Environmental, Social and Corporate Governance (ESG) Standards Guide for Banks 2025

Table of Contents

Introduction ........................................................................................................... 3 Table 1: Abbreviations and Terms ........................................................................ 5 Table 2: Definitions ........................................................................................... 6 Part One: General Framework of the Guide.............................................................................. 10 Article 1: Scope of Application .................................................................................. 10 Article 2: ESG Framework for Banks (ESG) .......... 10 Part Two: Board of Directors ................................................................................. 12 Article 3: Composition of the Board .......................................................................... 12 Article 4: Qualifications and Independence of Board Members ................................................. 13 Article 5: Duties and Responsibilities of the Board ........................................................... 15 Article 6: Duties and Responsibilities of the Chairman of the Board ................................................... 19 Article 7: Board Meetings ...................................................................... 20 Article 8: Selection and Appointment of the CEO ................................................................ 21 Article 9: Duties and Responsibilities of the Company Secretary ................................................ 22 Part Three: Sharia Supervisory Body .............................................................................. 23 Article 10: Sharia Supervisory Board in Islamic Banks ............................................. 23 Article 11: Fit and Proper Requirements for Sharia Supervisory Board Members in Islamic Banks .................................. 25 Part Four: Board Committees........................................................................... 26 Article 12: Board Committees.......................................................................... 26 Article 13: Conflicts of Interest and Code of Professional Conduct ......................................... 38 Part Five: Executive Management ............................................................................. 40 Article 14: Executive Management Committees ........................................................................ 40 Article 15: Executive Management............................................................................... 42 Part Six: Supervision, Transparency and Disclosure ............................................................... 44 Article 16: Internal Audit............................................................................... 44 Article 17: Sharia Internal Audit ..................................................................... 45 Article 18: Board's Relationship with External Auditor ............................................................ 46 Article 19: Board's Relationship with Risk Management Function ................................................. 46 Article 20: Board's Relationships with Compliance Department ................................................... 47 Article 21: Board's Relationship with Anti-Money Laundering and Counter-Terrorism Financing Department ...................... 48 Article 22: Shareholders' Rights ............................................................................. 48 Article 23: Board's Relationships with Shareholders ....................................................... 49 Article 24: Disclosure and Transparency ........................................................................... 50 Part Seven: Stakeholder Relations Governance and Climate-Related Aspects........................ 52 Article 25: Stakeholder Relations Governance .......................................................... 52 Article 26: Reporting on Stakeholder Relations Governance ........................................ 53 Article 27: Climate-Related Issues (Aspects) Governance ................................................. 53 Article 28: Reporting on Climate-Related Issues (Aspects) Governance........................... 54 Appendix 1 - IFC-Approved Guidelines for Independent Board Members 56 ......................................................................................................... (IFC) Appendix 2 - Iraqi Central Bank's Sustainability Principles ............................................. 57 Appendix 3 - Standard Terms of Reference for the Sustainability Committee or Board Committee responsible for Sustainability, Environmental, Social and Corporate Governance Standards. ........................................................... 58 Appendix 4A - Contents of the Standard Board Charter ..................................................... 63 Appendix 4B - Contents of the Standard Board Committee Charter .............................................. 63 Appendix 5 - Annual Board Evaluation Model ........................................................... 64 Appendix 6 Example - Board Member Nomination Process ..................................................... 67 Appendix 7 - Role and Qualifications of the Company Secretary ......................................................... 68 Appendix 8 - Standard Disclosures for Annual Report and Website Disclosures ......................... 69 Appendix 9 - Reporting on Stakeholder Governance.................................................. 73

Introduction

The Central Bank of Iraq (CBI) plays a pivotal role in Iraq's development, growth, and financial stability, as well as in fulfilling the commitments the Iraqi government undertook in 2019 regarding "The Future We Want - Iraq's Vision for Sustainable Development 2030". The CBI's strategy ensures that the banking sector's Environmental, Social and Corporate Governance (ESG) performance aligns with the CBI's vision for a sustainable banking system (Iraq's Financial Sustainability Roadmap 2023-2029) and sustainable finance in Iraq, benchmarked against global markets and peer institutions. In 2024, the Central Bank of Iraq issued a mandatory guide for Environmental, Social and Corporate Governance (ESG) standards for banks. This guide aims to keep pace with international developments, enhance governance for banking ESG standards, and apply best practices in the banking sector, particularly regarding ESG practices. The CBI established and implemented global expectations and standards for ESG, introducing legislative and supervisory structures. “Increasing investor demand for sustainable financial products, along with mounting regulatory pressure, highlights the need for banks to consider Environmental, Social and Corporate Governance (ESG) risks within their risk management framework.”

Furthermore, this guide aims to support Iraq's banking sector in maximizing the opportunities offered by ESG standards and mitigating exposure to ESG risks, particularly those related to climate change. Investors tend to engage with banks that possess strong ESG structures, policies, and practices, demonstrating responsiveness to ESG risks. Transforming good governance practices for banking ESG standards changes the relationship between the bank's board of directors and executive management, ultimately safeguarding depositors', shareholders', and stakeholders' funds. A sustainable bank capable of withstanding ESG-specific risks must be ensured. All banks supervised by the Central Bank of Iraq must apply the requirements of this ESG guide.

1. KPMG's Environmental, Social and Corporate Governance (ESG) Risks in Banks is accessible via the following link: https://kpmg.com/xx/en/home/insights/2021/05/esg-risks-in-banks.html

Domestic Systemically Important Banks (DISBs) will be subject to additional requirements issued by the Central Bank of Iraq, which may be more stringent than those in this guide, reflecting the importance of DISBs to the Iraqi economy. This guide was developed in accordance with international best practices and relevant Iraqi laws, including standards issued by the International Finance Corporation (IFC), the Organisation for Economic Co-operation and Development (OECD), the Basel Committee on Banking Supervision (BCBS), the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB), and the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards Foundation. This guide will assist each bank in improving its ESG framework, leading to enhanced performance. Board members and executive management must oversee the bank's operations and activities to preserve the rights of bank clients, shareholders, and stakeholders. This guide was reviewed and updated in July 2025. It consists of seven (7) parts: Part One - General Framework for Banking Corporate Governance and Supervision of Environmental and Social Issues. Part Two - Board Composition. Part Three - Sharia Supervisory Body. Part Four - Board Committees. Part Five - Executive Management. Part Six - Supervision, Transparency and Disclosure. Part Seven - Stakeholder Relations Governance related to Climate. We extend our gratitude to the International Finance Corporation (IFC) for its continuous support of the Central Bank of Iraq (CBI) in the field of Environmental, Social and Corporate Governance (ESG) standards for banks.

Table 1: Abbreviations and Terms

No.	Abbreviation	Term
1	CBI	Central Bank of Iraq
2	Bank / Banks	Banks licensed by the Central Bank of Iraq, including commercial and Islamic banks.
3	Board of Directors	Bank's Board of Directors
4	General Assembly (AGM) / Extraordinary General Assembly (EGM)	General Assembly of Shareholders (AGM) and Extraordinary General Assembly (EGM)
5	Sharia Supervisory Body	Sharia Supervisory Board in the Islamic bank
6	Bank's Capital	Paid-up capital
7	AML/CFT Office	Anti-Money Laundering and Counter-Terrorism Financing Office
8	IFC	International Finance Corporation
9	OECD	Organisation for Economic Co-operation and Development
10	AAOIFI	Accounting and Auditing Organization for Islamic Financial Institutions
11	IFSB	Islamic Financial Services Board
12	TCFD	Task Force on Climate-related Financial Disclosures (under the Financial Stability Board)
13	ISSB	International Sustainability Standards Board under the International Financial Reporting Standards Foundation (IFRS)
14	ESRM	Environmental and Social Risks Management System
15	ERM	Bank-wide Risk Management System
16	ESMS	Environmental and Social Standards Management System
17	ICT	Information and Communications Technology
18	ESG	Environmental, Social and Corporate Governance Standards
19	SIB-D	Domestic Systemically Important Bank
20	ESGSC	Environmental, Social and Corporate Governance & Sustainability Committee under the Board of Directors

Table 2: Definitions

No.	Term	Definition
1	Corporate Governance	A comprehensive set of systems defining the relationship between the bank's Board of Directors, executive management, shareholders, and other stakeholders. Corporate governance covers the system through which the bank is directed and supervised by the Board of Directors, affecting: <br>❖ The bank's strategy, including ESG standards strategies.<br>❖ Risk management, including Environmental and Social risks.<br>❖ Bank operations.<br>❖ The balance between shareholders' rights and depositors' interests, considering other stakeholders' interests.<br>❖ The bank's compliance with all applicable laws, regulations, and rules.<br>❖ Disclosure practices to ensure full transparency in all material aspects - financial and non-financial.
2	Fit and Proper	Meeting the minimum legal requirements for Board of Directors members, Sharia Supervisory Board members in Islamic banks, and executive management.
3	Executive Management	Senior employees as stipulated in Article (1) of Banking Law No. 94 of 2004, under CBI instructions and the organizational structure of banks.
4	Qualified Ownership	Any natural or legal person, or a group of related persons, who intend to contribute to the bank's capital by more than 10% of the subscribed capital. The Central Bank of Iraq must be notified at least (10) days prior to obtaining the bank's approval before executing the ownership individually or as a related group.
5	Related Parties	Should include: <br>❖ The related person as defined in Article (1) of Banking Law No. 94 of 2004 and International Accounting Standard No. (24).<br>❖ Any director, CEO, deputy, or advisor who worked at the bank in the previous two years.<br>❖ The independent auditor (external auditor) throughout their term of service and the two years following contract expiration.<br>❖ Any natural or legal person associated with the bank through a contractual relationship during the contract period.
6	Affiliated Group	A group of individuals or companies linked by kinship or influential economic interests.
7	Independent Board Member	A non-executive board member free from any other work or affiliation with the bank, independent and not conflicting with their interests when making decisions. The independent board member enjoys complete independence from management and the bank, and is not subject to unjustified influences. See also IFC standards in Appendix (1).
8	Executive Board Member	A board member who is also a member of the bank's executive management, supervises daily operations, and receives a monthly salary in return.
9	Non-Executive Board Member	A board member who may be related to or have an interest in the bank through share ownership, as a customer, advisor, or by providing services to the bank, board members, or executive management. Non-executive board members do not participate in daily management operations and do not receive a monthly salary, but are not considered independent.
10	Material Matters	Issues that may be important to investors, shareholders, or stakeholders, which may affect investment decisions or change the stock price in the market.
11	Cumulative Voting	A voting method for all General Assembly decisions, including Board of Directors elections. Each shareholder's votes must equal the number of shares they own. Shareholders may vote all their votes for a single board candidate or distribute them among candidates without repeating votes. The main goal is to increase minority shareholders' representation on the board and limit one shareholder's control over board membership.
12	Fit and Proper (Director)	Means all Board of Directors members meet the requirements of Banking Law No. (94) of 2004 and Companies Law No. (21) of 1997 and its amendments. The bank's director must have a good reputation, banking/financial experience, be independent and free from conflicts of interest, possess the necessary time commitment to perform board duties and other functions properly, and contribute collectively to the overall fit and proper composition of the board.
13	Financial Knowledge	The ability to understand accounting's role and analyze financial reports, with skills in budgeting, investment, borrowing, taxation, auditing, insurance, and personal financial management.
14	Financial Expert	A person with high proficiency and professional qualifications in several fields, including: <br>❖ Understanding International Financial Reporting Standards (IFRS) accounting principles and standards, financial statements, and reporting processes.<br>❖ Experience in preparing and/or auditing bank financial statements.<br>❖ Experience in accounting for estimates, accruals, and provisions.<br>❖ Understanding of adopted controls in the bank's accounting and internal audit functions.<br>❖ Experience in the role of the bank's Audit Committee.<br>❖ Adequate familiarity with current legislation and developments regarding financial reporting.
15	Branches/Subsidiaries	Refers to any bank branches or other legally associated companies, including but not limited to joint ventures.
16	Sustainable Finance	Refers to any form of banking or financial services that integrate Environmental, Social and Corporate Governance (ESG) standards into business/investment strategy, policies, and decisions for the sustainable benefit of both bank clients and society as a whole.
17	ESMS - Environmental and Social Standards Management System	Refers to tools that help assess or self-assess a bank's ESG management practices, which can measure these practices against good market practices in environmental and social aspects.
18	ESRM - Environmental and Social Risks Management System	Refers to the policies, procedures, and tools necessary to identify, assess, monitor, manage, or mitigate exposure to environmental risks and social risks (S&E). It should be an integral part of the bank's risk management.
19	Shareholders	Also sometimes called "investors," they are the stock owners of the bank.
20	Stakeholders	Refers to all groups or individuals interested in the bank's activities, products, services, and related profitability, who can influence or be influenced by it. Stakeholders include (shareholders, investors, employees, regulators, supervisory and government authorities, bank clients, depositors, borrowers, suppliers, society as a whole), among others.
21	Climate-Related Aspects	Aspects related to climate change risks and opportunities in the short, medium, and long term, including physical climate-related issues and transition issues due to climate change.
22	Three Lines of Defense	The three lines of defense model for risk management is a globally applied principles-based model established by the Institute of Internal Auditors (IIA) to ensure effective enterprise risk management. It includes the first and second lines, which are management's responsibilities in risk management, and requires the third line (internal audit and review) to provide independent assurances to the Board of Directors regarding the effectiveness of bank-wide risk management.
23	Masculine/Feminine Reference	All masculine references in this guide also apply to the feminine gender.

Part One: General Framework of the Guide

Article 1: Scope of Application

1. This guide applies mandatorily and is effective for all banks operating in Iraq as of its issuance date.
2. Foreign bank branches are exempt from all provisions related to the Board of Directors and committees.

Article 2: ESG Framework for Banks (ESG)

Given the importance of Environmental, Social and Corporate Governance (ESG) practices and in accordance with international standards and practices, banks must:

1. Form a committee emanating from the Board of Directors called the Environmental, Social and Governance & Sustainability Committee (ESGSC), according to the committees section (see Part Four).
2. The ESGSC prepares the bank's Environmental, Social and Corporate Governance (ESG) guide, which is a framework for the bank's governance regarding ESG standards and must be approved by the Board of Directors. The bank's issued ESG guide must comply with the minimum requirements in this guide and must include clear procedures for compliance with the Sustainable Finance Roadmap (2023-2029) issued by this bank and the Sustainability Principles (Appendix 2). The bank's ESG guide must be updated annually to ensure it keeps pace with all CBI controls, instructions, and developments in ESG standards.
3. Board members must publicly disclose their commitment to the requirements of this guide and its application, along with the sustainability principles and the bank's ESG standards guide, in the annual report and on their website. The Central Bank of Iraq may periodically modify and develop the sustainability principles to align with global developments.
4. The bank must prepare its Environmental, Social and Corporate Governance (ESG) guide and clearly publish it internally, incorporating it into the bank's strategy. It must include at least: a. The bank's purpose. b. The bank's core values. c. The bank's commitment to business integrity. d. Key banking policies. e. Governance structure. f. The bank's commitment to business integrity, long-term sustainability, and management of all risks, including ESG standards for banks (ESG) and climate-related risks.
5. The bank must develop and publish an annually updated Board of Directors charter approved by the Board, which defines the roles and responsibilities of board members, the chairman, and other key board functions. The charter (see Appendix 4) must specify at least: a. Board composition. b. Duties of the entire board and each board member. c. The extent of authority of the entire board and each member. d. Procedures the board must follow while performing its duties. e. Powers of each committee, including details of the board committee responsible for addressing sustainability and climate-related responsibilities.
6. The Board of Directors must establish policies and procedures to understand and support this guide's requirements, and must provide development programs for the Board of Directors and executive management as necessary.
7. The Board of Directors must adopt and monitor the implementation of the Code of Professional Conduct and conflicts of interest policies applied to all Board of Directors members and bank employees. The Code of Professional Conduct and conflicts of interest policies must be published on the bank's website.
8. The Board of Directors is responsible for ensuring the establishment, training, and maintenance of a team knowledgeable in corporate governance, sustainability developments, climate-related risks, corporate reporting, and the application of this guide. The team reports to the CEO through accurate assessment of compliance with this guide and reporting on compliance in the manner requested by this bank. The Board of Directors supports the team by providing authority, resources, and systems to obtain information for accurate reporting.
9. Reports to this bank regarding compliance with the ESG standards requirements for banks must not be submitted by untrained and inexperienced individuals. The Board of Directors' Environmental, Social and Governance & Sustainability Committee (ESGSC) must review the accuracy of reports submitted to the Central Bank of Iraq regarding compliance with this guide. The CEO and Chairman of the Board must sign and attest to the accuracy of reports submitted to this bank.
10. This bank specifies the method and style for preparing annual reports on compliance with this guide's requirements. Each bank's Board of Directors must ensure the bank and its employees have the necessary information, skills, and technologies to prepare accurate required reports on compliance with this guide.
11. The Board of Directors and executive management must ensure that reports on compliance with this guide are integrated into the annual activities of the Board of Directors and executive management, as well as the bank's strategies, policies, and practices.
12. The bank must publish its Environmental, Social and Corporate Governance (ESG) Standards Guide for Banks and other key documents on its website for public access, ensuring they are updated and regularly reviewed, understood by all Board of Directors members and employees.
13. The bank may collaborate with corporate governance centers or others to obtain training, consulting, and assistance in meeting the requirements of this guide according to best practices in ESG.

Part Two: Board of Directors

Article 3: Composition of the Board

1. The bank's Board of Directors is the final decision-maker and is responsible for overseeing sound and wise management of the bank and its affiliated institutions. The Board must be professional and competent, possessing a set of necessary skills, knowledge, and experiences to fulfill its duties. Each board member must be able to apply strategic thinking to any issue and constructively challenge others' thinking. Board members must possess skills, knowledge, and experiences, including in Information Technology as applied to financial institutions, and risks and opportunities for Environmental, Social and Corporate Governance (ESG) standards to ensure the bank's safety and sustainability.
2. Board members are elected at the General Assembly meeting after approval by the Central Bank of Iraq for a term of four years, with the possibility of re-election for an additional maximum of four years.
3. The Board of Directors must ensure regular participation and receive information related to shareholders' and stakeholders' issues and interests, understanding and responding to them.
4. The Board of Directors consists of non-executive board members, including a majority of independent members, except for one member, the CEO. The Board must be structured to effectively manage the bank.
5. There must be nine members on the Board of Directors at all times, with (at least six board members) being independent non-executive board members (see Appendix 1). At least one independent member must be appointed to represent minority shareholders. The Board's composition (independent or non-independent) must include at least one woman, and at least one member possesses sufficient skills in Environmental, Social and Corporate Governance (ESG) standards and knowledge of climate affairs,