## pfsgfea

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### Executive summary — overview and tailored approaches
- Financial sectors in Middle East and Central Asia (ME&CA) should support climate-related policies while managing vulnerabilities to climate-related shocks.
- Tailored approaches:
  - Countries with less developed private finance: bolster financial readiness.
  - Oil-exporting countries: channel oil revenues and public savings into climate investment initiatives while fostering private green finance.
  - Oil-importing countries: prioritize development of capital markets to enhance investment capabilities.
  - Low-income and fragile states: mitigate financial-sector risks to create a conducive environment for future green investments.

### Key findings — risks to financial sector stability
- Physical risks:
  - Past climate disasters had only moderate impacts on banks’ performance, but limited buffers and substantial gaps in protection and insurance coverage could result in large uninsured losses.
  - Projected loan losses: the combined cumulative loan losses of banking sectors of 30 ME&CA countries could reach $11 billion by 2030 and approximately $50 billion by 2050 (in 2021 prices), or around 1 to 1.5 percent of the region’s total bank assets in 2021.
  - Historical aggregate cost to banks (1980–2021): $37 billion.
  - Measured annual-average impacts:
    - Each disaster year estimated to cause an average reduction of approximately $250 million in bank credit.
    - Average increase in provisions in the year following a disaster: 20 percent.
    - Average increase in nonperforming loan ratios: about 1.4 percentage points.
    - Impact on banks’ credit losses: about $0.23 per $1 of total damage (pass-through coefficient 0.230** (0.073)).
    - Average ROA decline in a disaster year: about 0.6 percentage point.
    - Tentative decline in Tier 1 capital / RWA in year following disaster: around 0.8 percentage point (not statistically significant).
- Transition risks:
  - ME&CA economic sectors exhibit higher emissions intensity compared to the median for emerging market countries.
  - Firm-level stress tests under carbon price shocks:
    - Scenario A ($75/ton): approximately 10.5 percent of loans in 18 ME&CA countries could be at risk of becoming nonperforming; total value of loans at risk: $139 billion (10.5 percent of total loans).
    - Scenario B ($30/ton): loans-at-risk reduces to around 5.1 percent of total loans; manufacturing sector loans-at-risk falls to 4 percent of total loans (from 16 percent under $75/ton).
  - Firm-level definition: loans-at-risk pertain to loans extended to borrowers with an ICR < 1 (earnings before interest and taxes/interest expense inadequate to service debt).
  - Firm-level stress-test to bank-capital impacts (aggregate): mitigation measures proxied by a one-time increase in carbon price could result in bank capital losses ranging from $70 billion (2.5 percent of GDP) to $140 billion (5.0 percent of GDP).
- Insurance sector capacity:
  - Insurance penetration and resilience are low:
    - Insurance resilience index (2005–2019) averaged about 4 for the region versus about 33 for advanced economies (index 0–100).
    - During 2003–2019 estimated climate-related disasters caused $44 billion in economic losses (about 2 percent of GDP), of which only $2 billion was covered by insurance.
    - Between 2005 and 2019 only 16 percent of the region’s insurance protection needs were met.
  - Reinsurance role: dependency on reinsurance markets is growing; limited regional primary insurance capacity presents opportunities to diversify and increase coverage.

### Investment needs and state of green finance
- Expressed financing needs:
  - 21 ME&CA countries require more than $1 trillion for climate change–related financing (these 21 countries represent about 71 percent of the region’s GDP).
  - Cumulative multiyear financing needs for these 21 countries represent on average about 60 percent of their GDP in 2021 (wide dispersion: 1 percent of GDP or less for Armenia, Kuwait, Lebanon, and Somalia; 178 percent of GDP for Djibouti; more than 450 percent of GDP for Mauritania).
  - Combined regional estimates: cumulative annual investment needs between 2023 and 2030 of $2,600 billion to $3,100 billion (equivalent to 65 to 78 percent of the region’s 2021 GDP).
- Mitigation and adaptation estimates:
  - Mitigation (energy sector aligned to 1.5°C): regional annual investment needs roughly $250 to $310 billion (based on ME&CA share of global GDP and emissions).
  - Adaptation (infrastructure resilience): required annual investment estimated at around 1.6 percent of GDP per year or $80 billion in 2021.
  - Average annual cost of strengthening infrastructure resilience:
    - Low-income ME&CA countries: 3.2 percent of GDP.
    - Emerging markets in the region: 0.6 percent of GDP.
  - Estimated annual investment needs for adaptation to enhance resilience of private assets: ME&CA average around 0.5 percent of GDP.
- Current climate finance flows:
  - Private climate finance from domestic financial institutions and markets is around 0.2 percent of GDP.
  - Climate finance flows in MENA averaged 0.4 percent of GDP during 2019–20 (about half the global average of 0.7 percent).
  - Flows into MENA rose by 170 percent since 2014, reaching $15 billion.
  - IPCC estimate: current mitigation flows need to increase 12 to 23 times in ME&CA to meet average mitigation needs through 2030 (2015 US dollars basis).
- Composition of official climate finance:
  - Public climate finance inflows accounted for 56 percent of inflows to MENA in 2019–20.
  - Official climate funding primarily debt-based: 77.5 percent per year in 2018–20; grants about 21 percent.
  - Concessional financing about 11 percent of total inflows in MENA.

### Opportunities for domestic financial sectors and market instruments
- Scaling domestic climate finance via:
  - Financial innovations and surges in green bond issuance; green sukuk and Islamic-compliant green products.
  - Sovereign wealth funds (SWFs) in oil-exporting countries to finance large mitigation projects and catalyze private investment.
    - Regional SWFs: 16 SWFs collectively managing assets above $4.8 trillion.
    - Examples of SWF green actions: issuance of green bonds, committed investments in renewables and green hydrogen, development of green finance frameworks.
  - Domestic banks leveraging local knowledge to finance SMEs, households, energy efficiency, and real estate energy upgrades.
- Sectoral opportunities:
  - Energy efficiency and real estate present sizable mitigation needs; global estimate cited: real estate sector second largest mitigation financing need after power industry (global value example: approximately $660 billion).
  - Critical minerals and renewable opportunities: copper, uranium, nickel, lithium in specific ME&CA countries.
- Islamic finance integration:
  - Green sukuk and sustainability-linked sukuk have emerged; global sustainability-linked sukuk issuance was $3.8 billion in 2021; green sukuk $1.8 billion in 2021.
  - Barriers: high issuance costs, limited standardized frameworks, data gaps.

### Policy priorities and recommendations
- Near term — measurement, disclosure, preparedness:
  - Improve understanding and measurement of climate-related risks through standardized methodologies.
  - Promote transparent disclosure by financial institutions using frameworks such as TCFD and ISSB.
  - Strengthen forecasting, analytical frameworks, and adopt robust climate risk management practices within financial institutions.
  - Develop insurance sectors and leverage reinsurance markets; consider national reserve funds or mandatory disaster insurance funds.
  - Finalize national climate strategies and sustainable finance frameworks; develop standardized sustainable finance taxonomies.
- Medium term — incentives, markets, capacity building:
  - Support green finance with incentives and market mechanisms; expand green bonds, loans, sustainability-linked instruments, and Shari’ah-compliant green products.
  - Phase out energy subsidies (energy subsidies in ME&CA represented $389 billion in 2022 or around 7 percent of GDP on average for a country; $336 billion in MENA alone).
  - Introduce carbon pricing frameworks and carbon markets (regional or domestic) to stimulate green investment demand.
  - Central banks and regulators: provide guidance on integrating climate factors into investment decisions, enforce disclosure standards, and require supervisory reporting.
  - Promote deepening of domestic capital markets, develop long-term funding instruments, and address currency risk via hedging facilities.
  - Build technical capacity for project origination, appraisal, and climate-related disclosure.
- Regional and international cooperation:
  - Leverage collaboration among public and private sectors, IFIs, MDBs, SWFs, and state-owned entities to bridge financing gaps.
  - Harmonize sustainable finance taxonomies and reporting at regional level to reduce fragmentation and greenwashing risk.

### Macroprudential and supervisory measures (selected)
- Potential tools and purposes (selection):
  - Capital buffers (capital conservation buffer, counter-cyclical capital buffer) to increase resilience.
  - Concentration thresholds or charges to reduce excessive sectoral concentration.
  - Sectoral leverage ratio and sectoral systemic risk buffer to target exposures (noted novelty and calibration challenges).
  - Supervisory carbon stress tests and disclosure mandates for climate-related exposures.
- Implementation considerations:
  - Calibration challenges and potential drawbacks (cyclicality, classification complexity).
  - Phased and country-specific adoption recommended; complement with enhanced data collection and disclosure.

### Methodology notes, scenarios, and key numerical parameters
- Physical-risk empirical analysis (Annex 1):
  - Time horizon: 2000 to 2021, annual frequency (historical disaster accounting 1980–2021 referenced in Box 1).
  - Baseline empirical estimates:
    - L.Climate disaster increases loan loss provisions by 19.466 percent (standard error 6.226) in regression specification.
    - Dollar-value: L.Climate disaster increases credit loss provisions by 256.338 (2021 US dollars) (101.981).
    - EM-DAT counts 146 relevant climate event years in ME&CA over 1980–2021; implied cost around $37 billion since 1980 for banks.
    - Pass-through: $1 loss due to climate event may generate about $0.23 in bank credit losses (coefficient 0.230** (0.073)).
- Transition-risk scenarios (Annex 2):
  - Scenario A: carbon price increase to $75/ton of carbon dioxide equivalent.
  - Scenario B: carbon price increase to $30/ton of carbon dioxide equivalent.
  - Current effective carbon rates estimated: MENAP about $–11 per metric ton of carbon dioxide; CCA about $11 per metric ton of carbon dioxide (Anderson and others 2022 methodology).
  - Firm-level stress-test sample: more than 780 publicly listed nonfinancial firms in 2022 across nine countries; banking-system exposures mapped from national central bank data.
  - Key outputs: loans-at-risk under $75/ton: 10.5 percent of loans ($139 billion); under $30/ton: about 5.1 percent of loans.
  - Firm-at-risk defined by ICR < 1 (earnings before interest and taxes/interest expense).

### Box 1 — historical aggregate impacts (selected metrics)
- Historical aggregate cost (1980–2021): $37 billion to ME&CA banking sectors from climate-related disasters.
- Provisions and provisioning drivers:
  - Average provisions increase in year following a disaster: 20 percent.
  - Drought increases bank credit provisions by about 21 percent.
  - Extreme temperature events increase provisioning by about 16 percent.
  - Floods increase provisioning by about 10 percent.
- Profitability and market impacts:
  - Return on assets falls by about 0.6 percentage point in a disaster year.
  - Bank stock cumulative returns for banks in disaster countries around 1 percent lower three weeks after shock; for floods around 1.7 percent lower three weeks after flood.

### Sovereign wealth funds, SWF actions, and potential catalytic role
- Regional SWFs:
  - 16 regional SWFs collectively managing assets above $4.8 trillion.
  - SWFs are increasingly adopting green strategies: green bond issuances, direct renewable investments, green hydrogen commitments, and responsible investing policies.
  - Examples of SWF actions: Masdar investing more than $30 billion in innovative projects; PIF issued a $3 billion green bond (100-year tranche) and a $5.5 billion green bond; TSFE planning green hydrogen investments; ADQ and others investing in cross-border renewables.
- Potential roles:
  - Finance large mitigation projects domestically and regionally.
  - Act as catalytic co-investors to attract private capital.
  - Support diversification of domestic financial systems and reduce banking sector linkage to hydrocarbon prices.

### Carbon pricing and markets — regional status and implications (Box 5)
- Global status: as of early 2023, 70 carbon pricing mechanisms covering 47 jurisdictions.
- ME&CA developments:
  - Kazakhstan: emission trading system in place.
  - Pakistan: emission trading system under consideration.
  - Egypt: fintech contracts for Africa’s first voluntary carbon market expected to launch in 2023.
  - Saudi Arabia and UAE: steps toward voluntary carbon trading systems and regional voluntary exchanges/platforms for offsets and carbon credits.
- Implications:
  - Carbon pricing increases private returns to low-carbon investments and creates pricing signals for green finance.
  - Under a global carbon trading system compatible with Article 6, most ME&CA countries likely net buyers of carbon credits, implying financial outflows and highlighting need for domestic green finance development.

*IMF DEPARTMENTAL PAPERS — Preparing Financial Sectors for a Green Future (pfsgfea).*

### Executive Summary ................................................................................................v

### Executive Summary

### Overview
- Financial sectors in Middle East and Central Asia (ME&CA) should support climate-related policies while managing vulnerabilities to climate-related shocks.
- Tailored approaches are required across the region:
  - Countries with less developed private finance: bolster financial readiness.
  - Oil-exporting countries: channel oil revenues and public savings into climate investment initiatives while fostering private green finance.
  - Oil-importing countries: prioritize development of capital markets to enhance investment capabilities.
  - Low-income and fragile states: mitigate financial-sector risks to create a conducive environment for future green investments.

### Key findings — Risks to financial sector stability
- Physical risks:
  - Past climate disasters had only moderate impacts on banks’ performance, but limited buffers and substantial gaps in protection and insurance coverage could result in large uninsured losses.
  - Projected loan losses: the combined cumulative loan losses of banking sectors of 30 ME&CA countries could reach $11 billion by 2030 and approximately $50 billion by 2050 (in 2021 prices), or around 1 to 1.5 percent of the region’s total bank assets in 2021.
- Transition risks:
  - ME&CA economic sectors exhibit higher emissions intensity compared to the median for emerging market countries.
  - Banks with larger credit exposures to high-emission sectors (utilities, transportation, manufacturing, agriculture) are more vulnerable to decarbonization efforts.
  - Stress tests at the firm level show substantive mitigation measures (proxied by a one-time increase in the carbon price) could result in bank capital losses ranging from $70 billion (2.5 percent of GDP) to $140 billion (5.0 percent of GDP).
- Insurance sector capacity:
  - Insufficient insurance capacity results in public sectors and other entities bearing uninsured damages and losses.
  - Dependency on the reinsurance market is growing and increasingly competitive, presenting opportunities for the primary insurance market to diversify and increase coverage.

### Investment needs and state of green finance
- Supply versus needs:
  - Green finance supply in ME&CA is gradually increasing but remains small relative to the region’s substantial adaptation and mitigation investment needs.
  - Private climate finance from domestic financial institutions and markets is around 0.2 percent of GDP.
  - Green finance development is concentrated in a few countries, primarily within the Gulf Cooperation Council.
  - Expressed official multiyear financing needs total at least $1 trillion by 2030; some estimates place needs at $2.6 to $3.1 trillion by 2030.
  - Low-income and fragile states, and countries with underdeveloped financial sectors, report higher investment needs relative to their GDP.

### Opportunities for domestic financial sectors
- Domestic financial sectors can scale climate finance through:
  - Financial innovations and surges in green bond issuance.
  - A prominent role for sovereign wealth funds in oil-exporting countries to finance large mitigation projects via nonpublic capital or public-private partnerships.
  - Domestic banks leveraging local knowledge to finance segments such as small and medium-sized enterprises and households, and areas such as energy efficiency.
- In oil-exporting countries, early development of climate finance can reduce the link between bank funding and hydrocarbon prices and lower medium-term exposure to transition risks.

### Policy priorities and recommendations
- Near term — measurement, disclosure, and preparedness:
  - Improve understanding and measurement of climate-related risks through methodologies for quantifying and reporting.
  - Promote transparent disclosure by financial institutions.
  - Strengthen forecasting and analytical frameworks for climate risks.
  - Adopt robust climate risk management practices within financial institutions.
  - Develop insurance sectors and leverage reinsurance markets.
  - Finalize national climate strategies, support sustainable finance frameworks, and develop standardized sustainable finance taxonomies.
- Medium term — incentives, markets, and capacity building:
  - Support green finance with incentives and market mechanisms.
  - Phase out energy subsidies.
  - Introduce new tools and markets such as carbon pricing frameworks to stimulate investment demand in green technologies.
  - Central banks and regulators to provide guidance on integrating green finance into investment decisions and enforce green investment disclosure standards.
  - Promote deepening of domestic capital markets and address barriers to accelerating green finance.
- Regional and international cooperation:
  - Leverage collaboration between public and private sectors, international financial institutions, multilateral development banks, sovereign wealth funds, and state-owned entities to bridge the financing gap for climate investment needs.

### Contribution of the paper
- Presents a regional perspective on climate risks in ME&CA financial sectors.
- First to evaluate climate change impact on banking institutions in the region and assess insurance capacity to mitigate climate-related damages and losses.
- Synthesizes size and nature of regional financing needs for adaptation and mitigation.
- Provides policy recommendations to enhance financial sustainability amid climate change risks.

*Executive Summary — IMF DEPARTMENTAL PAPERS: Preparing Financial Sectors for a Green Future.*

### 1. Introduction

### 1. Introduction

### Climate risks and regional vulnerabilities
- Countries in the Middle East and Central Asia (ME&CA) face increasing vulnerabilities to climate change risks, which could carry implications for their populations, economies, and financial systems.
- Even with greenhouse gas (GHG) emission reductions, scientists predict that climate-related natural disasters will increase in frequency and severity (Lelieveld and others 2016).
- Climate-related risks include damages to infrastructure and properties, lower agricultural yields and productivity, deterioration in public health and higher mortality, higher reparation and labor costs, and shifts in economic incentives affecting the value of physical and financial assets (Duenwald and others 2022).
- ME&CA’s high reliance on oil and gas production and exposure to carbon-intensive industries increase susceptibility to transition risks, including disruptions in fossil fuel trade and stranded assets.
- Mitigation should be a policy priority in the region, but adaptation is an immediate challenge for most ME&CA countries given current intensifying weather hazards.
- Climate adaptation and mitigation strategies require substantial investment that governments cannot fully fund, putting a premium on private sector financing and the development of a strong green finance marketplace.

### Role of financial sectors and supervisors
- Financial sectors and supervisors have an important role in monitoring and managing risks to financial stability and in harnessing climate finance.
- Actions include enhancing resilience of financial sectors against physical and transitional risks and creating an enabling environment for private finance and a robust financial ecosystem.

### Key questions addressed by the paper
- (1) What are the risks to financial sector stability in the ME&CA region from climate change?
- (2) What are the ME&CA region’s investment needs for climate change mitigation and adaptation?
- (3) How can the financial sector’s role be leveraged to attract more private climate investment in the region?

### Organization of the paper
- Chapter 2: analyzes banks’ exposure to climate-vulnerable economic sectors and assesses impacts of physical risks (climate disasters) and transition risks (emission cost increases) on banks; examines the insurance sector’s vulnerability and buffering capacity.
- Chapter 3: takes stock of identified and projected financing needs for climate change mitigation and adaptation in ME&CA and compares those needs to the level of development and depth of countries’ financial systems.
- Chapter 4: summarizes the evolution of green finance in ME&CA, available financing options for green investments, challenges and opportunities for deepening green finance markets, and what is needed to make domestic financial sectors play a greater role.
- Chapter 5: concludes with sequenced policy options for policymakers, financial institutions, and other stakeholders to foster greater participation of financial institutions in climate finance and facilitate the transition to a green future.

### Climate change risks and bank stability nexus
- Two sources of climate change risks affect banking sector stability:
  - Physical risks: from (1) extreme weather shocks (acute risks) and (2) gradual changes in climate patterns (chronic risks) (NGFS 2019). These can damage physical and human capital, disrupt production and supply chains, and cause rapid changes in asset valuation, affecting governments, firms (including financial institutions), and households.
  - Transition risks: changes in technologies, regulations, and climate-related policies; shifts in consumer preferences and investor sentiment away from carbon-intensive companies; potential stranded assets and litigation risks; and higher legal and regulatory requirements for financial institutions.
- Interaction of physical and transition risks is subject to considerable uncertainty. Early transition is expected to mitigate some risks to financial stability, while delayed and abrupt transition might trigger asset repricing and increase financial stability risks. Physical and transition risks can unfold in parallel and compound challenges (NGFS 2020a, NGFS 2020b).
- Climate-related risks can amplify existing financial sector vulnerabilities, especially in smaller and more concentrated banking sectors and those exposed to climate-sensitive industries (agriculture, real estate, tourism, carbon-intensive sectors).
- Climate shocks may heighten systemic risks through legacy problem loans, large swings in credit cycles, pressure on exchange rates in countries dependent on food imports or with high dollarization, and limited international reserves.
- Banks with stringent credit requirements and insufficient proactive credit restructuring policies may face challenges during post-climate-shock recovery.

### Disproportionate impact on low-income and developing ME&CA economies
- Among the 10 largest climate disasters in the region since 2000, 7 occurred in low-income and developing countries (Duenwald and others 2022).
- These countries rely more on agriculture, fishing, and tourism, face limited economic diversification, and have underdeveloped financial sectors, limited access to capital and insurance, and constrained investment in climate-resilient infrastructure—escalating poverty, unemployment, food insecurity, and macro-financial vulnerabilities.

### Direct vs. indirect transmission channels to banks
- In ME&CA, potential sources of systemic risk primarily arise from transition risks, particularly for oil exporters and CCA, reflecting direct exposures to carbon-intensive sectors.
- The region appears more vulnerable through direct channels affecting bank balance sheets via credit exposures and investments; indirect channels through macroeconomic variables (economic growth, labor productivity, sovereign ratings) appear less pronounced but can still curtail banks’ lending capacity and create negative feedback loops.

### Physical risks: recent evolution and projections
- Since 2000, floods have been the most common disaster in the region, accounting for about two-thirds of all climate-related events, followed by storms, droughts, and extreme temperatures.
- Storms contribute to 13 percent of the region’s total climate disasters, while droughts and extreme temperatures account for 5 percent each.
- The distribution of climate events has a long right tail: around 41 percent incurred expenses below $10 million, but approximately 5 percent exceeded $1 billion in losses and damages.
- Noteworthy events: flash floods in Pakistan in 2010 and 2022, and tropical cyclone in Oman in 2007.
  - The flash floods in Pakistan in 2010 and 2022 resulted in economic damages and losses of approximately $9.7 billion and an estimated $30 billion, respectively.
  - The economic costs associated with Cyclone Gonu only in Oman surpassed $4 billion in 2007.
- Future climate risks are expected to increase even under moderate emissions scenarios: most countries in the region will witness an increase in heavy precipitation events; MENAP population will face higher heat stress; CCA may experience more floods, exacerbating water stress—particularly important for Iran, Iraq, Jordan, West Bank and Gaza, and Yemen.

### Measured impacts of physical disasters on banks (empirical findings)
- Based on analysis (see Annex 1 on methodology), physical risks have had a moderate impact on banks’ balance sheets in ME&CA.
- Estimates suggest individual shocks are unlikely to give rise to systemic risk if they materialize in a healthy banking sector; however, they could be systemic if occurring during preexisting financial distress or increasing over time.
- Specific quantitative estimates:
  - Each disaster year was estimated to cause an average reduction of approximately $250 million in bank credit.
  - On average, climate disasters have increased the nonperforming loan ratios of banks by about 1.4 percentage points.
  - The impact of climate disasters on banks’ credit losses in US dollars is estimated at about 23 cents for every US dollar of total damage caused—suggesting a relatively high pass-through of disaster damage to banks’ credit losses, possibly reflecting limited insurance market penetration and limited government disaster relief plans.

*Source: IMF DEPARTMENTAL PAPERS — Preparing Financial Sectors for a Green Future, 1. Introduction.*

### Box 1, by analyzing the impact of acute physical risks on the health and performance of the banking sector.

### Box 1, by analyzing the impact of acute physical risks on the health and performance of the banking sector.

### Context and scope
- Analysis focuses on measuring physical risks through credit losses and the feedback to profitability and capital adequacy; notes that climate events can also contribute to operational disruptions with long-term adverse effects on reputation and operational capacity of banks in climate-affected areas.
- Timeframe referenced for historical disaster accounting: 1980 to 2021.

### Historical impacts on banks in the ME&CA region
- Aggregate historical cost:
  - Between 1980 to 2021, climate change–related disasters could have cost ME&CA’s banking sectors about $37 billion.
- Impact on credit loss provisions:
  - On average, provisions for credit losses have increased by 20 percent in the year following a disaster.
  - Drought occurrence in a given year increases bank credit provisions by about 21 percent on average in the ME&CA region as a whole.
  - Extreme temperature events increase bank provisioning by about 16 percent.
  - Floods increase bank credit provisions by about 10 percent on average for the ME&CA region.
  - Droughts, extreme temperature events, and floods were found to be positively associated with an increase in bank loan loss provisions in the year following a climate event in both the MENAP and CCA regions; landslides and storms appear to have no statistically significant impacts on bank provisioning.
- Impact on profitability:
  - In a disaster year, the return on assets of ME&CA banks falls by an average of about 0.6 percentage point.
- Impact on liquidity:
  - Historical impact of climate disasters on bank liquidity (measured as the ratio of bank liquid assets to short-term liabilities) does not indicate that this is a significant channel in the ME&CA region.
- Impact on capital adequacy:
  - Climate events provide tentative evidence of negative impact on capital adequacy, with a decline in capital adequacy (Tier 1 capital to risk-weighted assets) of around 0.8 percentage point in the year following a disaster, though the effect is not statistically significant.

### Bank balance-sheet resilience and regional metrics
- Tier 1 capital and z-score evidence:
  - ME&CA region has maintained bank Tier 1 capital levels ranging from around 10 to 17 percent of risk-weighted assets since 2003.
  - Z-scores ranged between 15 to 19 standard deviations.
  - As of the end of 2022, on average, bank Tier 1 capital to risk-weighted assets spanned from around 15 percent to over 25 percent.
- Interpretation:
  - ME&CA banks appear to be able to withstand a single climate-related shock if it materializes in a sound banking sector.
  - Weaker banks could face more consequential outcomes, posing systemic risks if shocks occur during preexisting financial distress or if frequency and intensity increase over time.

### Bank stock returns around climate disasters (summary of Box 2 findings)
- Method and data:
  - Daily bank stock price data sourced from Refinitiv Eikon covering 173 banks in 16 countries; climate disaster data sourced from EM-DAT (floods, droughts, landslides).
- Aggregate stock market response:
  - Cumulative returns for banks in disaster countries are around 1 percent lower three weeks (15 business days) after the shock relative to banks in countries without a disaster.
- Flood-specific response:
  - For floods, cumulative returns are around 1.7 percent lower around three weeks after the flood relative to returns for banks in countries not subject to a flood.
- Abnormal returns:
  - Cumulative abnormal returns of banks in disaster countries are not significantly different from those in nondisaster countries, suggesting lower cumulative returns may reflect overall weaker stock market performance in those countries.

### Regional variation
- Subregional differences:
  - An increase in droughts by one standard deviation has a significantly greater (over twofold) impact on provisions in CCA than MENAP.
  - Possible drivers of cross-regional differences include adaptive measures, insurance sector penetration, government bailout policies, and differences in event severity or economic implications.
- Sample coverage footnote:
  - Data include financial institutions in 13 MENA and CCA countries (listed in source).

### Projected future costs of physical risks for ME&CA banks
- Historical baseline:
  - Average disaster incidence (1980–2020): 11 percent.
  - Bank credit loss provision in a disaster year (1980–2020 average): $250 million.
  - Growth rate of disaster incidence (year-over-year): 0.2pp.
  - Growth rate of disaster damage (year-over-year): 1.6%.
- Forward-looking projections (if historical trends continue):
  - Cumulative loan losses that the banking sector of 30 ME&CA countries could face are projected to reach $11 billion by 2030 and more than $50 billion by 2050, in real terms.
  - The 2050 figure corresponds to around 1–1.5 percent of total bank assets recorded in 2021.
  - Projected cumulative bank losses over the next 27 years (up to 2050) are anticipated to surpass the cumulative losses incurred over the past 40-year period (1980 to 2020).
- Caveat:
  - Using historical-extrapolation approach might underestimate actual impacts if future increase in disaster frequency and damage surpasses past decades.

### Key takeaways (numbers and implications)
- Historical cost to banks (1980–2021): $37 billion.
- Average increase in provisions in year following a disaster: 20 percent.
- Average ROA decline in disaster year: about 0.6 percentage point.
- Tentative decline in capital adequacy (Tier 1 / RWA) in year following disaster: around 0.8 percentage point (not statistically significant).
- Historical disaster incidence: 11 percent; incidence growth: 0.2 percentage point per year; damage growth: 1.6 percent per year.
- Projected cumulative loan losses for 30 ME&CA countries: $11 billion by 2030; more than $50 billion by 2050 (real terms); 2050 losses ≈ 1–1.5 percent of total bank assets in 2021.
- Bank stock cumulative return impact around disasters: ~1 percent lower at three weeks; for floods ~1.7 percent lower at three weeks.

*Source: Box 1 and associated figures and boxes in the IMF departmental paper excerpt provided.*

### Annex 2 on methodology).

### pfsgfea - Annex 2 on methodology)

### Transition risk scenarios and carbon price assumptions
- Scenario A: carbon price increase to $75/ton of carbon dioxide equivalent. This aligns with the proposal for an international carbon price floor required by 2030 to limit global warming below 2 degrees Celsius, as supported by IMF (2019a). The text notes this would entail a strong demand shock and is more likely to materialize gradually rather than as a one-time shock.
- Scenario B: carbon price increase to $30/ton of carbon dioxide equivalent. This scenario is based on the necessary increase in the effective carbon rate in ME&CA to meet the countries’ announced nationally determined contribution (NDCs) and reflects a probable scenario for ME&CA, starting from a currently low base of estimated current carbon prices in the region.
- Methodological note: the calculation of current effective carbon rates in ME&CA uses Anderson and others (2022), who estimate the current effective carbon rate level in ME&CA as the net fiscal revenue from domestic fossil fuel consumption (including taxation, emission permits, and subsidies) per metric ton of carbon dioxide emissions.
- Scenario assumption: for simplicity, the scenarios assume higher emission costs for some industries are not transferred to final consumers. The Annex notes that if costs were partially or entirely passed on, this could hurt economic growth and subsequently the banking sector.

### Firm-level stress test findings
- Under the $75/ton scenario:
  - Approximately 10.5 percent of loans in 18 ME&CA countries could be at risk of becoming nonperforming.
  - Total value of loans at risk: $139 billion (or 10.5 percent of total loans).
  - The elevated risk is primarily driven by high emissions intensity sectors: utilities, transportation, and manufacturing, and by currently low carbon prices in the region.
- Under the $30/ton scenario:
  - Overall loans-at-risk reduces to around 5.1 percent of total loans.
  - Manufacturing sector loans-at-risk fall to 4 percent of total loans (down from 16 percent under the $75/ton scenario).
- Definition: loans-at-risk pertain to loans extended to borrowers with an ICR < 1. A negative ICR position (a “firm-at-risk”) indicates earnings before interest and taxes/interest expense are inadequate to service outstanding debt obligations.
- Timing caveat: nonperforming loan estimates are not anchored in a specific time horizon given the potential for a “climate Minsky moment” where impacts of transition risks could materialize sooner as markets price in risks.

### Banking sector exposures and carbon intensity
- Bank loan portfolios in the region are more carbon-intensive than overall economic activity, amplifying transition risks to the financial sector.
- Energy-intensive sectors command a higher share in loan portfolios relative to their share in GDP, intensifying bank exposures, particularly in oil exporters.
- Sovereign exposures could be an additional source of transition risk to banks where such exposures are significant; this is not captured in the presented analysis.
- The increased risk to the banking sector arises less from direct exposure to the fossil fuel industry and more from many industries and firms’ dependence on cheap energy and fuel subsidies provided by governments in the region.
- The firm and banking stress tests use industry classifications as defined: Energy includes petroleum, natural gas and coal, chemical industries; Manufacturing includes durable and nondurable goods production, medical, business, automobile, textile, pharmaceutical, electrical equipment industries, construction sector; Services includes personal and business services, restaurants, health and information technology sector, trade; Utilities includes telecommunication sector, water and energy supply, natural gas transmission and distribution.

*IMF DEPARTMENTAL PAPERS • Preparing Financial Sectors for a Green Future (Annex 2 on methodology).*

### 2. Emission Intensity of GDP and Banking Systems’

### 2. Emission Intensity of GDP and Banking Systems’ Loan Books in the Region, 2021

### Stranded assets: scale, drivers, and uncertainty
- The ME&CA region accounts for approximately 55 percent of global oil (equivalent to 911.7 billion barrels) and 52 percent of global gas (equivalent to 597.5 million barrel of oil equivalent).
- To contain global warming to the 1.5 degrees Celsius target set by the Paris Agreement, it is expected that around 60 percent of oil and gas as well as 90 percent of coal reserves should remain unextracted.
- This would translate into 547.0 billion barrels of oil and 358.5 million barrels of oil equivalent of gas being unproductive in the region.
- Broader factors contributing to stranding include:
  - Changing demand favoring renewable energy due to its lower costs.
  - Regulations imposing limits on fossil fuel usage (like carbon pricing).
  - Legal actions against high-emission firms.
- Stranded assets extend beyond fossil fuels to industries that rely on these fuels or use energy-intensive processes; sudden repricing of market or collateral values can lead to financial losses for firms, shareholders, investors, banks, and insurers.
- Some fossil fuel companies in the region are diversifying into renewable energy, which can help mitigate transition risks, but assessment is highly uncertain due to lack of reliable disclosure and methodological challenges.
- The economic repercussions of stranded assets could reach into the trillions of US dollars, but estimating exact losses is challenging due to uncertainties surrounding future transition scenarios and their impact on asset valuations.
- Footnote evidence: Semieniuk and others (2022) calculated that global stranded assets as the present value of future lost profits in the oil and gas sector exceed $1 trillion.

### Banking sector exposures and country examples
- Banks’ exposure to fossil fuel assets are sizable in some ME&CA countries.
- Examples of how stranding would manifest by country:
  - Oil or gas extraction sectors expected to hold most of the possible stranded assets in some countries (Kuwait, Saudi Arabia, Turkmenistan).
  - In other countries, the burden will fall on financial institutions (both banks and insurance companies) that finance and invest in these sectors (Kazakhstan).
  - Some scenarios indicate commercial banks (Kazakhstan) or creditors (Qatar) will suffer the most as a result of the transition to a low-carbon economy, given their current direct exposures.
- For countries with available data, governments are the largest owners of current assets; for banks this would predominantly manifest as credit risk associated with exposure to government (through potential changes in sovereign ratings and corresponding credit spreads).
- Assessing potential impacts is highly uncertain due to:
  - Unclear path toward low-carbon economies.
  - Varying exposures of financial institutions across countries.
  - Considerable data limitations.

### Sectoral and ownership breakdowns (figures summarized)
- Stranded assets by type of fossil fuel: gas assets and oil assets shares vary across countries and subregions.
- Stranded assets by sector: oil and gas sector dominates in many countries, but other sectors (finance and insurance; professional services; fund managers; others) are also represented.
- Stranded assets by type of ownership: government, creditors, fundholders, individuals, and unknown categories feature differently across countries.
- Cumulative losses mediated through the financial sector: country-level and regional aggregates show potential losses measured in billions of US dollars, with notable entries for KAZ, QAT, RUS, and regional groupings (ME&CA, Europe, Asia, South America).

### Insurance sector: vulnerabilities and transmission channels
- The insurance sector can mitigate climate impacts by providing financial protection but is itself vulnerable to physical, transition, and liability risks that may affect both demand for and supply of insurance services.
- ME&CA insurance sector characteristics:
  - Scale and penetration of insurers remain rather small in most ME&CA countries, reducing capacity to act as an effective buffer against climate risks.
  - Direct channels: high insured losses; reduced insurance coverage in affected areas; falling collateral values; underwriting risks; weakening of household and corporate balance sheets.
  - Indirect channels: uninsured losses affecting macroeconomic variables (economic growth, firm and labor productivity, inflation, commodities), propagating to investment companies and banks.
  - Feedback loops can amplify impacts across households, firms, banks, and government.
- Insurance resilience and coverage metrics:
  - Between 2005 and 2019, the insurance resilience index for the region averaged about 4 compared to an average of about 33 for advanced economies (index ranges from 0: no resilience to 100: fully protected).
  - During the same period, only 16 percent of the region’s insurance protection needs were met.
  - Estimated climate-related disasters caused $44 billion in economic losses (about 2 percent of GDP) from 2003 and 2019, of which only $2 billion was covered by insurance; the burden was borne primarily by the public sector.

### Transition and liability risks for insurers
- Transition risks include inadequate valuation of climate risks, undisclosed exposures to stranded assets, and shifts in demand for insurance products.
- In the GCC region, over 58 percent of insurers’ investments are in bonds and equity; repricing could give rise to significant losses over time.
- Commitment to global climate targets (COP21) could impact insurers’ assets, liabilities, and viability of specific business lines, requiring new techniques for portfolio management.
- Liability risks include:
  - Climate-related claims under existing liability policies.
  - Direct claims against insurers for failing to manage climate risks, including actions tied to insufficient disclosure by company executives.
  - Potential exposure to third-party environmental liability policies covering property losses and pollution-related liabilities.
  - Reputational risks from lawsuits and changing public perceptions.

### Role of reinsurance
- Reinsurance provides risk transfer and supports financial stability of primary insurers by sharing burden of large and complex claims.
- Reinsurance in ME&CA is limited but crucial; reliance on reinsurance is growing and presents an opportunity for primary insurers to leverage available reinsurance capacity to diversify portfolios, especially for high-value climate-related risks.

*Source: IMF Departmental Papers — Preparing Financial Sectors for a Green Future (chapter section: “2. Emission Intensity of GDP and Banking Systems’ Loan Books in the Region, 2021”)—figures and text as provided.*

### 3. Green Transition: A Look at the

### 3. Green Transition: A Look at the Investment Needs in the ME&CA Region

### Overview: scale and urgency
- ME&CA countries face large and immediate investment needs for climate mitigation and adaptation to build a green and climate-resilient future.
- 31 out of 32 ME&CA countries have published NDCs identifying investment priorities.
- 21 ME&CA countries require more than $1 trillion for climate change–related financing.
- The group of 21 countries that have expressed long-term financial needs represents about 71 percent of the region’s GDP.
- The cumulative multiyear financing needs for these 21 countries represent on average about 60 percent of their GDP in 2021, with wide dispersion:
  - 1 percent of GDP or less for Armenia, Kuwait, Lebanon, and Somalia.
  - 178 percent of GDP for Djibouti.
  - More than 450 percent of GDP for Mauritania.
- About 91 percent of the financing needs outlined in NDCs by 11 countries at the end of 2020 hinged on the expectation of international public financial support.

### Mitigation priorities (as identified in NDCs)
- Afforestation/reforestation (Somalia, United Arab Emirates).
- Renewable energy production, notably solar (Algeria, Pakistan).
- Technologies to reduce carbon dioxide emissions from hydrocarbon extraction and mining (Morocco, Oman, United Arab Emirates).
- Expansion of public transport networks (Sudan).
- Modernization of waste management (Tunisia).
- Carbon dioxide capture from the atmosphere (Saudi Arabia).

### Adaptation priorities (as identified in NDCs)
- Water resource management (emphasized by most countries in the region).
- Protecting coastlines from rising sea levels (Tunisia).
- Greening buildings (United Arab Emirates).
- Protective infrastructure against floods and mudslides (Turkmenistan).
- Modernizing farming (Georgia, Pakistan, Somalia, Sudan).

### Regional investment estimates and scenarios
- IPCC (de Coninck and others 2018) estimate for global energy sector mitigation to contain warming to 1.5°C: annual investment of $2.4 trillion by 2035.
  - Given ME&CA share of global GDP (12.9 percent in 2021) and global emissions (10.3 percent in 2020), this translates into approximate annual investment needs for the region ranging from $250 to $310 billion.
- Adaptation: required annual investment to strengthen infrastructure resilience in the region estimated at around 1.6 percent of GDP per year or $80 billion in 2021 (Aligishiev, Bellon, and Massetti 2022).
- Combined estimates suggested cumulative annual investment needs to address climate change of $2,600 billion to $3,100 billion (equivalent to 65 to 78 percent of the region’s 2021 GDP) in the ME&CA region between 2023 and 2030.

### Distribution of adaptation burden and fiscal capacity constraints
- Countries with the greatest proportional financing needs for adaptation are often least prepared due to weak financial development, limited fiscal space, and high debt burdens.
- Average annual cost of strengthening infrastructure resilience:
  - Low-income ME&CA countries: 3.2 percent of GDP.
  - Emerging markets in the region: 0.6 percent of GDP.
- Selected country adaptation investment needs (annual, percent of GDP):
  - Kyrgyz Republic: 1.3 percent of GDP.
  - Mauritania: 1.9 percent of GDP.
  - Tajikistan: 3.3 percent of GDP.
  - Sudan: 1.8 percent of GDP.
  - Pakistan: 1.4 percent of GDP.
- Many of these countries rank in lower global deciles of the Financial Development Index, compounding financing challenges.

### Private sector role and sectoral concentration of adaptation needs
- Substantial adaptation costs are expected to fall on the private sector.
- Globally, four sectors—agriculture, infrastructure, water, and disaster management and preparedness—are estimated to account for three-quarters of adaptation financing needs.
- Estimated annual investment needs for adaptation to enhance the resilience of private assets:
  - ME&CA average: around 0.5 percent of GDP.
  - Asia Pacific: 1.5 percent of GDP.
  - Western Hemisphere: 1 percent of GDP.
  - Sub-Saharan Africa: 0.8 percent of GDP.
  - Emerging market average: 1.3 percent of GDP.
- Exceptions with higher private adaptation costs than the regional average:
  - Georgia: 1.2 percent of GDP.
  - Armenia: 0.8 percent of GDP.

### Uncertainty and sensitivity of estimates
- Climate investment needs are subject to considerable uncertainty driven by:
  - Future GHG emission paths and temperature changes.
  - Probability and frequency of extreme weather events.
  - Assumptions on technological breakthroughs, carbon intensity of economic activity, long-term demographic growth, and migration patterns.
  - Data and capacity gaps at country level.
- Effective mitigation investment is expected to limit adaptation needs; insufficient mitigation may raise adaptation costs substantially.

### Reallocating investment and regional investment patterns
- Reallocating investment away from carbon-intensive sectors can help meet green investment needs but will likely be insufficient on its own given the scale required.
- Investment patterns, 2018–2022 (Middle East, excluding North Africa):
  - Fossil fuels: around $611 billion invested.
  - Renewables: $21 billion invested.
- Annual investment needs for clean energy aligned with the Paris Agreement goals for MENA: around $148 billion.
- Phasing out fossil fuel investments over time and increasing climate-related investments can promote economic diversification, innovation, productivity growth, jobs, and new growth drivers (for example, in renewable energies and battery metals), with benefits materializing over the medium to long term.
- Green investment opportunities in the region are linked to extraction and refining of critical minerals (examples noted in the region):
  - Copper in Afghanistan, Iran, Kazakhstan, Oman, Pakistan, Saudi Arabia, and Uzbekistan.
  - Uranium in Iran, Kazakhstan, and Uzbekistan.
  - Nickel and lithium in Morocco.
- Responsible and sustainable extraction practices with environmental safeguards and social considerations are essential.

### Evolution and composition of climate finance in ME&CA
- Climate finance in ME&CA focuses primarily on mitigation, with limited resources for adaptation.
- External bilateral and multilateral financing provides the bulk of climate funding; funding is predominantly debt-based, project-oriented, and non-concessional.
- Use of climate finance products (green bonds and loans) remains limited; issuance concentrated in a few countries, mainly in the GCC.
- Climate finance flows in MENA:
  - Averaged 0.4 percent of GDP during 2019–20, approximately half the global average of 0.7 percent during that period (Climate Policy Initiative 2021).
  - Flows into MENA rose by 170 percent since 2014, reaching $15 billion.
- The Intergovernmental Panel on Climate Change (2022) estimates that current mitigation flows would need to increase 12 to 23 times in the ME&CA region to meet average mitigation needs through 2030 (measured in 2015 US dollars).
- Sectoral allocation of climate finance inflows in MENA:
  - Energy sector: 29 percent.
  - Water sector: 15 percent.
  - Transport and logistics: 12 percent.
- Climate finance instrument composition in MENA (2019/20):
  - Debt instruments: 48 percent.
  - Equity: 38 percent.
  - Majority of inflows are debt-based, non-concessional, and project-focused.
- Bilateral and multilateral external financing play a key role in climate finance.

*IMF Departmental Paper: Preparing Financial Sectors for a Green Future — Chapter 3 content unit*

### 1. By Instrument2. By Type of Arrangement

### pfsgfea - 1. By Instrument2. By Type of Arrangement

### Public Green Financing Inflows to ME&CA (including Multilateral Development Banks)
- Public climate finance inflows accounted for 56 percent of inflows to the Middle East and North Africa (MENA) in 2019–20, versus a global average of 51 percent.
- Multilateral development financial institutions contributed more than a third of total climate related public finance in MENA, significantly above the global average.
- Bilateral development financial institutions accounted for 16 percent of public financing in MENA.
- State-owned enterprises provided a fifth of public climate financing in MENA; funds (infrastructure and private equity) provided 6 percent.
- Contribution of national development financial institutions in the region is limited.

### Recent Trends and Magnitudes
- Bilateral and multilateral climate-related development financing for Middle East and Central Asia countries rose from less than $1 billion prior to 2008 to $12.1 billion in 2019, before declining slightly to $11.8 billion in 2020.
- Investments by climate funds in the region:
  - Twelve climate funds operating in MENA with approved funding of $1.5 billion, of which around $1.0 billion in loans and $0.5 billion in grants.
  - Financing is concentrated: Egypt and Morocco together receive 47 percent of these funds.
- Box Table 3.1 — Funds Supporting the MENA Region, 2003–19 (Millions of US dollars):
  - Clean Technology Fund (CTF): 8 67.1
  - Green Climate Fund (GCF): 311. 8
  - Global Environment Facility (GEF 4, 5, 6, 7): 138 . 3
  - Adaptation Fund: 48.8
  - Special Climate Change Fund (SCCF): 43.5
  - Least Developed Countries Fund (LDCF): 3 5 .1
  - Adaptation for Smallholder Agriculture Programme (ASAP): 22.6
  - Global Energy Efficiency and Renewable Energy Fund (GEEREF): 16.6
  - Partnership for Market Readiness: 10.2
  - MDG Achievement Fund: 7. 6
  - Global Climate Change Alliance (GCCA): 3.4
  - Pilot Program for Climate Resilience (PPCR): 1.6
  - Total: 1506.6

### Composition and Financial Characteristics
- Official climate funding primarily consists of debt financing, averaging 77.5 percent per year in 2018–20; grants account for most of the remainder (21 percent).
- More than two-thirds of financial inflows to the MENA region are directed toward project financing.
- Concessional financing represents about 11 percent of total inflows in the MENA.
- MDB financing by region in 2020 (Millions of US dollars) — box figure values:
  - 26,366
  - 9,061
  - 8,033
  - 6,708
  - 6,445
  - 3,993
  - 2,880
  - 1,420
  - 1,138

### Private and Domestic Climate Finance in MENA
- Public financing accounts for over half of the climate finance inflows; private and domestic climate finance sources remain limited.
- MENA averaged around 0.2 percent of GDP in private climate finance in 2019 to 2020.
- Weakest private participation comes from corporations and households; nonfinancial private sector role is limited.
- Green bonds and loans status by end-2021 in the region:
  - Out of the 32 countries in the region, only 6 countries (3 of which are from the GCC region) had issued green or green-linked bonds.
  - 13 countries had issued green or green-linked loans.
- In the GCC region, green financing has been accessed mostly by companies in energy and utilities sectors, along with financial institutions including sovereign wealth funds (SWFs).

### Sectoral Allocation
- Official climate financing to Middle East and Central Asia by sector (Box Figure 3.2) shows notable allocations to:
  - Energy
  - Agriculture, forestry, fishing
  - Other multisectors
  - Water supply and sanitation
  - Transport and storage

### Challenges for Banks and Domestic Lenders in ME&CA
- Shortage of bankable projects, longer investment periods, and uncertain returns:
  - Green investments may involve higher upfront costs, longer payback periods, uncertain returns, and longer investment periods requiring long-term funding.
  - Estimating financial benefits and environmental impact requires specialized skills and tools not always available to traditional lenders and borrowers.
  - Lack of bankable projects is particularly noted in North Africa and the CCA.
- Uncertain regulatory and policy frameworks:
  - Green investments are subject to specific regulatory and policy frameworks (renewable energy targets, emission reduction commitments, environmental certification requirements) that lenders must navigate.
  - Higher-income ME&CA countries are more advanced in development and implementation of policy and regulatory frameworks.
- Poor standardization and transparency:
  - Lack of standardized indicators and unified reporting frameworks for green investments hampers assessment and comparability across projects and lenders.

### Observations on Instrument and Industry Patterns
- Green financing instruments and industry patterns (Figure 27, 2003–22) indicate concentration among relatively large issuers and industries, with notable activity in energy, utilities, and financials in certain countries (country ISO codes referenced in the figure).

*Source: IMF DEPARTMENTAL PAPERS • Preparing Financial Sectors for a Green Future (excerpt).*

### Box 4. Islamic Financial Instruments and Green Financing in the Middle East and

### Box 4. Islamic Financial Instruments and Green Financing in the Middle East and Central Asia

### Islamic financial instruments and market developments
- The first Middle East green bond was issued by First Abu Dhabi Bank in 2017.
- Islamic and green finance have merged into new instruments in the region, including:
  - Green or sustainable Islamic bonds (sukuks): Shari’ah-compliant financial instruments whose proceeds are used for the funding of eligible sustainability projects.
  - Green sukuk: Shari’ah-compliant instruments whose proceeds are used exclusively to finance investments in renewable energy or other environmental assets (such as energy and infrastructure projects).
  - Shari’ah-compliant green deposits for households (example cited: Saudi Arabia).
- Notable issuer developments and milestones (selected, as presented):
  - First Middle East green bond issued by First Abu Dhabi Bank (FAB) in UAE.
  - Green bonds issued by Majid Al Futtaim (MAF), The Islamic Development Bank (IsDB), First Abu Dhabi Bank (FAB).
  - Green Sukuk and bond issuances by Saudi Electricity Company, Qatar National Bank (QNB).
  - First sustainability-linked “transition” sukuk issued by Etihad Airways.
  - First Middle East sovereign green bond issued by Egypt in September.
  - Saudi Arabia’s Public Investment Fund (PIF) issued debut green bonds – first SWF to do so. 3 bn USD with up to 100-year maturity.
  - Riyad Bank issued first additional tier one sustainable sukuk.
  - SABB introduces first shariah compliant green deposit product in Saudi Arabia and Middle East.

### Recent issuance statistics (global and regional)
- Global issuance of sustainability-linked sukuk:
  - $3.8 billion in 2021, up from $2.1 billion in 2020.
- Global issuance of green sukuk:
  - $1.8 billion in 2021, down from nearly $2.6 billion in 2020.
- Decline in green sukuk issuances attributed to:
  - High issuance costs.
  - Limited opportunities for funding decarbonization projects.
  - Lack of common standards within and between markets.
- Despite issuance volatility, numerous banks in the region have advised upon or issued sustainable and green sukuk.

### Key barriers and market frictions
- Lack of common standards and inconsistent reporting and transparency standards hinder lenders’ ability to compare green investment opportunities and assess risks/returns.
- Significant asymmetries of information:
  - Limited access to reliable and relevant data on climate-related investments creates uncertainty for lenders.
  - Domestic lenders may be hesitant to allocate capital to climate investments due to difficulties in pricing risks and evaluating returns; this favors relationship-based banks and complicates financing for smaller projects.
- Operational and counterparty risk:
  - New field with little track record increases operational and counterparty risks, deterring investors, especially in countries where accounting and governance standards for nonfinancial firms still need substantial improvement (for example, part of the CCA and North Africa).
- Insufficient capacity and expertise in project selection and development:
  - Green projects often involve complex technologies and environmental assessments unfamiliar to traditional lenders.
  - Reliance on specialized third-party expertise, sometimes from outside the country, can be significant and costly, particularly in less-developed financial systems.
- Common pool/public asset issues:
  - Collective ownership or management of natural ecosystems complicates defining property rights, enforcing regulations, and ensuring equitable distribution of benefits—particularly acute for financing adaptation needs (for example, shoreline protection or some water-related investments).
- Data limitations and lack of mandatory disclosure:
  - Lack of mandatory disclosure and traceability inhibiting assessment of how much progress is being made toward meeting financing needs (for example, on an annual or medium-term basis, three to five years).
  - Without standardized taxonomies and regulations, banks lack incentives to report and develop exposures even if they launch green products.

### Opportunities for scaling up green financing through domestic financial sectors
- Domestic banks can mobilize and reallocate domestic savings and leverage comparative advantages of bank intermediation, particularly in retail banking for households and firms.
- Energy efficiency and real estate:
  - The real estate sector has the second largest mitigation financing needs after the power industry, estimated at approximately $660 billion globally.
  - Energy efficiency investments (commercial and residential) offer scope for bankable projects; IFIs can provide funding at maturities that match returns on such investments.
  - Policymaker actions to stimulate demand—such as removing subsidies or introducing economic incentives and pricing water/fuel/electricity to reflect actual cost and scarcity—are important to make small household projects bankable.
- Green inclusive finance:
  - Banks can promote climate resilience among vulnerable customers while protecting the environment.
  - Examples in the region:
    - Banks proactively developing green products for SMEs and customers in Morocco, Tunisia, Yemen (e.g., Al Amal Bank in Yemen provides interest-free products to farmers and households transitioning to solar energy, with interest collected from suppliers).
    - Financing for solar generators and water pumps to enhance business resilience and mitigate rising fuel costs.
  - Coupling risk insurance and guarantees with sustainable development frameworks can support green finance for SMEs and microfinance for low-income and self-employed groups.
  - IFIs (for example, the European Bank for Reconstruction and Development and the International Finance Corporation) can provide guarantees, co-investment, and capacity building via credit lines managed by domestic banks.
- Banks can diversify balance sheets and strengthen resilience to climate risks through green financing and transition-linked bonds/loans.
  - Diversification is important in oil-exporting countries to reduce linkage between bank funding and hydrocarbon prices (Figure 28 highlights the strong link between bank funding and hydrocarbon prices).
- Role of large firms and SOEs:
  - Large firms, including SOEs and energy companies, could drive sustainable finance given their size, emissions intensity, public ownership, and centrality to national economies.
  - SOEs can finance large mitigation projects domestically (for example, solar and wind farms) and potentially catalyze private sector involvement if they crowd in rather than crowd out private finance.
  - Example note: 30 companies in the United Arab Emirates committed to measuring and reducing carbon footprint and integrating sustainability across operations.
- Financial market and ecosystem development:
  - Further development of domestic capital markets will catalyze private and official sources of green finance.
  - Recent innovations include blending green and Islamic finance and a surge in green bond issuance (from a low base and limited to some issuers).
  - Challenges remain: need for longer maturities and refinancing (for example, mortgages), weak regulatory and legal frameworks, infrastructure gaps, and cross-border capital flow constraints (Figure 29).
  - Development of carbon markets could create pricing signals to make green financing more profitable and attractive; voluntary carbon markets are at a promising inception in the region but need stronger price incentives to fully develop.

### Role and potential of Sovereign Wealth Funds (SWFs)
- Unique regional role: SWFs in oil-exporting countries can support long-term development of climate finance domestically and regionally.
- Scale and significance:
  - The ME&CA region is home to 16 regional SWFs collectively managing assets above $4.8 trillion.
  - SWFs’ involvement in climate finance is limited relative to portfolio size but progressing.
- SWFs’ contributions and potential roles:
  - Support economic diversification and domestic investment (example: Saudi Arabia’s PIF and UAE’s Mubadala).
  - Finance large mitigation projects domestically (for example, solar and wind farms).
  - Act as credible state-owned minority partners to attract international and local private investors, co-investing with asset managers, private equity funds, and institutional investors in green projects.
  - Provide climate finance in other countries of the region through mitigation projects (examples cited: projects in Egypt and Morocco).
  - Cooperation among SWFs, asset managers, and private equity funds (for example, One Planet Sovereign Wealth Funds Network) can accelerate investments in incipient technologies like clean hydrogen and renewable energy.

### Key implications and suggested policy directions (derived from text)
- Standardization and transparency:
  - Develop common standards, standardized taxonomies, and mandatory disclosure frameworks to improve comparability, traceability, and incentives for banks to report green exposures.
- Data and capacity building:
  - Improve availability of reliable and relevant data on climate-related investments to reduce information asymmetries and enable estimation of annual and medium-term (three to five years) financing needs.
  - Build domestic capacity and expertise in project selection, development, and technical assessment to reduce reliance on costly external expertise.
- Risk mitigation and market support:
  - Use insurance, guarantees, and IFI support to address operational and counterparty risks and to help scale bank involvement in green inclusive finance.
  - Encourage IFI credit lines managed by domestic banks to leverage local knowledge and monitoring capabilities.
- Market and pricing reforms:
  - Introduce economic incentives to stimulate demand for energy and water efficiency investments (for example, remove subsidies, price externalities, and reflect scarcity).
  - Develop financial market infrastructure and long-term funding instruments (for example, longer maturities) to support green project financing.
  - Foster carbon market development to create price signals and facilitate bankable projects and collateral valuation.
- Leverage SWFs and SOEs:
  - Encourage SWFs to act as co-investors and catalytic partners to attract private investment and scale green projects.
  - Leverage large firms and SOEs to pilot and scale green solutions that can permeate domestic capital markets.

*IMF Departmental Paper excerpt.*

### Box 5. The Development of Carbon Pricing Mechanisms and Carbon Markets in the

### Box 5. The Development of Carbon Pricing Mechanisms and Carbon Markets in the Middle East and Central Asia

### Overview of carbon-pricing mechanisms and role in climate finance
- Two main mechanisms:
  - (1) taxation of carbon dioxide emissions, for example through taxes on the supply of fossil fuels; and
  - (2) cap-and-trade emission trading systems, which are market-based policies requiring all covered entities to hold quantitative allowances for their emissions.
- Cap-and-trade systems cap the total quantity of available allowances, with allowance prices determined through market trading, and most commonly lead to the development of carbon markets.
- Carbon-pricing mechanisms shift the cost of carbon dioxide and other greenhouse gas emissions from the public back to the emitters, helping to overcome externalities associated with polluting activities.
- By requiring emitters to internalize the cost of their greenhouse gas emissions, carbon pricing can encourage lower energy consumption and investment in cleaner and more efficient technology.
- Carbon-pricing mechanisms increase the private financial return on low-carbon investment relative to more polluting alternatives (Heine and others 2019) and help align it with social and environmental returns.
- Stable, credible, and transparent carbon pricing mechanisms are particularly important because investments in green technologies often require large, upfront payments and only pay off over long timeframes (IMF, 2019b).

### Global and regional status (key statistics and developments)
- As of early 2023, there were 70 carbon pricing mechanisms globally, covering 47 jurisdictions.
- Among Middle East and Central Asia (ME&CA) countries:
  - Kazakhstan has a carbon pricing mechanism in place in the form of an emission trading system.
  - An emission trading system is under consideration in Pakistan.
  - Egypt EGX has finalized contracts for the supply of fintech technology for a carbon credit platform for Africa’s first voluntary carbon market and is expected to be launched in 2023.
  - Saudi Arabia and the United Arab Emirates have taken steps to establish voluntary carbon trading systems; these do not rest on government-mandated carbon limits and a cap-and-trade mechanism.
    - Saudi Arabia’s Public Investment Fund held a large auction of carbon credits in October 2022 and, in cooperation with the domestic stock exchange, Saudi Tadawul, announced the establishment of a regional voluntary exchange platform for offsets and carbon credits.
    - In the United Arab Emirates, a carbon trading platform is being explored by the Dubai Carbon Centre of Excellence. The United Arab Emirates’ ADGM is working on a framework for the first-ever regulated voluntary carbon market, while its Financial Services Authorities implemented regulatory changes that made voluntary carbon credits a tradable financial instrument on the ADGM.

### Benefits and limitations of voluntary carbon markets in ME&CA
- Benefits:
  - Can contribute to the creation of financial return mechanisms and serve as valuable collateral instruments.
- Limitations and risks:
  - Lack of depth, efficiency, and transparency in pricing can lead to unpredictable revenue streams.
  - Practice is still in its infancy in the region, with limited demand and supply.

### Potential implications of a global carbon trading system for ME&CA
- Under a future global carbon trading system compatible with Article 6 of the Paris Agreement, nearly all ME&CA countries are likely to be net buyers of carbon credit emissions rights and hence experience financial outflows, while most other emerging market and developing countries are projected to attract inflows (IETA 2021).
- This disequilibrium may be more prevalent at the regional level, limiting the potential of such markets.
- Drivers of this outcome include limited land availability for nature-based carbon offsets (for example, lack of green forest cover for carbon credits) and large populations in ME&CA.
- The regional outlook underscores the importance of fostering green finance development to meet the region’s mounting climate financing needs.

*Source: Box 5, "The Development of Carbon Pricing Mechanisms and Carbon Markets in the Middle East and Central Asia."*

### 5. Policy Considerations

### pfsgfea - 5. Policy Considerations

### Overview and strategic priorities
- ME&CA countries face sizable financing needs to achieve climate goals relative to currently available green funding.
- Green finance development in ME&CA is nascent; unlocking private green finance is crucial for a successful transition to a low-carbon economy.
- Near-term policy efforts should center on:
  - Better measuring, understanding, and disclosing climate risk data, and developing robust models to assess climate risk impacts on financial sector institutions (aligned with Basel Committee, IAIS, NGFS, and industry groups).
  - Finalizing climate strategies and creating green financial ecosystems: sustainable finance frameworks, responsible investment taxonomies, reliable information on climate-related investments and green products, and capacity building to implement climate measures.

### Strengthening financial-sector resilience to climate risks
- Key policy actions:
  - Better measure and understand climate risks: implement standardized methodologies capturing physical risks (for example, extreme weather events and sea level rise) and transition risks (for example, policy changes and consumers’ preferences shift).
  - Promote climate risk data disclosure by financial institutions: aim for comprehensive and consistent reporting using frameworks such as TCFD and ISSB.
  - Develop new and enhance existing climate risk models and climate forecasting: prioritize robust models that consider scenarios and stress tests integrating physical and transition risks.
  - Adopt sound climate risk management in financial institutions: gather reliable, up-to-date information on climate-related exposures; enhance risk governance, internal controls, and accountabilities; identify, monitor, and manage climate risks at all levels.
    - Possible adjustments include shortening loan maturities in carbon-intensive sectors, creating stronger capital buffers, and setting thresholds on asset concentration, leverage, or specific sectoral exposures.
    - Supervisors could implement specific carbon stress tests to assess resilience.
  - Promote knowledge sharing and cooperation across the financial sector and stakeholders to encourage adoption of best practices.
  - Support development of the insurance and reinsurance sector: develop supervisory tools to manage climate risks, leverage reinsurance markets, and incentivize private participation. Consider national reserve funds or mandatory natural disaster insurance funds (example noted in Iran).

- Table 1 (policy measures to strengthen bank resilience to climate events) — core actions by country group:
  - Risk methodologies: Better measure, understand, and quantify climate risk exposure.
  - Risk models: Develop or enhance climate risk models and forecasting.
  - Data disclosures: Strengthen disclosure of climate risk data.
  - Risk management: Adopt robust climate risk management policies and practices.
  - Risk awareness: Promote awareness, knowledge sharing and cooperation in the financial sector and with relevant stakeholders.
  - Development of the insurance and reinsurance sector: Initiatives to create mandatory disaster insurance fund/s, encourage public-private insurance schemes, leverage the reinsurance market.
  - Implementation stages across country groups indicated as: Less than half of the countries; More than half but less than three-fourths of the countries; Over three-fourths of the countries.

- Table 2 (potential new macroprudential tools and measures) — area, tool, purpose, drawbacks, novelty:
  - Capital: Capital conservation buffer; Purpose: Increase resilience; Novelty: No.
  - Capital: Counter-cyclical capital buffer; Purpose: Prevent build-up of risks, increase resilience; Novelty: No.
  - Concentration: Concentration threshold; Purpose: Reduce excessive concentration; Potential drawback: Non-targeted measure; Novelty: No.
  - Concentration: Concentration charge; Purpose: Increase targeted resilience/reduce concentration; Potential drawback: Cyclical nature of climate risk unclear; Novelty: No.
  - Leverage: Sectoral leverage ratio; Purpose: Increase resilience; Potential drawback: Complexity in classification of geographical/sectoral exposures; Novelty: Yes.
  - Sectoral exposures: Sector specific requirements (e.g.: risk weights); Purpose: Increase targeted resilience; Potential drawback: Complexity in classification of geographical/sectoral exposures; Novelty: No.
  - Sectoral exposures: Sectoral systemic risk buffer; Purpose: Increase targeted resilience; Potential drawback: Impact on micro-prudential requirements; Novelty: Yes.
  - Additional note: Challenging calibration and novelty in Macroprudential Toolkit flagged for several measures.

### Creating a conducive green finance ecosystem
- Finalize climate strategies and support sustainable finance frameworks:
  - Reinforce NDCs and associated strategies; integrate climate frameworks into broader government strategies with clearer objectives, practical steps, and defined timelines that identify financing needs including private finance.
- Develop climate sustainability classification systems (taxonomies) and promote enhanced disclosures:
  - Develop and finalize sustainable finance taxonomies and disclosure requirements for environmentally responsible investments.
  - Regional cooperation (for example, GCC) can exploit economies of scale for regional taxonomies and standards.
- Translate climate strategies into pipelines of green bankable projects:
  - Requires cooperation between public and private sectors, IFIs, and multilateral development banks (MDBs).
  - MDBs and IFIs can provide project-level de-risking, standardized green project contracts, and macro de-risking via credible regulations and governance.
  - Example cited: Climate Finance Access and Mobilization Strategy for Central Asia and South Caucasus (2023–30) by the United Nations; UN ECE–led project to transform the construction sector in Eastern Europe, Central Asia, and the Caucasus.
  - World Bank finding: enhancing regional power trade in Central Asia could generate $6.4 billion while enabling climate-friendly investment (Myroshnychenko and Owen 2016).

- Further develop green finance products and mechanisms:
  - Expand use of green bonds and loans, including sovereign and corporate bonds and loans, sustainability-linked bonds and loans.
  - Enhance financial regulations and incentives (including tax incentives) to attract capital providers.
  - Expand Shari’ah-compliant green financial instruments (green sukuk).
  - Support market facilitators: Green Investment Banks or Funds (Bahrain), Super ESCOs (Egypt and United Arab Emirates), coordinating platforms (IRENA Climate Investment Platform).

- Table 3 (financial sector actions to facilitate private green financing) — priorities by financial-sector development:
  - Near-term priorities:
    - Sustainable finance frameworks: sustainable finance strategy/frameworks.
    - Disclosures/standards: sustainable finance standards, disclosure of climate risks, standards for green investment products.
    - Innovative products: development of innovative products and services to finance green investment.
  - Medium- to long-term priorities:
    - Carbon pricing: development and use of carbon trading markets and valuation.
    - Local capital markets deepening: initiatives to create efficient, scalable, and sound capital markets (for example, in domestic currency).
  - Implementation noted across country groups as: Low or no implementation; Some of the countries; Most of the countries.

### Roles and policy levers for public authorities and market actors
- The role of governments:
  - Implement policies promoting climate-sustainable investment (incentives and market mechanisms) and upgrade laws, regulations, and standards (for example, emissions, recycling, building codes).
  - Comply with emerging international standards and adopt recognized sustainable finance frameworks to address governance issues.
  - Upgrade PPP laws and liberalize foreign direct investment regimes to mainstream climate finance.
  - Prioritize phasing out energy subsidies and adopting adequate carbon pricing policies:
    - Energy subsidies in ME&CA countries represented $389 billion in 2022 (or around 7 percent of GDP on average for a country), and $336 billion in MENA countries alone.
    - Eliminating subsidies would reduce incentives for fossil fuel consumption, contribute to mitigation targets, reduce investment needs, and enhance bankability of climate projects by reaching market prices.
    - Example estimates referenced: for Saudi Arabia, eliminating fuel subsidies by 2030 would help achieve one-third of mitigation targets; Anderson and others (2022) show additional investments of $770 billion in MENAP (20 percent of 2021 GDP) and 114 billion (27 percent of 2021 GDP) in the CCA between 2023 and 2030 would allow achieving emission reduction targets with fuel subsidies reduced by two-thirds and without any carbon tax.
  - Note: decreasing costs of renewable energy (solar) in recent ME&CA projects reduces required incentives/subsidies.

- The role of central banks and financial regulators:
  - Encourage transparency and disclosure of climate-related risks to enable investor decision-making.
  - Provide guidelines and require supervisory reporting on climate-related exposures.
  - Issue guidance on incorporating climate factors into investment decisions and enforce reporting standards for green exposures.
  - Actively participate in international collaborations and networks dedicated to green finance.

- Development of new tools and markets:
  - Use new international carbon markets and develop domestic carbon pricing frameworks and carbon trading markets to stimulate investments in renewables and low-carbon technologies.
  - Regional carbon markets can be more cost-effective than small national markets.
  - Support domestic market facilitators (Green Investment Banks/Funds, Super ESCOs) to match projects with investors and overcome barriers.

- Climate awareness, architecture, and capacity building:
  - Raise awareness about climate risks across sectors and actors.
  - Develop capacity-building programs in green finance to facilitate project origination and implementation, and promote responsible investment and climate-aware decision making (examples: Regional Centre for Sustainable Finance in Egypt and the MENA).
  - Finalize climate information architecture: data dashboards and reliable data sources.

- Development and deepening of local capital markets:
  - Priorities include enhancing legal protections and corporate governance, increasing market depth and liquidity (derivatives, corporate bonds, green bonds), modernizing electronic trading platforms, facilitating international market access, strengthening risk management and credit rating agencies, and supporting sound macroeconomic policies.
  - Address currency risk in climate project funding: implement foreign exchange hedging facilities to reduce hedging costs until foreign exchange derivatives markets mature.

- Initiatives to coordinate climate finance:
  - Share best practices, identify barriers to accelerating green finance, and solicit market participant feedback on new rules, standards, or products.
  - Encourage collaboration between private and public sectors, including SWFs and SOEs, and foster regional collaboration to bridge financing gaps.

- Roles of SOEs and SWFs:
  - SOEs can commit to net zero and prioritize core business resilience to climate risks.
  - SWFs, with substantial assets and long-term horizons, can attract international and local private investors, catalyze green investments, and disseminate best practices and sustainable finance frameworks.

- New financing models:
  - Use blended finance and PPPs with multilateral or government actors to ensure scalable financing for energy transition and overcome market entry barriers.

- Regional collaboration:
  - Harmonizing sustainable finance taxonomies, standards, reporting, and training at the regional level can facilitate cross-border investments, reduce greenwashing, mitigate market fragmentation, and enhance regional integration.
  - Example: Saudi Arabia's Middle East Green Initiative (MGI) as a regional mitigation effort.

*Source: IMF staff.*

### Annex 1. Data and Empirical Framework for

### Annex 1. Data and Empirical Framework for Assessment of Impact from Acute Physical Risks

### Time horizon and frequency
- Time horizon: 2000 to 2021, annual frequency.

### Baseline empirical specification
- Baseline model (A.1): yc,t = ac + dt + r yc,t−1 + b Dc,t−1 + Σj≥0 lj x c,t−j + u z c,t−1 + ε c,t.
  - yc,t: bank performance metric in year t for country c.
  - ac: country fixed effect.
  - dt: year fixed effect.
  - Dc,t−1: occurrence of acute climate-related events in year t − 1.
  - x c,t−j: GDP growth rate at time t − j (j = 0,1).
  - z c,t−1: index of financial sector development.
- Bank metrics analyzed: loan loss provisions, nonperforming loan ratio, Tier 1 capital to risk-weighted assets, bank z-scores, liquid assets to short-term liabilities, and return-on-assets.
- Identification assumption: banking sector performance does not coincidently affect a country’s exposure to climate disasters at annual frequency.

### Sample and data sources
- Unbalanced panel of 17 ME&CA countries for IMF Monetary and Financial Statistics regressions: Armenia, Azerbaijan, Egypt, Georgia, Jordan, Kazakhstan, Kyrgyz Republic, Mauritania, Morocco, Oman, Pakistan, Qatar, Syria, Tajikistan, Tunisia, United Arab Emirates, Uzbekistan.
- Sample limited to 13 countries for IMF Financial Soundness Indicators regressions: Algeria, Armenia, Georgia, Jordan, Kazakhstan, Kuwait, Kyrgyz Republic, Lebanon, Pakistan, Saudi Arabia, Tajikistan, United Arab Emirates, Uzbekistan.
- Bank balance sheet data: IMF Financial Soundness Indicators.
- Credit loss provisions: IMF Monetary and Financial Statistics database.
- Bank z-scores: World Bank Financial Development and Structure database.
- Macroeconomic controls (including GDP growth): IMF World Economic Outlook database.
- Financial sector development: IMF Financial Development index.
- Climate disasters data: EM-DAT database; considered events: droughts, extreme temperatures, floods, landslides, storms.
  - Floods: analysis restricted to events with economic damage ≥ 75th percentile of flood-related damages in ME&CA countries due to limited regional variation and median flood damage often reported as null in EM-DAT.
  - Excluded disasters: earthquakes and dry landslides (not related to climate change), and disasters not directly related to climate.

### Main findings — impact on loan loss provisions
- Some climate-related disasters are associated with an increase in banks’ loan loss provisioning in the year following the event.
- Quantitative impacts (ME&CA region averages reported in-text):
  - Drought occurrence in a given year increases bank credit provisions by about 21 percent.
  - Extreme temperature events increase bank provisioning by about 16 percent.
  - Floods increase bank credit provisions by about 10 percent on average.
- Cross-regional differences:
  - A one standard deviation increase in droughts has a significantly higher (over two-fold) impact on provisions in CCA relative to MENAP.
  - Possible reasons: differences in adaptive measures, insurance penetration, government bailout policies, or event severity and economic implications.

### Single disaster dummy estimates and dollar impacts
- Constructed generic climate hazard dummy = 1 if drought, extreme weather event, or flood occurs in year, zero otherwise.
- Regression results (Annex Table 1.3, column 1):
  - L.Climate disaster increases loan loss provisions by 19.466 percent (standard error 6.226). [Reported as 19.466** (6.226) in table formatting; text states 19 percent average]
  - Lagged dependent variable coefficient: 0.241** (0.049).
  - Adjusted R2: 0.182; Observations: 238.
- Dollar-value regression (Annex Table 1.3, column 2):
  - L.Climate disaster increases credit loss provisions by 256.338 (2021 US dollars) (101.981).
  - Lagged dependent variable coefficient: 0.224** (0.076).
  - Adjusted R2: 0.043; Observations: 238.
- Aggregate implication:
  - EM-DAT counts 146 relevant climate event years (droughts, extreme weather events, floods) in ME&CA countries over 1980 to 2021.
  - Using the average impact estimate implies climate-related disasters could have had a cost of around $37 billion since 1980 for banks in the region.

### Pass-through of disaster damages to bank credit losses
- Estimated marginal pass-through (Annex Table 1.4):
  - A $1 loss due to a climate event (extreme temperatures, drought, or flood) may generate about $0.23 in bank credit losses (coefficient 0.230** (0.073)).
  - Lagged dependent variable: 0.257** (0.064).
  - Real GDP growth: −19.722** (9.002).
  - Observations: 223; Adjusted R2: 0.098.
- Interpretation: relatively high pass-through possibly reflecting limited insurance market penetration and limited government disaster relief plans.

### Impacts on other bank ratios and performance
- Nonperforming loans to total gross loans (Annex Table 1.5, column 1):
  - L.Disaster (dummy) increases NPL ratio by 1.434 percentage points (0.660). Result significant at * p < 0.10.
  - Lagged dependent variable: 0.763** (0.047).
  - Adjusted R2: 0.719; Observations: 145.
- Return on assets (ROA) (Annex Table 1.5, column 2):
  - L.Disaster (dummy) associated with a decline in ROA of −0.619 percent (0.265) (** significance).
  - Lagged dependent variable: 0.421** (0.168).
  - Adjusted R2: 0.294; Observations: 146.
- Liquid assets to short-term liabilities (Annex Table 1.5, column 3):
  - L.Disaster (dummy) coefficient: 41.63 (30.658); not statistically significant.
  - Lagged dependent variable: 0.307** (0.053).
  - Adjusted R2: 0.212; Observations: 145.
- Tier 1 capital to risk-weighted assets (Annex Table 1.5, column 4):
  - L.Disaster (dummy) associated with a decline of −0.810 percentage point (0.526) (significance limited, + p < 0.15).
  - Lagged dependent variable: 0.437** (0.042).
  - Adjusted R2: 0.267; Observations: 149.
- Z-score (Annex Table 1.5, column 5):
  - L.Disaster (dummy) coefficient: −0.774 (0.684); not statistically significant.
  - Lagged dependent variable: 0.745** (0.058).
  - Adjusted R2: 0.640; Observations: 234.
- Overall interpretation:
  - Climate disasters are associated with deterioration in credit quality (increase in NPLs) and profitability (decline in ROA).
  - No statistically significant impacts found on liquidity ratios or z-scores; tentative evidence of negative impact on capital adequacy (Tier 1 ratio) with limited statistical significance.

*Source: IMF staff calculations reported in Annex 1 of the provided chapter.*

### Annex 2. Data and Empirical Framework for

### Annex 2. Data and Empirical Framework for Assessment of Impact from Transition Risks

### Assumptions
- Transition costs are proxied by an increase in the effective carbon price, recognizing alternative policy forms (for example, removal of subsidies to renewable energy production, caps on fossil-fuel-based power generation, green investment).
- Representation of transition risk as an increase in the carbon price is chosen for tractability.
- Additional costs to firms may arise through the Carbon Border Adjustment Mechanism for energy-intensive exports of the region.
- "No-pass-through" assumption on firms’ side is imposed when applying carbon costs to operating expenses.

### Question for analysis
- How does an increase in the domestic effective carbon price impact banks’ credit exposures, such as loans, by affecting firms’ operating costs?

### Methodology
- A firm-level balance sheet approach is employed to estimate transition risks to financial stability.
- Aim: estimate negative impact of applying a cost on carbon emissions on firms’ ability to service debt and the resulting effects on lenders’ financial health and financial sector stability.
- Steps:
  - Estimate sector-level carbon dioxide emission intensities across countries using International Energy Agency data.
  - Combine sectoral emission intensities with firm-level output data to derive firm-level emissions.
  - Apply a carbon tax to estimated firm-level emissions under a no-pass-through assumption to estimate additional burden on firms’ operating expenses.
  - Calculate the share of financially stressed firms in each sector proxied by the ICR (earnings before interest and taxes/interest expense); a negative ICR position denotes a “firm-at-risk.”
  - Combine firm-level impact with banking-system-level exposures to each sector to quantify bank loans at risk of becoming nonperforming due to the carbon tax shock.

### Data sources and coverage
- Firm-level data: S&P Capital IQ (Compustat), latest period available (2022).
- Final sample: more than 780 publicly listed nonfinancial firms in 2022.
- Micro-level data coverage: firms from nine countries across a variety of industries.
- Banking-system-level data: national banking systems’ outstanding loans to each sector from national central bank statistical bulletins (some available on Haver Analytics).
- Extensive cleaning and filtering exercised on raw Capital IQ data to produce final dataset.

### Empirical analysis details
- Framework follows Sever and Perez-Archila (2021) and is conducted at the sectoral level.
- Firm-level emissions derived from combining sectoral intensities with firm output.
- Financial stress measured by ICR; share of financially stressed firms computed by sector.
- Banking-system exposures to sectors used to translate firm stress into loans at risk.

### Scenarios and numerical parameters
- Baseline carbon price shock applied: $75/ton of carbon dioxide.
  - Footnote: this assumes an increase of the carbon price to an average of $75/ton of carbon dioxide equivalent in line with the proposal for an international carbon price floor that would be needed by 2030 to keep warming below 2 degrees Celsius and supported by IMF (2019a).
- Alternative scenario: $30/ton of carbon dioxide, described as the effective carbon tax rate needed to reach NDC targets without additional renewable energy investments (Anderson and others 2022).
- Context on current effective carbon rates in region:
  - MENAP estimated at about $–11 per metric ton of carbon dioxide (reflecting fossil fuel subsidies).
  - CCA estimated at about $11 per metric ton of carbon dioxide.
  - Effective carbon rate defined as net fiscal revenue from domestic fossil fuel consumption per metric ton of carbon dioxide emissions.

### Caveats in quantifying banks’ transition risks
- Climate risk assessments limited by lack of granular data linking climate events to financial systems and individual institutions, especially in the ME&CA region.
- Simplifying assumptions are necessary, including:
  - Static balance sheet assumption.
  - No second-round effects and no feedback loops.
- A comprehensive stress testing scenario would ideally reflect both physical and transition risks; lack of established common practices across countries leads to ad hoc approaches that may not uncover unique country risks.

*IMF DEPARTMENTAL PAPERS • Preparing Financial Sectors for a Green Future — Annex 2*

### 1. Investments in green listed and private companies: Some SWFs have developed strategies to invest in

### 1. Investments in green listed and private companies: Some SWFs have developed strategies to invest in

### Overview
- Some sovereign wealth funds (SWFs) have developed targeted strategies to invest in green assets, including renewables, green hydrogen, low-carbon transport, water projects, and green infrastructure facilities.
- Renewable energy was noted as the most popular climate-related sector, with "70 percent of One Planet Sovereign Wealth Fund survey respondents" saying it was the most attractive climate-related sector.

### SWF actions and specific examples
- Mubadala:
  - Supports many wind and solar projects, including in developing countries.
  - Invests in green hydrogen.
  - Established a standalone Responsible Investing Unit and published a Responsible Investing Policy.
  - Masdar is investing more than $30 billion in innovative projects including utility-scale power plants, solar power plants, individual solar home systems, community grid projects, and waste-to-energy technology.
  - Mubadala, the Abu Dhabi National Oil Company, and ADQ established the Abu Dhabi Hydrogen Alliance.
- Ithmar Capital (Morocco):
  - Collaborates with the World Bank and is involved in the Green Growth Infrastructure Africa Facility (pan-African fund dedicated to green investment).
  - Signed a deal with three Gulf sovereign funds and nine African peers to promote investment on the continent, especially in green sectors.
- Public Investment Fund (PIF) (Saudi Arabia):
  - Launched Vision Realization Program 2021–25.
  - Published a green finance framework (February 2022) with six broad initiatives, including developing carbon markets and green bond issuance.
  - Issued a $3 billion green bond in September 2022 (one tranche with a 100-year maturity).
  - Issued a $5.5 billion green bond in February 2023.
  - Committed $500 million to fund the TPG Rise Climate Fund.
  - Assigned a leading role in developing renewable energy as part of Vision 2030, with a commitment to develop 70 percent of Saudi Arabia’s renewable energy by 2030.
  - Helping establish the Riyadh Voluntary Exchange Platform for offsets and carbon credits.
- TSFE (The Sovereign Fund of Egypt):
  - Established in 2018; follows an ESG framework and is a member of the OPSWF.
  - Signed memorandums of understanding worth $40 billion in planned green hydrogen investments.
  - Plans to invest $225 million of its own capital in green hydrogen over 2022–23.
  - Working to crowd fund investment in renewable energy, green hydrogen, green ammonia, and desalination.
- NIC NBK (National Investment Corporation of the National Bank of Kazakhstan):
  - Initiated revision of investment guidelines for its private equity portfolio to limit holdings in carbon-heavy industries (e.g., coal mining and crude oil production).
  - Pledged support for TCFD recommendations and encouraged investees to align with OPSWF Framework.
  - Initiated Impact and Thematic portfolio development aimed at solving environmental issues.
- KIA (Kuwait Investment Authority):
  - Endorsed and encouraged adoption of the TCFD and ESG investment principles.
  - Committed to publishing an internal ESG Risk Report quarterly.
  - Engages asset managers and investees to adopt TCFD recommendations and seeks favorable MSCI environmental rating scores from companies it invests in.
- OIA (Oman Investment Authority):
  - Working on an ESG framework; subsidiaries like Rakiza commit to ESG principles.
  - Rakiza invests in renewable energy, water and waste management, and transportation.
  - Pursued green investments including hydrogen, solar, and wind projects in partnership with ADQ, worth over $8.16 billion.
  - Approved an exit plan for OQ Group (wholly owned energy and petrochemical subsidiary).
- QIA (Qatar Investment Authority):
  - Announced in January 2020 it will stop new investments in fossil fuels.
  - By 2022, embedded ESG via investment/ESG policy, benchmark review, employee campaigns, and climate-related criteria in investment processes.
  - By 2022 expanded renewables in its infrastructure power generation assets to "45 percent, and 50 percent and are deemed zero emissions."
- ADIA (Abu Dhabi Investment Authority):
  - Founding member of OPSWF working group; endorsed ESG principles and frameworks.
  - Embedded climate change into operating system and invested in sustainable assets, notably infrastructure and real estate.
  - Exposure to labeled bonds (green and sustainability bonds) has "more than tripled in the past years."
- ADQ:
  - Published its sustainability policy in 2021 and has a sustainability unit.
  - Local green finance projects include the $1 billion green ammonia project in Khalifa Industrial Zone Abu Dhabi.
  - Cross-border renewable investments in Oman (wind, solar, hydrogen) and Kazakhstan (solar).
  - Allocated $10 billion in investment for projects that will include renewable energy with Egypt and Jordan.

### Portfolio decarbonization approaches and asset-class preferences
- Two broad approaches for SWFs to address carbon exposure:
  1. Stay and engage with companies to pressure reallocation into low-carbon technologies.
  2. Divest from carbon-intensive assets.
- SWFs are pioneering decarbonization of active and passive portfolios; efforts include revising investment guidelines, engaging asset managers, and integrating climate-related risks and opportunities.
- Asset classes commonly used for targeted green portfolio construction: private equity, real assets, and listed equity.
- Regional ME&CA SWFs have recently:
  - Increased alignment with sustainable finance frameworks.
  - Increased engagement with investee companies and asset managers.
  - Deepened integration of climate-related risks and opportunities into investment decisions to improve resilience (Annex Table 4.1).
- Despite progress, ME&CA SWFs are encouraged to go beyond current plans by directing significant resources toward regional green finance and scaling up investments in renewables and low-carbon industries while managing exposure to fossil fuel investments at risk from the global energy transition.

### Regional investment reach and potential impact
- SWFs have potential to finance energy transition in neighboring and more vulnerable economies.
  - Examples: PIF and Mubadala committed to green investment in Egypt; Ithmar Capital involved in green investments in Africa; ADQ supporting green projects in Oman.
- The Middle East Green Initiative is seeking to attract funds to the region (Vision 2030, n.d.).
- This could address financing needs in economically vulnerable countries in the region, with specific mention of Egypt, Pakistan, and Tunisia.

### Central banks: potential role in supporting climate finance and markets (Annex 5)
- Central banks can support climate finance through three key roles:
  1. Mainstreaming climate risks into financial stability assessments to identify exposures and strengthen resilience.
  2. "Greening" financial institutions via climate-related disclosure requirements and sound frameworks to encourage prudent capital allocation to green projects.
  3. Research and cooperation—conducting analysis on economic impacts of climate change and coordinating with government agencies, academia, and IFIs.
- Network for Greening the Financial Sector (NGFS) has identified nine potential policy options within three areas: credit operations, collateral policies, and asset purchases.
- Considerations and constraints:
  - Not all policy options are suitable for every central bank due to legal, operational, and liquidity considerations.
  - Policies should avoid hindering monetary policy effectiveness or creating unintended financial stability consequences.
  - Implementation in the ME&CA region has been "very limited thus far."
  - Out of the 32 countries in the ME&CA region, "only 12 countries are currently represented in the Network for Greening the Financial Sector through their central bank and/or financial supervisor."
  - Challenges include underdeveloped markets, limited availability of green financial products and standards, data availability, and analytical capacity.
  - Enhancing climate data disclosures and quality is a crucial first step for policy design and implementation.

### Annex Table 5.1 — Central banks' policy options (summary)
- Credit operations:
  - Adjust pricing to reflect counterparties’ climate-related lending.
  - Adjust pricing to reflect the composition of pledged collateral.
  - Adjust counterparties’ eligibility (limit access based on compliance with climate disclosures or carbon intensity measures).
- Collateral:
  - Adjust haircuts based on collateral carbon intensity.
  - Negative screening (exclude collateral based on climate-related criteria).
  - Positive screening (accept collateral based on climate-related criteria, such as green bonds or sustainability linked bonds).
  - Align collateral pools with a climate-related objective (aggregate pool requirements).
- Asset purchases:
  - Tilt purchases to prioritize assets based on climate criteria.
  - Negative screening to exclude certain assets or issuers from purchases based on climate-related criteria.

*Source: IMF DEPARTMENTAL PAPERS • Preparing Financial Sectors for a Green Future.*

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- Anderson, Gareth, Jiayi Ma, Tokhir Mirzoev, Ling Zhu, and Karlygash Zhunussova. 2022. “A Low-Carbon Future for the Middle East and Central Asia: What Are the Options?” IMF Departmental Paper 2022/018, International Monetary Fund, Washington, DC.
- Duenwald, Christoph, Yasser Abdih, Kerstin Gerling, Vahram Stepanyan, Abdullah Al-Hassan, Gareth Anderson, Anja Baum, and others. 2022. “Feeling the Heat: Adapting to Climate Change in the Middle East and Central Asia.” IMF Departmental Paper 2022/008, International Monetary Fund, Washington, DC.
- Ramirez Rigo, Ernesto, Christine J. Richmond, Oluremi Akin Olugbade, Gareth Anderson, Maria Atamanchuk, Hatim Bukhari, Iacovos Ioannou, and others. 2021. “State-Owned Enterprises in Middle East, North Africa, and Central Asia: Size, Costs, and Challenges.” IMF Departmental Paper 2021/019, International Monetary Fund, Washington, DC.
- Teodoru, Iulia Ruxandar, and Klakow Akepanidtaworn. 2022. “Managing Financial Sector Risks from the COVID-19 Crisis in the Caucasus and Central Asia.” IMF Departmental Paper 2022/005, International Monetary Fund, Washington, DC.
- International Monetary Fund (IMF). 2019a. “Fiscal Policies for Paris Climate Strategies – From Principle to Practice.” IMF Policy Paper, Washington, DC.
- International Monetary Fund (IMF). 2019b. Fiscal Monitor: How to Mitigate Climate Change. Washington, DC, October.
- International Monetary Fund (IMF). 2020. “Climate Change: Physical Risk and Equity Prices.” In Global Financial Stability Report: Markets in the Time of COVID-19, 85–102. Washington, DC, April.
- International Monetary Fund (IMF). 2021. “Investment Funds: Fostering the Transition to a Green Economy.” In Global Financial Stability Report—COVID-19, Crypto, and Climate: Navigating Challenging Transitions, 59–78. Washington, DC, October.
- International Monetary Fund (IMF). 2022a. “Scaling up Private Climate Finance in Emerging and Developing Economies: Understanding the Challenges and harnessing the Opportunities.” In Global Financial Stability Report: Navigating the High-Inflation Environment, 45–64. Washington, DC, October.
- International Monetary Fund (IMF). 2022b. “United Kingdom: Financial Sector Assessment Program- Systemic Stress, and Climate-Related Financial Risks: Implications for Balance Sheet Resilience.” Country Report 2022/102, Washington, DC.
- International Monetary Fund (IMF). 2023a. “Financial Sector Policies to Unlock Private Climate Finance in Emerging and Developing Economies.” In Global Financial Stability Report: Financial and Climate Policies for a High-Interest-Rate Era, 79–99. Washington, DC, October.
- International Monetary Fund (IMF). 2023b. “A Framework for the Role of the IMF (and MCM) in Helping Scale Up Private Climate Finance.” Unpublished, Washington, DC.
- International Monetary Fund (IMF). 2023c. "Saudi Arabia: 2023 Article IV Consultation Staff Report." Washington DC, September.  https://www.imf.org/en/Publications/CR/Issues/2023/09/05/Saudi-Arabia-2023-Article-IV-Consultation-Press-Release-Staff-Report-and-Informational-Annex-538823.
- Rozenberg, Julie, and Marianne Fay. 2019. Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet. Washington, DC: World Bank.
- Gelb, Alan, Silvana Tordo, Havard Halland, Noora Arfaa, and Gregory Smith. 2014. “Sovereign Wealth Funds and Long-Term Development Finance: Risks and Opportunities.” World Bank Policy Research Working Paper 6776, World Bank, Washington, DC.
- Heine, Dirk, Willi Semmler, Mariana Mazzucato, João Paulo Braga, Michael Flaherty, Arkady Gevorkyan, Erinm Hayde, and Siavash Radpour. 2019. “Financing Low-Carbon Transitions through Carbon Pricing and Green Bonds.” World Bank Policy Research Working Paper 8991, World Bank, Washington, DC.
- Myroshnychenko, Yuriy, and Kirby Owen. 2016. “Enhancing Regional Power Trade in Central Asia.” World Bank Working Paper ACS21198, World Bank, Washington, DC.
- Rozenberg, Julie, and Marianne Fay. 2019. Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet. Washington, DC: World Bank.
- World Bank. 2018. Beyond Scarcity: Water Security in the Middle East and North Africa. Washington, DC.

### Industry reports, supervisory bodies, and technical documents
- Barth, James R., Yanfei Sun, and S. Zhang. 2019. “Banks and Natural Disasters.” SSRN Electronic Journal.
- Braunstein, J. 2016. “Sovereign Wealth Funds: The Catalyst for Climate Finance?” World Bank Private Sector Development blog. March 16. http://blogs. worldbank.org/psd/ sovereign-wealth-funds-catalyst-climate-finance.
- Climate Policy Initiative. 2021. “Global Landscape of Climate Finance 2021.” https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2021/.
- Cummins, J. David, and Olivier Mahul. 2009. Catastrophe Risk Financing in Developing Countries: Principles for Public Intervention. Washington, DC: World Bank Publications.
- De Coninck, Heleen, Aromar Revi, Mustafa Babiker, Paolo Bertoldi, Marcos Buckeridge, Anton Cartwright, Wenjie Dong, and others. 2018. “Strengthening and Implementing the Global Response.” In Global Warming of 1.5°C. An IPCC Special Report on the Impacts of Global Warming of 1.5°C above Pre-industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty, edited by V. Masson Delmotte, P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P. R. Shukla, A. Pirani, and others, 313–444. Cambridge: Cambridge University Press.
- Ehlers, Torsten, Diwen (Nicole) Gao, and Frank Packer. 2021. “A Taxonomy of Sustainable Finance Taxonomies.” BIS Papers 118, Bank for International Settlements, Basel.
- European Bank for Reconstruction and Development (EBRD). 2021. “2020 Joint Report on Multilateral Development Banks’ Climate Finance.” London.
- European Central Bank. 2022. “The Macroprudential Challenge of Climate Change.” Frankfurt.
- International Association of Insurance Supervisors (IAIS). 2018. “Issues Paper on Climate Change Risks to the Insurance Sector.” https://www.insurancejournal.com/research/app/uploads/2018/08/IAIS_and_SIF_Issues_Paper_on_Climate_Change_Risks_to_the_Insurance_Sector_-1.pdf.
- International Energy Agency (IEA). 2023. “World Energy Investment 2023.” Paris.
- International Forum of Sovereign Wealth Funds (IFSWF). 2017. “Joint Communiqué: One Planet Sovereign Wealth Fund Working Group, International Forum of Sovereign Wealth Funds.” http://www.ifswf.org/general-news/joint-communiqu%C3%A9-one-planet-sovereign-wealth-fund-working-group.
- International Renewable Energy Agency (IRENA). 2019. “Transforming the Energy System – and Holding the Line on the Rise of Global Temperatures.” Abu Dhabi.
- National Association of Insurance Commissioners (NAIC). 2022. “Reinsurance.” https://content.naic.org/cipr-topics/reinsurance.
- Network for Greening the Financial System (NGFS). 2019. “A Call for Action: Climate Change as a Source of Financial Risk.” Paris.
- Network for Greening the Financial System (NGFS). 2020a. “Guide to Climate Scenario Analysis for Central Banks and Supervisors.” Technical Document, Paris.
- Network for Greening the Financial System (NGFS). 2020b. “The Macroeconomic and Financial Stability Impacts of Climate Change, Research Priorities.” Technical Document, Paris.
- Organisation for Economic Co-operation and Development (OECD). 2013. “State-owned Enterprises in the Middle East and North Africa: Engines of Development and Competitiveness?” Paris. https://doi.org/10.1787/9789264202979-en
- Organisation for Economic Co-operation and Development (OECD). 2018. “The Contribution of Reinsurance Markets to Managing Catastrophe Risk.” Paris. https://www.oecd.org/finance/the-contribution-of-reinsurance-markets-to-managing-catastrophe-risk.pdf.
- Rockefeller Foundation and BCG. 2022. “What Gets Measured Gets Financed. Climate Finance Flows and Opportunities.” https://www.rockefellerfoundation.org/wp-content/uploads/2022/11/Climate-Finance-Funding-Flows-and-Opportunities-What-Gets-Measured-Gets-Financed-Report-Final.pdf.
- State Bank of Pakistan. 2021. “Financial Stability Review 2021.” https://www.sbp.org.pk/FSR/2021/index.htm.
- Swiss Re. 2021. “World Insurance Series.” https://www.swissre.com/institute/research/sigma-research/World-insurance-series.html.
- Swiss Re. 2022. “Resilience Index 2022: Risks to Resilience on the Rise Again After a Year of Respite.” https://www.swissre.com/institute/research/sigma-research/2022-resilience-index.html#:~:text=Resilience%20Index%202022%3A%20risks%20to,interest%20rates%20during%20the%20year.
- Watson, Charlene, Liane Schalatek. 2020, “Climate Finance Regional Briefing: Middle East and North Africa.” Climate Funds Update, Heinrich Böll Stiftung, Washington, DC.
- World Resource Institute. 2023. Twenty-five Countries, Housing One-Quarter of the Population, Face Extremely High Water Stress. WRI Insights August 16, 2023.

### Regional studies, policy briefs, and reports
- Economic and Social Commission for Western Asia (ESCWA). 2021. “Climate Finance Needs and Flows in the Arab Region.” Committee on Financing for Development in the States Members of the ESCWA, Cairo.
- Duenwald, Christoph, Yasser Abdih, Kerstin Gerling, Vahram Stepanyan, Abdullah Al-Hassan, Gareth Anderson, Anja Baum, and others. 2022. “Feeling the Heat: Adapting to Climate Change in the Middle East and Central Asia.” IMF Departmental Paper 2022/008, International Monetary Fund, Washington, DC.
- Ramirez Rigo, Ernesto, Christine J. Richmond, Oluremi Akin Olugbade, Gareth Anderson, Maria Atamanchuk, Hatim Bukhari, Iacovos Ioannou, and others. 2021. “State-Owned Enterprises in Middle East, North Africa, and Central Asia: Size, Costs, and Challenges.” IMF Departmental Paper 2021/019, International Monetary Fund, Washington, DC.
- Watson, Charlene, Liane Schalatek. 2020, “Climate Finance Regional Briefing: Middle East and North Africa.” Climate Funds Update, Heinrich Böll Stiftung, Washington, DC.
- World Bank. 2018. Beyond Scarcity: Water Security in the Middle East and North Africa. Washington, DC.
- World Resource Institute. 2023. Twenty-five Countries, Housing One-Quarter of the Population, Face Extremely High Water Stress. WRI Insights August 16, 2023.

*Preparing Financial Sectors for a Green Future: Managing Risks and Securing Sustainable Finance DP/2024/002*

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_Source: https://www.imf.org/-/media/files/publications/dp/2024/english/pfsgfea.pdf_