging investments and lending that support the environment, and by organizing relevant conferences and seminars, which aim at spreading the awareness on “environmental economics” and “environmental banking”, and to shed light on the close relationship between the economy, finance and the environment.

Mr. Wissam Fattouh, Secretary General of UAB, highlighted the vital role of the banking systems in addressing the SDG’s challenges in order to ensure economic welfare, environmental quality, social cohesion and prosperity for future generations, and play important role in promoting sustainable development as an integral pillar and enabler of economic development.

In addition , Mr.Fattouh shed the light on the current geopolitical crisis and the war taking place in Ukraine that has highlighted the interconnection between conflicts on one hand, and climate risks and energy and food insecurity on the other hand.

Mr.Peter Simon , Managing Director , World Savings and Retail Banking Institute WSBI and European Saving and Retail Banking Group ESBG , stated that Climate change, the protection of our environment and the fight against growing inequalities are global problems that can only be solved through a combination of local and global action.Only an economic system that provides equal participation for all layers of society can assure a transformation to more sustainable business models. We reached a point of no return on the journey that takes us from polluting the planet to cleaning it. For the banks, sustainable finance is no longer just a virtue-signalling additional option in the corporate toolbox. It is a core part of a broader purpose – building a better and sustainable future, through responsible and innovative financial solutions.

Session Details:

– DAY 1 (8/4/2022) SESSION 1:

RESPONDING TO A NEW ERA OF CLIMATE RISKS

AND ASSESSING CLIMATE CHANGE IMPACTS IN ARAB REGION.

The first session, responding to a new era of climate risks and assessing climate change impacts in Arab region, focused on climate change impact on the Arab region, The moderator of this session, Mrs.Carol Chouchani Cherfane, Director -Arab Center for Climate Change Policies, Cluster Leader, of the Climate Change and Natural Resource Sustainability Cluster, at UN –ESCWA , opened the session by giving a brief outline of climate finance to the Arab region and type of climate finance needed to support a resilient green recovery and inclusive sustainable energy transition within the regional context. Mrs Chouchani added that Escwa has assessed the bilateral and multilaterals flows coming to the region , and noted that the Arab region received only 5 to 10% of global bilateral assistance for climate , furthermore, the Arab region received 3.5 times more support for mitigation than adaptation, and 8.5 times more debt than grant support. She concluded by saying that increasing debt burdens and recovery from the COVID-19 pandemic have reduced the fiscal space available to pursue green and resilient recovery and thus, governments cannot do this alone.

It was necessary to engage the private sector. In this regard the banking sector has the opportunity to leverage it’s resources and knowledge to support and mobilize climate action in the region.

During this session,AFED . UNCTAD, and the IFC shared their experiences and discussed the new era of climate risks, vulnerabilities and impacts facing the Arab region. This includes increasing temperatures, water scarcity and sea level rise, which are affecting cities, coastal areas, water security, food security and rural livelihoods, as highlighted by AFED and UNCTAD.

Mr.Najib Saab , Secretary General of the Arab Forum for Environment and Development (AFED), focused his presentation on climate change impacts affecting the Arab region, mainly based on the findings of AFED’s annual State of Arab Environment report. He highlighted the significant economic damages that unmitigated climate change will have on human health, food production, sea level rise, coastal areas, the tourism sector as well as on buildings and infrastructure . In doing so, Mr.Saab,also shared options for pursuing a sustainable energy transition in the region, such as through carbon markets as well as through energy efficiency and investments in renewable energy projects, such as solar , wind and hydrogen.

Mr.Robert Hamwey, Economics Affairs Officer, UNCTAD, focused his presentation on how projected climate change and increasing temperatures are affecting trade and competitiveness and driving the need for green finance and investment ,. In doing so, he highlighted that climate risks require mobilizing action on climate mitigation and adaptation to meet global climate goals , but event if we lower risks that some impacts remain unavoidable . He concluded by noting that banks should look beyond supporting big infrastructure projects, but also support SMEs with concessional loans to allow them to undertake micro and stepwise adaptation actions and build resilience.

Mr.Martin Dasek , Senior Climate Financing Specialist and Climate Advisory Expert at the IFC, discussed avenues through which the financial sector , including central banks, private banks and regulatory authorities, can incorporate climate change consideration in their operations and sustainability plans, and move from business as usual to sustainable banking and net zero. Innovative opportunities exist for increasing financing and investment in Blue Economy sectors, as supported by the IFC’s new blue Finance guidelines that are setting the standard for the blue bond market and investments in oceans and water-friendly projects such as manufacturing, water treatment, shipping, fisheries, tourism and waste flows generated by chemicals and plastics. He also highlighted the importance of climate risk as a pillar in the transformation towards green banking and the need for banks to make strategic commitments, manage climate risks, provide green product and services, and support eco-efficient supply chains .

SESSION I RECOMMENDATIONS

– The need for more climate finance for adaptation is thus necessary to respond to the region’s water and food security challenges.

– More concessional finance is needed for highly indebted countries as well as innovative climate finance tools for meeting climate goals.

– More efforts and awareness should be done in the Arab region especially in the banking system which have limited awareness of risks associated with climate change.

– Recognizing the importance of climate risk on financial systems , the Union of Arab banks is ready to collaborate with AFED, ESCWA, IFC and UNCTAD to issue an awareness report to guide the banking and financial institutions to build consistent and forward-looking information on the financial impacts of climate-related risks and opportunities.

– DAY I SESSION 2:

CLIMATE RISKS: OPPORTUNITIES AND CHALLENGES FOR THE BANKING INDUSTRY.

Risks of climate change to the banking sector are prone to grave challenges, but might also create opportunities if well accounted for and managed. This needs cooperation between private banks, development funds and central banks, as had been demonstrated in session 2 of the UAB Forum in Geneva. Panelists included senior representatives from the Islamic Development Bank (IsDB), central Bank of Morocco (Bank Al-Maghreb), Central Bank of Jordan and the Financial Regulatory Authority (FRA) in Egypt.

All panellists agreed on the need for a strong regulatory framework to catalyse action, and attract private and institutional sectors to support green investments. Climate action has to be mainstreamed in bank operations, to promote climate resilience and transition to green economy. However, this implies putting in place strict rules to avoid green-washing.

Mr. Daouda Ndiaye, OIC Head of Climate Change Practice at Islamic Development Bank Group (IsDB) highlighted IsDB strategies to attract investments, including public-private partnerships (PPPs) and innovative Green sukuks (bonds adhering to Islamic Sharia). Driving green economic growth should go together with tackling poverty and building resilience. The climate risk management process encompasses screening, impact assessment, adaption, and implementation. Guiding rules for climate risk assessment need to be developed for financial institutions, starting from project evaluation and selection, to monitoring proper execution.

Mrs Najwa Mouhaouri, Head of Green Finance Unit, Central Bank of Morroco and Mr. Mohamad Amaireh, Executive manager , Financial Stability Department at the Central Bank of Jordan discussed in their presentation the responsibility of the Central Banks and national financial regulatory authorities to support green finance by introducing incentives and facilitating access to soft loans and partnerships between national and international financial institutions, as well as between private banks and development funds. Central Banks have to endorse directives that enforce private financial institutions to take into account climate and environmental imperatives. This starts with including the environment and climate footprint as integral part of standard assessments required to approve loans.

Establishing a regulatory and supervisory framework for climate-related risks and capacity building in the domain of climate risks and green finance is of paramount importance, as demonstrated by Mrs.Ragheda Sayed Magdi, training manager of the Regional Center for Sustainable Finance the training arm of the FRA in Egypt.

The Financial Regulatory Authority (FRA) is diligently working on preparing the Egyptian Non-Banking financial Sector to face climate risk, promote stabilization and the adoption of sustainable finance products, and responsible investments through the Regional Center for Sustainable Finance aims to raise awareness and initiate community stakeholder dialogue.The FRA took an unprecedented step towards sustainability and climate-related disclosures by issuing decrees 107& 108 of 2021 in an effort to align the local market companies with the international trends and requirements.

FRA evaluation of the companies’ ESG and TCFD disclosure is very significant in scoping green-washing with keeping balance between encouraging companies to endorsed different forms and aspects of green finance and at the same time not scaring them with very stringent settings for green-washing at this early stage thus assuming a more educational and mentoring role while regulations will come at the consequent phase.

SESSION II RECOMMENDATIONS

– Integrate climate action in bank operations, to promote climate resilience and transition to green economy, and include the environment and climate footprint as integral part of standard assessments required to approve loans, besides advancing capacity building within banks in the domain of climate risks and green finance.

– Call upon governments to enact a strong regulatory framework to attract private and institutional sectors to support green investments, alongside strict rules to avoid green washing.

– Enhance cooperation among private banks, development funds and central banks to manage climate change risks and transform them into opportunities.

– Develop guiding rules for climate risk assessment for financial institutions, starting from project evaluation and selection, to monitoring proper execution.

– Urge Central Banks and national financial regulatory authorities to support green finance, by introducing incentives and facilitating access to soft loans and partnerships between national and international financial institutions.

-DAY 2 SESSION I:

 FINTECH AND SUSTAINABLE DEVELOPMENT: BENEFITS AND CHALLENGES .

The United Nations has defined 17 Sustainable Development Goals (SDGs) to achieve by 2030. By introducing technologies into the financial sector, fintechs contribute directly to Goal 9, “Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation,” but they can play a broader role.

Mr.Ibrahim AbdelShafi El Sherbini , CIO &Acting Head of Digital Transformation ,

Banque Misr , Egypt , focused his presentation on the role of innovation within the financial industry , emphasizing the need of collaborating with fintech and technology firms that are entering the financial sector . In his perspective, traditional banks and financial service companies no longer necessarily look at fintech as intruders in the field but instead should consider them valuable partners when these traditional companies want to reach new goals or increase engagement with their clients.

In addition Mr. Sherbini emphasized on the role of innovation in sustainability, citing financial inclusion as the main driver of innovation.

He concluded his presentation by saying that the banking industry is responding very well to the challenges coming from Fintech and that financial institutions that take the time to define their fintech strategy and align it to their business goals will be best positioned to help forge the future of financial services.

Mrs.Nouran Youssef, DBA Senior Financial Sector Specialist, Arab Monetary Fund, in her presentation addressed opportunities to benefit from digital financial solutions in achieving sustainable development goals through the distribution of material and in-kind assistance, remote customer enrollment, facilitating microfinance, enhancing the efficiency of government revenue management, confronting climate change and assessing the carbon surplus through various digital platforms. On the other hand, the presentation referred to hedging against the risks surrounding the activation of modern financial technology activities to preserve the integrity of the financial sector through a flexible and balanced legislative and regulatory environment, protecting consumers of digital financial services, and raising the efficiency of electronic security frameworks.

The presentation also touched on the added value through partnership and integration between the banking sector and modern financial technology companies through the establishment of companies that take into account the interests of customers first, and work on integration, not competition, between the advantages of both banking financial institutions and modern financial technology companies with the support of public institutions .

SESSION I RECOMMENDATIONS

– The customer journey should always be top-of-mind. Fintech- Banks partnerships can play a role in growing the bottom line and facilitating innovation.

– Enhancing data, establishing national data base for the industry including investments, financing, startups…

– Continue efforts related to policies & regulations to foster innovation within a balanced environment, including the Fintech firms.

– More initiatives are needed to support access to capital and raising funds.

– Enhance collaboration among all stakeholders at the national level , and cooperation between banks & fintechs.

–DAY 2 SESSION II :

THE ROLE OF THE FINANCIAL SECTOR IN DEVELOPING A SOLID APPROACH TO SUSTAINABLE FINANCE IN THE MENA REGION

This session was moderated by MrPaul Smith, Lead Climate Change Consultant at UNEP FI , And focused on MENA banks & Sustainable development, Funding Mega Projects to micro finance And Women and youth access to finance.

Dr Dalia Abdel Kader, Chief Sustainable Officer, Commercial International bank (CIB) Egypt Climate change, in her presentation stated that combined with wider social and environmental challenges, will require considerable investment to transform the regional economy if the Middle East and North Africa are to avoid potentially devastating impacts. The Principles for Responsible Banking provide a framework for identifying areas where banks could scale their impact in responsible financing, however, membership is limited in the region. Scaling sustainable finance from the private sector will also require more ambitious public policy such as the green bond framework developed by the Financial Regulatory Authority (FRA) in Egypt.

In his presentation , Mr.Gaby Tayoun , President , Europtima Build Solutions, said that Despite the economic challenges facing the region, sustainable finance can provide a long-term development pathway by opening up considerable opportunities not only in major investment projects but across the economy if awareness is expanded across the business community, public policy is aligned and data is more widely available – this will also require greater engagement between the private sector and academia in the region.

Ms.Manar Korayem, Senior Operations Officer, Advisor Services, IFC, Africa , in her presentation focused on Business and financial opportunities that must be expanded to under-served sections of the population. Women in the MENA region in particular face the largest gap in access to finance for women of any region in the world. Given the untapped potential of women-led businesses and the higher propensity to save of women business-owners and consumers, the potential for developing this share of the market is huge, bringing both financial and social benefits as demonstrated by the IFC in pilot projects across the region.

SESSION II RECOMMENDATIONS

– Invite everyone to look into the women’s markets to value the business that can be driven from and what value can we bring to the women’s market in relation , summing up all SDGs and the interrelation between all efforts , how we can pillar propositions that would bring value to the women market .

– The need to find a common platform between Academia and financial industry to increase the focus on climate change in order to reach the target of saving the earth’s generosity and building a safe environment.

– UAB and UNEP FI are called to join efforts in order to focus on raising awareness and initiating action-driven capacity building on responsible banking and TCFD for the banking sector in MENA region as well as the North Africa region.

– The call for establishment of sustainable finance governance mechanisms for MENA and the North Africa region in order to face the challenges imposed by climate change