Financed Emissions for Kuwaiti Banks: CBK Climate Risk and PCAF Readiness

Financed Emissions for Kuwaiti Banks: CBK Climate Risk and PCAF Readiness

Kuwait banks face a financed emissions question in 2026 that their regulators have not yet put in writing. The Central Bank of Kuwait (CBK) told every local bank in 2022 to measure climate risk and fold it into capital planning. Boursa Kuwait now expects Premier Market companies, banks included, to publish sustainability reports. Neither names the Partnership for Carbon Accounting Financials (PCAF), yet PCAF is the method that turns both into a number.

Spectreco, an ESG technology and advisory firm with offices in Atlanta, Lahore, Lisbon, Dubai and Muscat, works with banks across the GCC. This guide covers what the CBK and Boursa Kuwait expect, what financed emissions are, how PCAF applies to conventional and Islamic books, the link to IFRS S2, and a five-step readiness path. For the listed-company picture, read our guide to Kuwait ESG and ISSB reporting.

What Does the Central Bank of Kuwait Expect on Climate Risk?

Direct answer: The CBK’s sustainable finance circular of 16 November 2022 asks local banks to identify and measure climate-related risks. They must consider those risks in their Internal Capital Adequacy Assessment Process (ICAAP). Board approval of sustainable finance policy is required. The circular does not mention PCAF or financed emissions.

What the 2022 circular asks of banks

Circular No. 2/BS, IBS/500/2022 went to all local banks. Five points matter for a financed-emissions programme.

• Capital: Banks identify and measure climate-related risks and consider them in the ICAAP for Pillar II risks.
• Reference standard: Banks refer to the Basel Committee’s Principles for Effective Management and Supervision of Climate-related Financial Risks.
• Governance: The board of directors approves sustainable finance policies and procedures.
• Own footprint: Banks measure carbon emissions from their buildings and branches.
• Disclosure: Banks publish an annual sustainability report, or a sustainability section in the annual report.

Sources: CBK Circular No. 2/BS, IBS/500/2022 on Sustainable Finance (16 November 2022), The Banker, interview with the CBK on sustainable finance (April 2023)

Why ICAAP is the real driver

The capital test runs through the loan book, not the branches. A bank cannot size climate risk in its ICAAP without knowing which borrowers carry the carbon, and financed emissions are the most direct way to find them. Our position: in Kuwait, the prudential case for PCAF arrives before the disclosure case.

National Bank of Kuwait (NBK) shows the link. It became the first Kuwaiti bank to join PCAF, announced in May 2024. Its 2025 sustainability report says it runs climate-adjusted stress tests and Network for Greening the Financial System (NGFS) scenario analysis twice a year as part of its ICAAP, and says it is refining its approach to calculating its baseline absolute financed emissions.

Sources: ESG Mena, NBK joins PCAF (May 2024), Kuwait Times, NBK issues its 2025 Sustainability Report

What Does Boursa Kuwait Require on ESG Disclosure?

Kuwait’s Capital Markets Authority (CMA) requires Premier Market companies to publish sustainability reports from 2026, covering financial year 2025. Listed banks in that segment are covered like any other issuer. Boursa Kuwait’s ESG Disclosure Guide, updated on 15 March 2026, is the toolkit for those reports.

• Who: Premier Market companies must report under CMA Circular No. 4 of 2025. Main Market companies are encouraged but not yet required.
• When: First reports, for FY2025, were due by the end of the second quarter of 2026.
• Standards: The guide is advisory. It integrates IFRS S1 and IFRS S2 alongside GRI, and gives practical guidance on Scope 3 as an emerging topic.
• Assurance: External assurance is recommended, especially for greenhouse gas emissions, but is not mandated.

Sources: Boursa Kuwait, updated ESG Disclosure Guide (15 March 2026), RSM Kuwait, Boursa Kuwait ESG reporting fact sheet, XBRL International, Kuwait publishes ISSB-aligned guidance (March 2026)

The guide does not single out banks or financed emissions. For a bank, though, Scope 3 is almost entirely Category 15. A Premier Market bank that reports Scope 3 under the guide is reporting financed emissions, whether it uses the term or not.

What Are Financed Emissions?

Direct answer: Financed emissions are the greenhouse gas emissions linked to a bank’s loans, bonds and equity investments. The Greenhouse Gas Protocol (GHG Protocol) classes them as Scope 3 Category 15. They belong to the borrowers a bank funds, and they dwarf the bank’s own operational footprint.

A bank’s own Scope 1 and Scope 2 emissions are small by comparison. CDP found that financial institutions reporting portfolio emissions in 2020 had financed emissions on average over 700 times larger than their direct emissions.

Source: CDP, financed emissions over 700 times greater than own emissions (April 2021)

How Does PCAF Work for Conventional and Islamic Banks in Kuwait?

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

PCAF basics for Kuwaiti banks

• Adoption: PCAF reports more than 790 signatories worldwide.
• Asset classes: Ten, from business loans, mortgages and project finance to sovereign debt, use-of-proceeds structures and securitisations.
• Attribution: The bank’s outstanding amount divided by the borrower’s total value, such as enterprise value including cash (EVIC) or equity plus debt, multiplied by the borrower’s emissions.
• Data quality: Scores run from 1 (audited emissions) to 5 (estimates with limited support), so a bank can start with what it has.
• Borrower Scope 3: For reports published from 2025, PCAF requires borrowers’ Scope 3 for all sectors, or an explanation of why it is missing.

Sources: PCAF, The Standard (signatories and parts A to C), PCAF Financed Emissions Standard, third edition (December 2025), PCAF, Measuring what matters: calculating financed emissions (November 2023)

Why the Islamic book cannot wait

Islamic banks held 49% of Kuwait’s banking sector assets at mid-2024, according to Fitch Ratings. A financed-emissions inventory that treats Islamic financing as an afterthought misses half the system.

PCAF’s ten asset classes do not name a single Islamic contract. PCAF and the General Council for Islamic Banks and Financial Institutions (CIBAFI) agreed in 2020 to develop Islamic carbon accounting methods. CIBAFI’s PCAF-based tool was still an exposure draft when the RFI Foundation commented on it in January 2024.

Sources: Arab News, Fitch on Islamic banking in Kuwait and Oman (November 2024), PCAF Financed Emissions Standard, third edition (December 2025), PCAF and CIBAFI memorandum of understanding (February 2020), RFI Foundation, comments on CIBAFI’s PCAF-based exposure draft (January 2024)

The Islamic Financial Services Board (IFSB) adds a capital angle. Its December 2025 guidance note asks Islamic banks to analyse climate risks attributable to investment account holders separately within the ICAAP, and to reflect the contract types they use in scenario analysis. That fits the CBK’s ICAAP route.

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

Mapping Islamic contracts to PCAF asset classes

Until a settled Islamic method exists, we map each contract to the PCAF asset class that matches its economic substance, and keep the contract type as its own data field.

Spectreco working view, not PCAF, CBK or CIBAFI guidance.

Sukuk show why substance matters. The ICMA, IsDB and LSEG sukuk guidance notes that most sukuk are asset-based and resemble senior unsecured bonds, with investors bearing the obligor’s credit risk. For the issuer side, see our guide to green sukuk and ESG disclosure in the GCC.

Source: ICMA, IsDB and LSEG, Guidance on Green, Social and Sustainability Sukuk (April 2024)

How Do Financed Emissions Link to IFRS S2?

Direct answer: IFRS S2 requires commercial banks to disclose absolute gross financed emissions. The figures are split by borrowers’ Scope 1, 2 and 3, by industry and by asset class. Amendments issued on 11 December 2025 apply from 1 January 2027. Kuwait’s Boursa guide integrates IFRS S2 but does not make it binding.

The amendments make the table more practical. A bank may limit Category 15 to financed emissions from loans, project finance, bonds, equity and undrawn commitments, and exclude derivatives if it explains them. It may choose its own industry classification system instead of GICS, and must disclose which one it used.

Our position: a Kuwaiti bank that builds PCAF data for its ICAAP and its Boursa report is already building its IFRS S2 table. The same sequence is unfolding across the Gulf, as our guides on Bahrain’s banks and Omani banks show.

Sources: IFRS Foundation, ISSB amendments to IFRS S2 (11 December 2025), ISSB, Amendments to IFRS S2

How Can Kuwaiti Banks Get PCAF-Ready in 5 Steps?

1. Anchor it in the ICAAP. Write financed emissions into the climate section of the ICAAP, so the board approves one programme that serves capital and disclosure.
2. Set the Scope 3 boundary for the Boursa report. State that Category 15 is in scope, and document every exclusion and the reason.
3. Tag every exposure twice. Assign each conventional and Islamic exposure a PCAF asset class, and keep the Islamic contract type and investment account holder share as separate fields.
4. Run a first inventory on the largest sectors. Start where exposure is highest, accept data quality scores of 4 or 5 where you must, and request reported emissions from top borrowers.
5. Document for IFRS S2 from day one. Record attribution methods, data sources and the industry classification system, so the 2027 table needs no rebuild.

Frequently Asked Questions

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Where Spectreco Fits

A CBK capital test, a Boursa disclosure cycle and an IFRS S2 table all draw on the same loan-book data. Build it once.

Spectreco’s cloud-native sustainability platform brings emissions, portfolio and climate-risk analytics into one place, with optional Shariah scoring for Islamic books. Our Virtual Sustainability Office works alongside your ESG and risk teams through each reporting cycle.

Spectreco’s financed-emissions and climate-risk support starts with a gap assessment: your ICAAP climate section, a loan-book segmentation across conventional and Islamic contracts, and a first PCAF baseline. It is delivered through our Climate Finance & Green Capital advisory, with Boursa report preparation through 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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