In tandem with growth in the global sustainable investment market, the Kuwaiti government has championed sustainable development, particularly in finance. Despite a decline in the US during the 2020-22 period, financial assets related to environmental, social and governance (ESG) considerations have experienced growth elsewhere, aligning with international initiatives such as the UN Sustainable Development Goals (SDGs).
Countries across the GCC are increasingly prioritising sustainable development in their long-term economic visions and strategies to tackle pressing environmental challenges. This commitment is evident in the growing popularity of green finance, illustrated by a record total of more than $8.5bn in green and sustainable bonds and sukuk (Islamic bonds) issuances throughout 2022. With the UAE becoming the second GCC country to host the UN Conference of Parties, the principal decision-making body of the UN Framework Convention on Climate Change, in 2023, the stage is set for significant regional growth in ESG-related finance in an increasingly supportive environment.
Sustainable Finance Guidelines
In November 2022 the Central Bank of Kuwait (CBK) took a significant step by issuing guidelines that define sustainable finance and set ESG standards for local banks. The directives encourage the integration of sustainability principles in both conventional and Islamic debt instruments and banking activities, with the aim to position Kuwait as a global financial and trade centre, while emphasising the crucial role of financial institutions in contributing to the UN SDGs.
The guidelines introduced a triple sustainability governance approach, built on the three pillars of ESG outlined by the CBK. The guidelines define environmental factors as external elements, such as climate change or resource depletion, affecting facility operations and revenue. Social factors encompass considerations related to job opportunities and consumer protection, while governance focuses on the rights and responsibilities of the board of directors, including aspects like remuneration and anti-corruption. The overarching goal is to embed ESG values in corporate governance and risk management practices. This involves considering sustainable finance elements in decision-making, structuring and launching sustainable financial products, raising awareness among staff, studying ESG factors when granting loans, and emphasising transparency through the issuance and disclosure of annual reports on sustainability.
Stakeholders’ Response
Stakeholders have embraced the sustainability-driven momentum. In January 2023 National Bank of Kuwait (NBK), the country’s largest financial institution by assets, became the first to align with Kuwait’s commitment to achieving netzero emissions by 2060. The bank aims to reduce gross operational emissions by 25% by 2025 and achieve netzero operational greenhouse gas emissions by 2035.
To solidify its commitment to the region’s transition to a sustainable, low-carbon economy, NBK launched its Sustainable Financing Framework in 2022 to meet growing demand for sustainable finance, and mobilise capital to address environmental and social challenges. The demand for sustainable finance extends to consumers, as revealed by the 2023 Sustainable Commerce study conducted by Visa, a global payment technology provider. The study indicated that over two-thirds of Kuwaiti consumers believe in the individual’s role in decarbonisation, citing climate change as the second leading societal challenge (32%). Looking ahead, 71% of individuals expressed a willingness to recommend financial institutions that offer sustainable payment options, 49% indicated that they chose a bank based on green credentials, and 31% expected their banks to guide them in making sustainable financial choices. The survey also identified key barriers to sustainability adoption, with 49% of Kuwaiti consumers citing a lack of awareness as the top obstacle, followed by insufficient information and the difficulty of changing habits (35%).
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