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First TCFD report of CIB Egypt key milestone in addressing climate-related risks
The Commercial International Bank (CIB) of Egypt issued its first Task Force on Climate-related Financial Disclosures (TCFD) Report 2021 / 2022, thus representing an important milestone in the bank’s journey in addressing climate-related financial risks and opportunities through adopting and implementing the TCFD recommendations.
As the first bank in Egypt to support and join the TCFD in 2020, CIB has adopted the framework to ensure proper assessment, management, and disclosure of climate change impact on its portfolios and sustain value creation for its stakeholders.
The bank’s first TCFD report seeks to provide a summary of the climate change potential impact on its business strategies, including related risks and opportunities. It asserts the Bank’s commitment to mainstream climate-related issues into its governance structure, strategy, and disclosures.
This report is an integral component of the bank’s corporate governance practices, whereby, the Board of Directors is keen to disclose climate-related risks and opportunities to its stakeholders.
The report includes four main pillars; Governance, Strategy, Risk Management and Metrics & Targets. The bank has voluntarily committed to reduce its greenhouse gas (GHG) emissions associated with its internal operations and has started the process of setting targets for its portfolios.
The report frames CIB’s climate strategy that focuses on integrating climate risk assessment into the bank’s strategies, while setting a roadmap for climate emissions targets. CIB has been keen to integrate climate risk into its risk framework to provide standard and transparent disclosures to its investors and other stakeholders.
The Bank had the conviction that the TCFD journey entails new business models and knowledge transfer to internalize within its policies and strategy. During 2021, the bank engaged its risk and sustainable finance teams into a lengthy comprehensive TCFD capacity building pilot program conducted by the UNEP-FI, in addition to other TCFD workshops and programs.
During 2022, CIB fostered its climate risk infrastructure with proper governance structures, including the establishment of a new ESG Risk Management unit within the Risk Group.
CIB backs Egypt’s National Climate Strategy:
Alignment with National Strategies and Global Frameworks and Standards CIB’s Climate Strategy has risen from its responsibility as the leading private sector Bank in Egypt to be in line with the Paris Agreement and with Egypt’s National Climate Strategy.
The main objective of Egypt’s National Strategy for Adaptation to Climate Change and Disaster Risk Reduction is to increase the resilience of the Egyptian community when dealing with the risks and disasters that might be caused by climate change and its impact on different sectors and activities. It also aims at strengthening the capacity to absorb and reduce the risks and disasters to be caused by such changes.
The Central Bank of Egypt (CBE) issued its Sustainable Finance circular in July 2021, which provided banks with six guiding principles for sustainable finance. The circular was followed by binding regulations released in November 2022, mandating all banks in Egypt to apply the six guiding principles, including the assessment and measurement of climate–related financial risk and its integration into risk management, as well as integrating the sustainable finance policies into their credit and investment policies. In addition to the CBE guidelines, the Financial Regulatory Authority (FRA) issued Decree No.108/2021 mandating all publicly traded companies with issued capital or net worth not less than EGP 500 million to report and include disclosures related to the financial impact of climate change, in line with the TCFD recommendations, within their annual reports starting December 2022. CIB has provided quarterly reporting to the FRA since Q1/2022 and received the best reporting Award in this respect.
CIB aligns with TCFD:
Aligning with the TCFD recommendations, climate related risks are classified into the following two major categories; Transition Risk which arise from transitioning to a low-carbon/green economy and Physical Risk which arise from the increased frequency and severity of weather events, which include acute and chronic hazards.
CIB views climate risk as a cross-cutting issue that intersects with other existing risk categories within the Bank’s holistic enterprise risk management framework.
Following the identified process of climate risks, different opportunities per sector can be identified. Opportunities mainly center on emerging sustainability technologies and implementation of sustainable projects in each sector, such as energy efficiency, renewable energy, green technologies, pollution prevention, green buildings, and others.
Conducting Risk Management scenario analysis and stress testing to be able to assess the resilience of the portfolios to material climate-related risks and manage capital allocation and the balance sheet towards low carbon emissions.
CIB Climate Change Strategy Pillars focus on “Accelerating Transformation to Low Carbon Economy” (Sustainable Finance), “Measuring and Managing Climate-Related Risks” and “Measuring and Managing Operational and Financed Emissions”.
Reducing the bank’s operational and financed GHG emissions through investment in all possible mitigation measures in its operations.
CIB’s Climate Strategy:
CIB’s Climate Strategy is driven by its growth momentum and the desire to expand on revenues through soliciting funding opportunities for emerging sectors and segments that are availed by the Sustainable Development Goals (SDGs) mandate and funding needs.
Sustainable Finance is the practical translation of the bank’s growth strategy and GHG emissions targets, in addition to meet investors’ expectations.
Sustainable Finance represents an opportunity to decarbonize the lending and investment portfolio and reduce exposure to Transition Risk. It serves the inclusivity and holistic approach of CIB’s Strategy and Sustainable Finance Policy and thus it goes beyond mitigating the impact of climate change and is expandable to include a wider set of sustainability considerations (such as climate adaptation, biodiversity, circular economy and social inclusivity). Accordingly, while it addresses TCFD’s recommendations, it is broad enough to cover unfolding concerns that could be material to the enterprise value.
As the bank commits to align its portfolios with the goals of the Paris Agreement and to set portfolio GHG reduction targets, the effort to mitigate climate change is not only considered as a challenge but as an opportunity as well for CIB operations and businesses.
The bank is committed to mitigating direct and indirect CO2 emissions, generating the necessary capacities for adaptation, and advancing the research and development of new sustainable finance products and services as a collaborative effort among its business lines towards Sustainable Finance.
Achieving this goal will require strong climate policies across the most vulnerable geographical locations and carbon intensive sectors.
CIB Climate Strategic approach includes sustainable finance instruments to help corporate and SME clients secure capital expenditure medium-term loans for launching or expanding their environmentally-friendly operations.
The bank understands the crucial role of the financial sector that plays in addressing climate change by providing the capital needed to expedite the transition to a low carbon and green economy.
CIB is ready to support the radical changes required to the business practices with regard to the industrial processes, land-use, buildings, transport and other infrastructure to align with and achieve the goals of the Paris Agreement. To that end, the bank developed its “Sustainable Finance Product Governance Framework” to provide the guidelines for integrating ESG criteria into its financing and lending activities.
The framework sets out its methodology for developing a portfolio of innovative Sustainable Finance instruments & products in order to meet stakeholders’ requirements and align with CIB’s environmental and social system.
CIB backs Egypt’s NWFE program:
The bank supports the Egyptian Government’s Nexus of Water, Food & Energy ‘NWFE’ that has been launched in 2022 with a total estimated investment cost of $14.7bn, targeting the highest priority projects in the vital sectors of water, food and energy, to be implemented by 2030, in alignment with the National Climate Change Strategy for 2050.
Since the launch of NWFE program, CIB has participated in financing 5 Gigawatt (GW) renewable energy projects. Client Capacity Building Plan (Sustaining Sectors Program) Supporting the transition of client business models, included in high-emitting and hard to-abate sectors, do not only advance CIB’s strategic objectives, but also drives the net zero transition in the real economy.
Realizing the importance of assisting clients through the low-carbon transition pathway, the bank designed and implemented its flagship program titled “Sustaining Sectors”. The program has been conceived to create business opportunities, de-risking its portfolio while helping its clients pursue their growth through adopting sectoral decarbonization pathways.
Sustaining Sectors is a knowledge and action-oriented program introduced by the bank, providing corporates with tailored tools to integrate sustainable practices across their business models.
The program is designed to support corporates to realize their potential and advance their growth while driving system transformation towards a low carbon and a circular economy. The program includes multiple stakeholders, equipping businesses with the necessary tools, capacity-building training, and financial products to transition towards a low carbon economy.
Best practices are introduced and new global and national trends by hosting renowned thinkers, subject matter experts, and national leaders to support business leaders’ transition toward a low carbon economy.
CIB is dedicated to contributing to Egypt’s low-carbon emissions journey and to making this transition a collaborative and impactful effort, not only in Egypt but also throughout Africa. To date, the bank has conducted workshops to support the food and beverage, green built and textile sectors, and continues to work to accelerate the transition for its corporate clients across multiple sectors.
CIB drive towards net zero emissions:
CIB continues to advance its efforts towards GHG reduction through investment in all possible mitigation measures in its operations and its supply chain emissions. This is the third year that the bank has widened the reporting scope to include its ecological footprint, complementing the first Ecological Footprint Report issued in 2019 and the first Carbon Footprint Report in 2018.
As the bank works towards a net zero emissions, CIB is committed to reducing its own operational emissions, including those within Scopes 1, 2, and non-category 15 Scope 3 2. Since 2018, the Bank has been actively reporting on, managing, and exploring opportunities to reduce its operational emissions. The efforts have paid off, as the bank has been successful in reducing its carbon emissions intensity per employee over the past four years.
The Pathway to Net Zero in its Lending Portfolio (Measuring Financed Emission), CIB is voluntarily dedicated to aligning its lending and investments with the goals and timelines of the Paris Agreement, by providing products and services that satisfy its clients’ needs and support their transition toward low-carbon economy.
The transition to net-zero emissions in its lending portfolio requires GHG emission reductions across a number of key carbon intensive sectors.
CIB has undertaken a preliminary assessment of high carbon emitting sectors in its lending portfolio, which will help in developing short- and medium-term actions to manage the associated risks.
The Bank’s medium-term plans are to expand the scope of reporting and coverage on its portfolio emissions assessment, and will include more asset classes and carbon-intensive sectors in 2024.
In setting targets, CIB will leverage on the initial assessment of the bank’s financed emissions. It is working on improving and refining its analysis and coverage using the data sources and methodologies available for the analyzed sectors.
In addition, the bank intends to set a solid baseline against which its targets will be developed and compared, aiming to annually report its progress in a transparent manner.
Resilience of CIB’s Strategy under Climate-Related Scenarios Developing scenario analysis and stress testing capabilities is a critical pillar of the development of the bank’s climate strategy and its resilience against different climate change narratives. Scenario analysis allows various climate pathways to be explored and transition and physical impacts to be quantified in a way that supports robust risk management and strategic decision making.
The bank’s objective from the climate scenario analysis is to understand and assess the impacts across a range of potential outcomes, rather than selecting a single path.
CIB is currently in the process of developing the foundation of its climate scenario analysis and stress testing capabilities and knowledge to learn, understand and preliminarily identify the Bank’s potential exposure to the most material climate-related transition and physical risk drivers.
The framework will provide useful insights into various aspects of climate risk management, including the identification of the data gaps and the enhancement of the framework and strategies.
The bank aims to expand its capabilities and coverage, and increasingly integrate climate change scenario analysis results into relevant business-as-usual activities and key processes to support the implementation of its climate strategy objectives.
CIB and Network of Greening Financial System:
In selecting the climate scenarios, the bank will leverage and build upon the existing work conducted by the Network of Greening Financial System (NGFS), which is currently the most popular provider of scenarios for financial institutions.
The NGFS is a network of 127 central banks and financial supervisors and 20 observers 3 that aim to accelerate the scaling up of green finance and development recommendations for the role of central banks in addressing climate change. It should be noted that the CBE is a member of the NGFS.
While NGFS scenarios have been developed primarily for use by central banks and supervisors, private-sector financial institutions have made use of these scenarios, which provide a common reference framework for analyzing climate risks to the economic and financial system.
The bank believes that the climate scenarios are not forecasts, but rather, pathways of plausible futures (neither the most probable nor desirable) based on a body of research and an agreed-upon, forward-looking narrative for financial risk assessment.
Climate risk management & CIB defense lines:
Integrating the climate risk management into the bank’s existing risk management framework, including process, policies and controls, ensures aligning climate related risks with the bank’s three lines of defense model for robust oversight.
The three lines of defense model adopted by the bank provides clear ownership and accountability for managing risks. The business front lines constitute the first line of defense and are tasked with preliminary identifying and making initial judgment on the potential climate risks of the transactions they are considering.
The ESG Risk Management department constitutes the second line of defense and is responsible of providing independent assessment and measuring of climate risks and working closely with the business front lines for effective challenge of risk, provide guidance and improve practices. Internal Audit, which constitutes the third line of defense, provides independent validation and assurance that its risk management approach, key processes and controls are designed and operating effectively.
The assessment process includes identification of the Bank’s sectors’ potential exposure to plausible climate-related risks. As scenario analysis and stress testing are currently the preferred risk management tools to measure climate related risks, the bank will capitalize on the currently available global references scenarios to support the development of the foundation of the scenario analysis framework and provide us with a common starting point for analyzing the risks under different future pathways.
Based on the identification and assessment process, the bank will prioritize the sectors it considers most vulnerable to climate risks. Within each of these sectors, individual clients may have different levels of risks, as the impact can be positive, negative, or neutral depending on the sectors, the geographies, and the scenarios.
Transition Risk Globally, both banks and supervisors have mainly focused on credit risk and to some extent on market risk, with a much lesser focus on liquidity and operational risk, when assessing the climate related transition risk.
CIB believes that climate related transition risk could have impact on the clients’ financial performance, mainly negatively impacting their revenues, expenditures and cash flows, which should provide a meaningful picture for assessing the impact on the probability of default for clients materially exposed to one of the transition risk drivers.
The bank is currently reviewing the climate risk transmission channels, to link between the scenarios, risk drivers and creditworthiness of borrowers, as this framework will require new data sources and changing the risk management framework.
As an initial qualitative assessment, the bank has scanned its loans portfolio using a transition risk heatmap approach, which is meant to identify climate-related potential risks areas on a high level perspective. The insights from this preliminary analysis will provide the bank with a clearer understanding of the sectors that are more vulnerable to climate transition risks, as well as exploring opportunities for sustainable lending.
For its internal operations emissions, CIB is targeting to minimize its internal operations’ carbon footprint in line with its transition to low carbon emissions by 2050. The bank is aware that achieving this goal necessitates setting climate targets and constantly improving its climate change mitigation strategies to be in line with the best current climate science practices.
For its financed emissions, the bank will leverage the initial assessment of the bank’s financed emissions as part of its Net Zero journey. Net Zero represents the bank’s first attempt to assess its portfolio financed emission, to be able to move forward to set targets for its financed emissions. We are working on improving and refining its analysis and coverage using the data sources and methodologies available for the analyzed sectors.
In addition, it aims to set a solid baseline against which its targets will be developed and compared against. The bank expects the data quality scores to improve over time as clients continue to expand their disclosures to meet growing regulatory and stakeholder expectations.
The bank will plan to set emission reduction targets in line with the latest climate science and define decarbonization pathways using widely accepted science-based decarbonization scenarios. It recognizes that the quality of data and methodologies used in the analysis of financed emissions will improve over time, leading to changes in its baseline and targets.
CIB’s future targets:
In light of the rapidly evolving global development in terms of sustainability and climate related disclosures, CIB is diligently monitoring the updates of the International Sustainability Standards Board (ISSB) in developing the IFRS S1 “General Requirements for Disclosure of Sustainability-related Financial Information” and IFRS S2 “Climate-related Disclosures”, stemming from demand by the investors and the financial markets to provide high-quality globally comparable information on sustainability-related risks and opportunities.
The integration of financial and non-financial disclosures is expected to be a paradigm shift in companies’ reporting activities and in investors’ decision making.
CIB aims to be in the forefront of applying the latest disclosures standards, as deemed possible and relevant within the national context, rules and regulations. In order to meet the investors and financial markets desire of addressing a fragmented landscape of voluntary, sustainability-related standards and requirements that add cost, complexity and risk, CIB has taken a pro-active approach to prepare an integrated sustainability report that consolidates its commitments to meet the standards of the GRI, SASB, PRB, NZBA, EP, UNGC and Ecological Footprint, which is expected to be published during Q4 2023.
This integrated reporting concept will be pursued during the coming years, incorporating further enhancement and synergizing, as its experience mature.
The bank is currently establishing an ESG Data Digitization platform to support our environmental, social and risk management system and our climate risk management to facilitate its decarbonization and just Sustainable finance journey and to enhance its reporting and disclosure activities to ensure efficiency, accuracy and consistency.
As a local bank with a global outlook, CIB recognizes the interconnectivity of the economy and society and is committed to promoting economic decarbonization while balancing social, environmental justice, and biodiversity transition concerns. The bank is transparent about its expectations and efforts and strives to earn and maintain the trust of the stakeholders by following high ethical standards and sharing information publicly to foster collaboration.
Despite the significant progress it has made, CIB remains fully aware of the magnitude of the challenges ahead and is committed to leveraging its business to address and manage it.
The bank is taking an additional step in its commitment journey to climate action and transparency by publishing this first TCFD report and will continue to publish the CIB’s progress in sustainability over the coming years.
The bank will continue to advance and enhance its climate change strategy by identifying its key climate risks over the short, medium, and long terms, working on integrating the strategy pillars into its business, developing its decarbonization pathways, and developing more green products to cater to the needs of expected new market demands.
In addition, the bank will continue our new climate ambition to become a net zero bank and will engage more with its clients to support their decarbonization plans.
Despite the significant progress CIB has made in the past years, it faces several challenges in the development and implementation of its journey toward net zero, and expect further challenges in its transition to a low carbon economy.
The bank plans to move forward in that direction by including more sectors in the future and concentrating its current efforts on the decarbonization of its internal operations.
“CIB recognizes that the journey towards a low carbon economy is a complex one, thus we remain committed to leveraging the power of Sustainable Finance, to develop innovative solutions and work alongside our clients, to sustain our growth,” CEO Hussein Abaza said.
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