The Kuwaiti Government has been actively promoting sustainable development, in alignment with global initiatives such as the United Nations Sustainable Development Goals, and with regional trends across the GCC. GCC countries have been increasingly focusing on sustainable development as part of their long-term visions and strategies to respond to pressing environmental challenges, and to promote long-term sustainable growth.
The Kuwait Government’s interest in sustainability has manifested in a number of initiatives. These include the New Kuwait Vision 2035, which is a long-term development plan that focuses on economic diversification, investment in human capital, infrastructure development, and environmental sustainability. A sustainable diversified economy and sustainable living environment are both among the pillars of the New Kuwait Vision 2035. Other initiatives of relevance to sustainability include the launching of renewable energy projects, the issuance of policies, establishment of programs, and the development of projects in the areas of waste management and treatment, water management and energy efficiency.
As part of this wider governmental interest in sustainable development, the Capital Markets Authority of Kuwait (the “CMA”) and the Central Bank of Kuwait (the “CBK”) have issued decisions in 2022 with the aim of encouraging sustainability in the context of conventional and Islamic debt instruments and banking activities, respectively.
This article sets out a high-level outline of the abovementioned regulatory developments sponsored by the CMA and the CBK in relation to sustainability.
Introduction of ESG Bonds/Sukuk
The CMA has, in February 2022, amended Book 11 of the Executive Bylaws No. 72 of 2015 of the Capital Markets Law No. 7 of 2010 (the “Bylaws”) through its Resolution No. 28 of 2022 (“Resolution No. 28”) to introduce and regulate new types of bonds and sukuk, including green, sustainability and social bonds and sukuk (the “ESG Bonds/Sukuk”). These ESG Bonds/Sukuk grant investors and issuers a variety of options for the funding of, inter-alia, environmental and social initiatives which were traditionally limited in terms of financing to charity and crowdfunding.
The Resolution No. 28 contains a number of noteworthy provisions and provides for requirements specific to ESG Bonds/Sukuk; these include:
It should be pointed out that the Resolution No. 28 was complemented by subsequent regulations issued by the CMA in August 2022, which aimed at further integrating the objectives of sustainability into the securities market. These sustainability-focused reforms include the introduction of “sustainable funds” into the Bylaws, the identification of the sustainability-related compliance and reporting obligations in the corporate governance policies followed by listed joint stock companies, and the regulation of the substance and disclosure of the annual sustainability report that should be prepared by joint stock companies listed on the Kuwait Boursa.
Sustainable Financing Guidelines and Standards
As for the CBK, the latter has issued a Circular No. (2/BS, IBS/500/2022) (the “Circular No. 2/BS”) addressed to local banks in November 2022, which contained guidelines on sustainable finance. This circular specifically refers to the New Kuwait Vision 2035 as the underlying basis for its guidelines. These guidelines set out the standards that local banks should take into account when considering sustainable financing opportunities, with the aim of promoting responsible and sustainable practices in the financial sector, which in turn contributes to long-term economic growth.
Among the key features of the Circular No. 2/BS are the following:
In conclusion, the Kuwaiti Government has demonstrated a strong commitment to promoting sustainability and embedding it within the national economy. The regulatory reforms initiated by the CMA and the CBK further illustrate the government's efforts to encourage sustainable practices within the financial sector, which will contribute to a more sustainable future for Kuwait by facilitating access to green financing, promoting responsible banking practices, and increasing transparency in environmental, social, and governance matters. Further sustainability-focused reforms in the financial sector are likely to take place over the coming years.
Sam Habbas is a Senior Partner at ASAR – Al Ruwayeh & Partners, with decades of experience in the Kuwait law practice. He is consistently recognized as one of Kuwait’s pre-eminent corporate and finance lawyers. Sam has extensive corporate and commercial law experience and both advises, and acts as lead counsel to, a host of local and foreign multinational clients across a vast array of industry sectors and businesses.
Ibrahim Sattout is a Partner at ASAR – Al Ruwayeh & Partners. He has over 30 years of legal experience, 23 years of which have been spent in Kuwait. His extensive experience includes banking, finance, commercial, corporate and business acquisition transactions, litigation and arbitration. He has been extensively involved as lead and co-counsel in several financing, capital markets and mergers & acquisitions transactions ranging from typical transactions to highly complex ones. He has worked on such transactions from inception to completion.
Hussein Azmy is a Senior Associate at ASAR – Al Ruwayeh & Partners and joined the firm in 2021. Hussein has substantial experience in the areas of corporate and project Islamic financing, refinancing, and financial restructuring. He is also well versed in the capital markets, commercial and corporate practice areas. Prior to joining ASAR, Hussein practiced at international and top-tier law firms in Egypt and Oman.