Sustainable Finance and ESG Developments in Bahrain
Financial Services Focus
ustainable finance integrates social, environment and governance (“ESG”) factors into the financial decision-making process of participants within the financial services industry (“Sustainable Finance”).
Law Update: Issue 365 - Financial Services Focus
Faizan ToorAssociate,Banking & Finance
Sustainable finance integrates social, environment and governance (“ESG”) factors into the financial decision-making process of participants within the financial services industry (“Sustainable Finance”) Further, Sustainable Finance is fast becoming an investment imperative as the risks and rewards associated with the transition to a sustainable economy are quickly being integrated into the global financial markets.
The Kingdom of Bahrain (“Bahrain”), being a leading banking and finance hub, is well-known for its openness to innovative ideas and embracing change before the trends become inevitable. In light of this, Sustainable Finance cannot be considered a niche market anymore and is fast growing to be an imperative part of Bahrain’s banking and finance sector.
This article provides an overview of the fast-growing trends and developments in Bahrain with respect to Sustainable Finance and ESG.
Bahrain has adopted the 2030 Sustainable Development Agenda of United Nations which include the 17 Sustainable Development Goals (“SDGs”). The Strategic and Sustainable Development Cooperation Framework (2021-2022), signed with the Government of Bahrain and guided by Bahrain’s Economic Vision 2030, is a comprehensive partnership strategy that forms the basis for the achievement of the SDGs in Bahrain. The SDGs represent a set of commitments that all members of the United Nations agreed to, and the banking and finance sector world-wide has keenly commenced its support and contribution towards SDGs.
The Central Bank of Bahrain (“CBB”) recently released the ESG requirements module in November, 2023 which is directed at all listed companies, banks, financing companies, insurance firms, and category 1 and 2 investment firms, and providing them with guidelines on the reporting requirements for ESG factors. As per the ESG requirements module published by the CBB, the CBB views that ESG reporting is an effective tool for stakeholders to better examine a company’s efficiency, sustainability, and risk exposure. Further, the objective of the ESG requirements module is to establish a uniform framework for listed companies and licensees to disclose their ESG performance and sustainability efforts.
In light of the above, the CBB continues its efforts to highlight the need to mitigate risks related to ESG matters and encourage relevant disclosures aligned with Bahrain Economic Vision 2030 and the SDGs in accordance with the commitment of the Government of Bahrain to achieve the global climate goals.
Earlier in 2023, the CBB announced the launch of Greenwashing TechSprint in collaboration with the Global Financial Innovation Network (GFIN), which is a group over 80 international organisations committed to supporting financial innovation in the interest of consumers and it is currently chaired by the Financial Conduct Authority (FCA). The CBB will therefore be participating in a virtual TechSprint, hosted on the FCA’s Digital Sandbox, to bring together international regulators, firms and innovators to address sustainable finance as a collective priority. The TechSprint will be to develop a tool or solution that can help regulators and the market effectively tackle the risks of greenwashing in financial services.
The CBB had also organised a roundtable last year in collaboration with the Ministry of Sustainable Development on guidelines related to ESG disclosure and enhancing the role of the financial sector in designing innovative financial instruments to accelerate the achievement of the SDGs. This roundtable discussion forms part of a series aimed at engaging the financial sector in finding solutions that adhere to ESG standards. It represents one of CBB’s initiatives to bolster the sector’s resilience and enhance its ability to provide financing aligned with green requirements, following international best practices.
Further, the fourth Islamic Finance Innovation Day took place under the patronage of the CBB where participants had the opportunity to hear insights from sustainability and Fintech experts on “Embedding ESH into Islamic Finance – Opportunities for Innovation and Growth”. The event had a special focus on the importance of ESG as a driver for innovation and growth as well as the power Fintech to accelerate ESG adoption and help in the maximising of its benefits.
Another major development to note in this space is that Bapco Energies, the energy investment arm of the Government of Bahrain, has launched its sustainability-linked finance framework and as a result has become the world’s first national energy company to publish its sustainability-linked finance framework. The framework will enable the company to link its financing with the decarbonisation goals of Bahrain and tap into the ESG investor and lender base. Further, the framework was developed in close collaboration with Standard Chartered Bank in Bahrain, which acted as the company’s ESG advisor in the process.
Bahrain Bourse is a self-regulated multi-asset marketplace which aims to offer its investors, issuers, and intermediaries a comprehensive suite of exchange-related facilities including offering listing, trading, settlement, and depository services for various financial institutions.
As part of Bahrain Bourse’s efforts to promote sustainability and transparency in Bahrain’s capital market, the Bahrain Bourse has issued its ESG reporting guidelines for listed companies. The voluntary reporting guidance aims to assist listed companies to integrate ESG issues in their reporting cycle and better meet the demands of institutional investors for material ESG information.
Further, the Bahrain Bourse in collaboration with HSBC Bank Middle East Limited in Bahrain have developed a guide to Sustainable Finance as part of the Bahrain Bourse’s commitment to the United Nations Sustainability Stock Exchanges Initiative to focus on the sustainable development agenda and green finance.[1] It is worth noting that the guide also provides several Sustainable Finance options including, green, social and sustainability-linked loans which can be offered in line with the industry standard principles issued by the Loan Market Association, for green loans, social loans and sustainability-linked loans.
Sustainable Finance is fast growing to be an imperative part of Bahrain’s banking and finance sector, and this clearly be seen in the efforts being made by the CBB and Bahrain Bourse to promote sustainability in the sector. In light of this, Bahrain has made significant efforts towards achieving the SDGs and continues to embed sustainability in its policies, with the current Government Plan (2023-2026) titled “From Recovery to Sustainable Development”.
[1] Evolving Bahrain’s ESG Landscape & Capital Markets_25 Aug 2021 (bahrainbourse.com)
For further information,please contact Faizan Toor.
Published in February 2024
