Financed Emissions for Bahrain's Banks: CBB Expectations and PCAF Readiness

Financed Emissions for Bahrain’s Banks: CBB Expectations and PCAF Readiness

For Bahrain banks, the largest climate number sits in the loan book, not the branch network. The Central Bank of Bahrain (CBB) already requires every licensed bank, conventional or Islamic, to file an annual ESG report that covers Scope 3 emissions where applicable. For a lender, financed emissions are where Scope 3 applies, and the Partnership for Carbon Accounting Financials (PCAF) standard is the method banks use to measure them in 2026.

Spectreco, an ESG technology and advisory firm with offices in Atlanta, Lahore, Lisbon, Dubai, and Muscat, works with banks and financial institutions across the GCC. This guide sets out what the CBB expects, what financed emissions are, how PCAF applies to conventional and Islamic portfolios, how it connects to IFRS S2, and a five-step readiness path. For the wider reporting picture, read our guide to Bahrain ESG reporting for CBB-licensed banks.

What Does the CBB Expect From Bahraini Banks on Climate Risk?

Direct answer: The CBB’s ESG Requirements Module requires every licensed bank to file an annual ESG report. The report must include Scope 1 and Scope 2 emissions. It must include Scope 3 where applicable. It must also describe how the bank identifies, assesses and manages physical and transition climate risk. The module does not mention PCAF.

What the module requires

The CBB issued the module in November 2023, and banks have reported under it from financial year 2024. Five requirements matter most for a bank.

• Scope: The module applies to banks, listed companies, insurers, financing companies, and Category 1 and 2 investment firms (rule ESG-A.1.7). It does not separate conventional banks from Islamic banks.
• Filing: Each bank submits an annual ESG report built on the Appendix 1 key performance indicators, either as a standalone document or inside the annual report (ESG-1.1.1).
• Emissions: KPI E.5 asks for Scope 1, Scope 2 and “Scope 3 (if applicable)”, calculated in line with the Greenhouse Gas Protocol (GHG Protocol), the global emissions accounting standard.
• Climate risk: KPI E.7 asks banks to describe how they identify, assess and manage climate-related risks, physical and transition, and to report annual climate-related investment. It cites the Task Force on Climate-related Financial Disclosures (TCFD) risk management recommendations.
• Accountability: The module places accountability for ESG reporting with the board (ESG-1.2.3).

Sources: CBB Rulebook Common Volume, ESG Module (January 2024), CBB press release on the ESG reporting framework

What the module leaves open

The module never uses the word “financed” and does not name PCAF. “Scope 3 (if applicable)” leaves each bank to decide what applies. Our position: for a bank, “if applicable” is always applicable, because lending and investing is the business.

The CBB’s own supervisory reporting is also quiet. The banking and capital-markets chapters of its Financial Stability Reports of September 2025 and March 2026 contain no climate discussion. The only sustainability item we found is a September 2025 consultation on sustainable and sustainability-linked debt securities. That points to a disclosure-led expectation today, not a prudential one. Law firm Al Tamimi & Co notes in Chambers that the governance obligations extend to material ESG risk drivers, including environmental and climate-related financial risks.

Sources: CBB Financial Stability Report, March 2026, CBB Financial Stability Report, September 2025, Chambers, Banking Regulation 2026: Bahrain

What Are Financed Emissions?

Direct answer: Financed emissions are the greenhouse gas emissions linked to a bank’s loans, bonds and equity investments. They are reported as Scope 3 Category 15 of the GHG Protocol. For banks, they are by far the largest part of the footprint, well above the bank’s own operations.

A bank’s branches and offices produce Scope 1 and Scope 2 emissions, and those are small. The emissions that matter belong to the borrowers and investees the bank funds.

CDP’s 2021 analysis of 332 financial institutions, holding US$109 trillion in assets, found portfolio emissions on average over 700 times larger than direct emissions. PCAF describes financed emissions as “by far” the largest share of an institution’s inventory.

Sources: CDP, financed emissions over 700 times greater than own emissions (April 2021), PCAF Financed Emissions Standard, third edition (December 2025)

Bahraini banks are starting to act. BBK’s 2025 sustainability report states that the bank expanded its emissions measurement to additional Scope 3 categories, including financed emissions, and issued its first Climate Risk Position Statement. The CBB module does not name financed emissions. BBK measured them anyway.

Source: News of Bahrain, BBK releases 2025 Sustainability Report

How Does PCAF Work for Conventional and Islamic Portfolios?

Direct answer: PCAF is the global standard for measuring financed emissions. A bank attributes a share of each borrower’s emissions to its loan or investment. It scores the data quality from 1 to 5. It reports the total under Scope 3 Category 15. The third edition, published in December 2025, covers ten asset classes.

PCAF basics

• Adoption: More than 670 financial institutions had joined PCAF by November 2025.
• Coverage: The ten asset classes run from listed equity and corporate bonds to mortgages, project finance and sovereign debt.
• Attribution: For listed equity and corporate bonds, the bank’s outstanding amount is divided by the borrower’s enterprise value including cash (EVIC). For bonds to private companies, it is divided by total equity plus debt.
• Completeness: A bank that follows the standard must report all financed emissions and disclose and justify any exclusion.
• Data quality: Each figure is scored from 1 (most certain) to 5 (least certain). Scoring lets a bank start with the data it has and improve it each cycle.

Sources: PCAF Financed Emissions Standard, third edition (December 2025), PCAF Global GHG Standard (2020), data quality scoring

The Islamic banking angle

Islamic banks held US$67.1 billion of assets at December 2025, which is 26.4% of Bahrain’s US$254.4 billion banking sector. A financed-emissions programme that skips them misses a quarter of the system.

PCAF’s asset classes are written in conventional terms. PCAF and the General Council for Islamic Banks and Financial Institutions (CIBAFI) signed an agreement in 2020 to develop carbon accounting methods tailored to Islamic banks. CIBAFI’s emissions methodology, based on the PCAF standard, was still an exposure draft in January 2024, when the RFI Foundation filed its comments.

Sources: CBB Financial Stability Report, March 2026, PCAF and CIBAFI memorandum of understanding (2020), RFI Foundation on CIBAFI’s emissions methodology (2024)

Until that guidance settles, we map each contract to the PCAF asset class that matches its economics. A murabaha or ijara to a corporate behaves like a business loan. An ijara on a building sits with commercial real estate. Sukuk held as investments map to bonds. A musharaka participation maps to unlisted equity. This is Spectreco’s working view, not PCAF or CBB guidance.

The Islamic Financial Services Board (IFSB) adds a second reason to keep contract-level data. Its December 2025 guidance note says a bank’s internal capital adequacy assessment should include a separate analysis of climate risks attributable to investment account holders. It also says scenario analysis should consider the Islamic contract types in use. The note sets no financed-emissions method, and each supervisor decides whether to adopt it.

Source: IFSB, Guidance Note GN-11 on Climate-Related Financial Risks, Banking Segment (December 2025)

Where each bank type should start

Spectreco working view, based on the PCAF asset class structure.

How Does Financed Emissions Reporting Link to IFRS S2?

Direct answer: IFRS S2 requires commercial banks to disclose gross absolute financed emissions. The figures must be split by Scope 1, 2 and 3 of the borrowers, and by industry and asset class. Banks must also disclose their calculation methodology. The International Sustainability Standards Board (ISSB) amended the rules in December 2025, effective from 1 January 2027.

IFRS S2 (Climate-related Disclosures) is the ISSB’s climate standard. The CBB module does not mandate it. Appendix 2 of the module lists IFRS S1 and S2 among its reference frameworks, while the Appendix 1 emissions and climate-risk KPIs cite GRI 305, the GHG Protocol and TCFD.

The December 2025 amendments make the financed-emissions table more workable. A bank may limit its Category 15 measure to financed emissions. It may exclude emissions attributable to derivatives, if it explains what it excluded. It must disclose which industry classification system it used, rather than a fixed one. PCAF’s third edition adds an optional method for reporting undrawn loans, which IFRS S2 includes in the asset classes for banks.

Our position: a bank that builds PCAF-based data for the CBB report is already building the IFRS S2 table. Building it twice is the avoidable cost. The same sequence is playing out elsewhere in the Gulf, as in our guide to Omani banks, climate risk and PCAF.

Sources: IFRS Foundation, ISSB amendments to IFRS S2 (11 December 2025), ISSB, Amendments to IFRS S2, IFRS Foundation staff paper on Scope 3 Category 15, PCAF Part A third edition, executive summary

How Can Bahraini Banks Get PCAF-Ready? A 5-Step Path

1. Lock the CBB baseline. Confirm the ESG report covers KPIs E.5 and E.7, and name the board owner. This is the obligation already in force.
2. Fix Scope 1 and 2, then set the Scope 3 boundary. State that Category 15 is in scope. Document any exclusion and the reason, because PCAF requires exclusions to be justified.
3. Segment the book by asset class and contract. Tag every conventional and Islamic exposure to a PCAF asset class, and keep the contract type as its own field.
4. Run a first inventory at the data quality you have. Start with the highest-exposure sectors, accept lower scores where data is thin, and ask the largest counterparties for reported emissions to lift the score next cycle.
5. Document the method and the classification system. Record the attribution approach, data sources and industry classification used, so the first IFRS S2 table needs no rebuild.

Frequently Asked Questions

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Where Spectreco Fits

Bahrain’s banks face a CBB report this year and an IFRS S2 financed-emissions table that the same data will have to support. The banks that build the loan-book data once will not rebuild it.

Spectreco’s cloud-native sustainability platform brings emissions, portfolio and climate-risk analytics into one place, with optional Shariah scoring. Our Virtual Sustainability Office works alongside your own ESG team to run each reporting cycle. For the Pakistani version of this build, see our guide to financed emissions for Pakistani banks under SECP IFRS S2.

Spectreco’s financed-emissions and climate-risk support starts with a gap assessment: your CBB report baseline, a loan-book segmentation across conventional and Islamic contracts, and a first financed-emissions baseline using the PCAF methodology. It is delivered through our Climate Finance & Green Capital advisory, with report preparation supported by our Compliance, Reporting & Disclosures advisory.

Book a financed-emissions and climate-risk gap assessment with Spectreco’s Climate Finance & Green Capital team.

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