Iraqi Securities Commission ESG Standards Guide for Companies

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Guide
Environmental, Social, and Corporate Governance Standards for Companies May 2026 Second Edition _________________________________________________________

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Part A: Introduction
Introduction
This is the first comprehensive mandatory guide on practices issued by the Iraqi Securities Commission (ISC) for Iraqi companies dealing with corporate governance (CG), sustainability governance, and environmental and social issues, including climate change aspects (hereinafter ESG or S&E). This guide on Environmental, Social, and Corporate Governance standards complements a similar document issued by the Central Bank of Iraq for banks and financial institutions under its supervision.

All companies and institutions, large and small, can aspire to the principles, requirements, and recommendations contained in this Environmental, Social, and Corporate Governance Standards Guide and are encouraged to apply them. It is a document that meets the needs of all forms of organizations, including those in the public and private sectors, listed and unlisted entities, large and small companies (as defined by the Ministry of Planning), and the non-profit sector, as well as registered or unregistered entities.

This guide is mandatory and primarily targets all securities issuers, including companies, financial institutions, large corporations, or the large public sector or state-owned commercial companies (wholly or partially), excluding banks, financial institutions, and investment institutions supervised by the Central Bank of Iraq, which are covered by the Environmental, Social, and Corporate Governance Standards Guide issued by the Central Bank.

In line with global practices, this guide aims to facilitate and promote good environmental, social, and corporate governance practices and to be a driving force for them. While developing the guide, good international practices (OECD standards, International Financial Reporting Standards, and the International Sustainability Standards Board) and lessons learned from similar documents were considered. A major recent global development is the recognition of the importance of managing environmental and social issues, particularly climate change aspects, in corporate management. This guide takes into account current Iraqi conditions, laws, and regulations.

Given that entities vary in size, complexity, business models, and operations, the guide aims to allow for this diversity by permitting a degree of flexibility in how each entity applies the elements contained in this guide.

The guide defines the principles, systems, policies, and practices that business entities should adopt to ensure sound corporate management in general, including environmental and social management, as an integral part of their commercial dealings and business culture.

The guide integrates with global legislation and regulations and seeks to entrench the principle of compliance. Among the approximately 73 markets worldwide that have introduced ESG guidelines or regulations, ESG regulations and/or guidelines have been introduced in the following Middle East region markets: Kuwait, Qatar, Oman, Saudi Arabia, Bahrain, the United Arab Emirates, and Egypt. This is a difficult journey, as evidenced by the new reporting requirements in the European Union.

This guide seeks to institutionalize best practices for Environmental, Social, and Corporate Governance standards in Iraqi business culture, as expected by Iraqi regulators and investors within Iraq and globally.

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General Notes:

• Text in blue is updated text in the second edition.
• In case of conflict between the texts contained in this guide and any texts contained in other laws or instructions issued under them, the legal text or instructions shall prevail.
• Banks listed on the Iraqi Securities Market follow the Governance Guide issued by the Central Bank of Iraq.

What are Environmental, Social, and Corporate Governance (ESG) Standards?
ESG is a set of environmental, social, and governance factors that are important for companies when considering the long-term sustainability of their operations. These pillars are called in ESG frameworks and represent the three main subject areas that companies are expected to consider in the decision-making process and are expected to report on. The goal of ESG is to capture all non-financial risks and opportunities inherent in the company's daily activities. Environmental, Social, and Corporate Governance standards are important to investors when making investment decisions.

Environmental, Social, and Corporate Governance standards relate, for example, but not limited to:
Environmental issues: Potential or actual changes in the physical or natural environment (such as pollution, biodiversity impacts, carbon emissions, climate change, and use of natural resources); Social issues: Potential or actual changes in the surrounding community and employees (such as health and safety, supply chain, diversity, inclusion, and fair wages); and Governance issues: Corporate governance structures and processes through which companies are directed and controlled (such as board structure and diversity, ethical behavior, strategic development, risk management, internal controls, disclosure, and transparency). Corporate governance includes governance of key environmental and social policies and procedures.

Some key ESG factors are shown in the table below.

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Source: PWC at https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/esg-reporting.html

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Each company will have diverse elements of Environmental, Social, and Corporate Governance standards relevant specifically to that company, which are material to its operations. Many ESG factors, such as climate change, may have a greater or lesser impact on certain companies, sectors, geographic regions, and countries. They may also weaken economic stability. It is important to know the specific ESG problems of the company and whether companies are developing appropriate strategies to manage or mitigate ESG risks.

Why is ESG Important?
Good management of Environmental, Social, and Corporate Governance standards enables:

• Developing strategies for opportunities the company sees in ESG developments;
• Better identification and management of risks in ESG areas, particularly in the transition to climate change and related areas;
• Developing a long-term vision to create value for the company and ensure its sustainability;
• Providing good ESG information to the public and markets, thereby encouraging investor and stakeholder confidence in the company;
• Complying with the growing number of regulations related to ESG issues required by governments and authorities.

Investors are increasingly interested in companies' approaches to ESG.
Vincent Treskin from AMRO ABN summarizes the views of many investors, stating: "We are convinced that companies that perform well in ESG are generally less risky, in a better position in the long term, and perhaps more prepared for uncertainty." The 2020 Y&E investor survey confirms that among 98% of investors surveyed who assess ESG, 72% conduct a formal review of ESG performance, compared to only 32% in the previous survey conducted two years prior.

Benefits of ESG Policies and Practices
ESG has become the global standard for investors and companies. Good practices regarding ESG should:

• Create awareness of corporate governance (CG) and environmental and social (ES) practices in laws, regulations, and rules;
• Encourage companies to adopt ESG practices;
• Enable companies to distinguish themselves in the market by participating in market-specific indices, national or industry awards, and through performance card reporting;
• Enable a specific company needing to absorb ESG practices implementation through a degree of flexibility;

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EY conducted a survey in 2020 on climate and sustainability (CCaSS) for institutional investors. The survey is accessible at https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/assurance/assurance-pdfs/ey-global-institutional-investor-survey-2020.pdf

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• Urge company boards of directors and management to consider each ESG element and how the company handles it;
• Improve and expand corporate reports so that all stakeholders can understand and trust the company's promises regarding future activities.

ESG practices in the Iraqi Securities Market should lead to:

• Increased market confidence;
• Better reputation;
• Capital market development;
• Increased corporate transparency and accountability;
• Increased foreign direct investment inflow;
• An information-supported market;
• Improved market liquidity.

Companies that integrate ESG practices are expected to benefit from:

• More effective control and risk management systems;
• Better performance;
• Improved corporate governance;
• Increased investor confidence;
• Greater attraction of employees.

This Environmental, Social, and Corporate Governance Standards Guide was developed in accordance with international best practices and relevant Iraqi laws. Among the standards adopted are those issued by the International Finance Corporation (IFC), the Organisation for Economic Co-operation and Development (OECD), and the International Sustainability Standards Board (ISSB) of the International Financial Reporting Standards Foundation. This guide will help each company improve its ESG structure and practices, leading to improved performance.

The Board of Directors and executive management must supervise the company's operations and activities and preserve the rights of shareholders and stakeholders.

In the exercise of the powers granted to the Iraqi Securities Commission under Securities Law No. 74 of 2004, this guide is issued by the Iraqi Securities Commission.

This guide enters into force as of 13/5/2026.

The guide consists as follows: Part (A) and Part (B) define the strategic position of the guide. The main part is (C), which is the core of the guide's requirements. Part (D) provides examples of supplementary documents to illustrate the guide's expectations.

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(Guide Structure)
The Iraqi Securities Commission would like to thank the International Finance Corporation (IFC) for its continuous support in the field of Environmental, Social, and Corporate Governance standards for companies.

B. General Framework of the Guide o Purpose o Scope of Application o Authority o Framework of the Environmental, Social, and Corporate Governance Standards Guide for Companies (ESG)

A. Preamble o Introduction o What is ESG? o Why is it important? o Benefits of ESG policies and practices

D. Appendices o IFC-approved guidelines for independent board members o Board committee on sustainability or ESG o Contents of a model board charter o Model annual board evaluation form o Board member nomination process o Role and qualifications of the board secretary o Model disclosures for the annual report and website disclosures o Reporting on stakeholder governance o Model content of the code of conduct and conflict of interest policy

C. Guide Requirements
o Part 1 – Board of Directors o Part 2 – Board Committees o Part 3 – Executive Management o Part 4 – Risks and Controls o Part 5 – Disclosure and Transparency o Part 6 – Governance of Stakeholder Relations and Climate Aspects

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Table No. (1)
Abbreviations
No. Abbreviation Term
1 ISC Iraqi Securities Commission
2 Bank
Banks licensed by the Central Bank of Iraq (CBI) and include commercial and Islamic banks 3 Board of Directors Company Board of Directors 4 General Assembly (AGM)/ Extraordinary General Assembly (EGM) General Assembly of Shareholders (AGM) and Extraordinary General Assembly (EGM) 8 IFC International Finance Corporation 9 OECD Organisation for Economic Co-operation and Development 12 TCFD Task Force on Climate-related Financial Disclosures 13 ISSB International Sustainability Standards Board of the International Financial Reporting Standards (IFRS) Foundation 14 ESRM Environmental and Social Risk Management System 15 ERM Risk Management System 16 ESMS Environmental and Social Management System 17 ICT Information and Communication Technology 18 ESG Environmental, Social, and Corporate Governance 20 ESGSC Environmental, Social, Governance, and Sustainability Standards Committee under the Board of Directors

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Table No. (2)
Term Definitions
No. Term Definition
1 Corporate Governance
It is a comprehensive set of systems that define the relationship between the company's board of directors, executive management, shareholders, and other stakeholders.
Corporate governance addresses the system through which the company is directed and its activities are controlled by the board of directors, which affects:

• The company's strategy, including ESG strategies.
• The company's risk management, including ESG risks.
• The company's operations.
• The balance between shareholders' rights and depositors' interests for banks, considering the interests of other stakeholders.
• The company's compliance with all applicable laws, rules, and controls.
• Reporting practices to ensure full disclosure and transparency in all material aspects - financial and non-financial.
  2 Compliance
  Meeting the minimum legal requirements required for board members and executive management.
  3 Executive Management
  Senior employees such as the CEO, CFO, COO, and Internal Audit Manager.
  4 Related Parties
  Should include the following:
• Close family members are those related within the third degree.
• Any director or executive officer of the company.
• Any director, CEO, deputy/candidate, or advisor who worked in the company in the past two years.
• Independent auditor (external auditor) throughout their term of service and for two years following the termination of their contract with the company.
• Any owner or beneficial owner of more than 5% of the company's shares.
• Any ordinary or legal person related to the company if it has contractual relations during the contract period.
  5 Affiliated Group
  A group of individuals or companies linked by kinship or influential economic interests.
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  Kinship / Close Family
  Members / Related Persons
  Kinship refers to close family members of the third degree to any board member or executive management member. Close family members include parents, spouses, siblings, aunts, uncles, cousins, in-laws, and those who have actual relations with them.

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Independent Board Member
A non-executive board member free of any other work or connection with the company, independent, and not conflicting with their interests when making decisions. The independent board member enjoys full independence from management and the company 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 company's executive management and supervises daily operations and receives a monthly salary for this. 9 Non-Executive Board Member A board member who may be related to the company or have an interest in the company through share ownership or as a customer or advisor to the company, or may provide services to the company or board members or executive management. Non-executive board members do not participate in any way in the daily management of the company and do not receive a monthly salary for this, and are not considered independent. 10 Material Matters Matters that may be important to investors, shareholders, or stakeholders, which may affect the investment decision or may change the share price in the market. 11 Cumulative Voting A voting method for all General Assembly decisions, including when electing board members. The number of votes for any shareholder must equal the number of shares they own. The shareholder may vote all their votes in favor of one candidate for board membership or distribute them among candidates without repeating the vote. The main goal of this method is to increase the chances of minority shareholders' representation on the board and limit the control of a specific shareholder on board membership. 12 Financial Knowledge The ability to understand the role of accounting and analyze financial statements, and having skills in budgeting, investment, borrowing, taxation, auditing, insurance, and personal financial management. 13 Financial Expert A person who has high skill and professional qualification in several areas, including:

• Understanding International Financial Reporting Standards (IFRS) principles and standards, financial statements, and reporting processes.
• Experience in preparing and/or auditing corporate financial statements.
• Experience in accounting for estimates, accruals, and provisions.
• Understanding controls adopted in the company's accounting and internal audit.
• Experience in the role of the audit committee in the company.
• Appropriate awareness of current legislation and developments regarding financial reporting.
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  Financial Statements/
  Financial Reports
  Financial statements are the basis for determining total work completed in the financial year, daily transactions, work costs, profits and returns, taxes, and other important information about its financial status.

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These notes include the balance sheet, income statement, cash flow statement, statement of changes in equity, and all notes related to these documents.
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ESMS - Environmental and Social Management
System
This system refers to tools that help assess or self-assess management practices for environmental and social standards in a company. These practices can be measured against good market practices in environmental and social aspects. 16 ESRM - Environmental and Social Risk Management System The Environmental and Social Risk 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). This should be an integral part of the company's risk management. 17 Shareholders Also sometimes called "shareholders," they are the owners of the company's shares. 18 Major Shareholders Defined as owning more than 5% of the company's shares. The term includes all shares owned or controlled by close relatives of the shareholders. 19 Stakeholders All groups or persons who may be interested in the company's activities, products, and services and the associated profitability, or may be affected by them. Stakeholders include shareholders, future investors, employees, regulators, suppliers, the community as a whole, and others. 20 Climate Aspects Aspects related to climate change risks and opportunities in the short, medium, and long term. Climate-related aspects include physical climate issues and transition-related issues due to climate change. 21 Three Lines of Defense The Three Lines of Defense model for risk management is a principle-based model applied globally, developed by the Institute of Internal Auditors (IIA) to ensure effective enterprise risk management. It includes the first and second lines of management's responsibilities in risk management, and requires the third line of defense (internal audit) to provide independent assurances to the board of directors regarding the effectiveness of enterprise-level risk management. 22 Large Companies or Companies with Complex Operations This must be determined by the Iraqi Securities Commission (ISC). It will change the requirements for the board committee. 23 Dissemination Taking all necessary steps to make the subject available to the public, usually through the company's website and/or through the annual report or other public reports. 24 He/Him/These Any reference in the guide in the masculine form also applies to the feminine. 25 Must The word "must" indicates a mandatory element in the guide. 26 May The word "may" indicates an optional element in the guide.

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Part B: General Framework of the Guide
Article (1): Purpose
The Environmental, Social, and Corporate Governance Standards Guide (or the Guide) imposes on the private sector a commitment to corporate sustainability and good ESG practices. It provides guidance for financial and non-financial disclosure and stakeholder relations and enhances shareholder engagement. This guide clarifies the responsibilities of board members and managers and encourages comprehensive risk management, including ESG risks and opportunities.

It is a tool that must be used to ensure responsibility and accountability by introducing ESG thinking and procedures into corporate practices. It is particularly important in the current focus on climate change issues. It encourages understanding of ESG regulations, market expectations, and company initiatives to address corporate sustainability and ESG risks and opportunities.

Article (2): Scope of Application

1. The Guide is mandatory and applies to all companies issuing bonds or shares (issuing companies) in the Iraqi Securities Market.
2. Issuing companies must annually prepare reports on compliance with this Guide in the time and manner determined by the Iraqi Securities Commission (ISC).
3. All companies and other entities of all types must consider the importance of this Guide in their governance, sustainability, and operations and are encouraged to apply it.

Article (3): Authority
This Environmental, Social, and Corporate Governance Standards Guide is issued under the authority of the Iraqi Securities Commission as stipulated in Law No. (74) of 2004.

Article (4): Framework of the Environmental, Social, and Corporate Governance Standards Guide for Companies (ESG)
Given the importance of ESG requirements practices and their relative novelty, and in appreciation of international standards, companies must:

1. Form the Environmental, Social, Governance, and Sustainability Standards Committee (ESGSC) under the Board of Directors, according to the section on committees (see Part Two), to supervise and monitor ESG initiatives.
2. The ESGSC will prepare the company's "ESG Code," approved by the Board of Directors. This is a company-specific code of conduct for individual corporate governance in ESG issues. The "Company's Environmental, Social, and Corporate Governance Standards Code" issued by the company must be titled as such and must comply with the minimum requirements of this Corporate ESG Code of Conduct Guide.
3. Board members must publicly disclose in the company's annual report or a separate sustainability report and on its website their compliance with this ESG Code of Conduct Guide of the Iraqi Securities Commission (ISC) and the implementation of the "Company's ESG Code."
4. The "Company's Environmental, Social, and Corporate Governance Standards Code" must clearly state and widely disseminate internally, including in the company's strategy, the following (Paragraphs A and B within the requirements of Article 134 of Companies Law No. 21 of 1997):
   a. The company's purpose; b. The company's core values.
   c. The company's commitment to sustainability, ESG standards, and business integrity.
   d. The company's main policies regarding sustainability and ESG. e. The governance structure, including issues related to ESG; f. The company's commitment to managing all risks, including physical ESG risks and climate-related risks.
5. The company must develop and publish a Board Charter, updated annually and approved by the Board of Directors, which defines the roles and responsibilities of board members, the Chair, and other key roles in the Board. The Charter (see Appendix 3) must define at least the following:
   a. Formation of the Board; b. Duties of the Board as a whole and duties of each board member.
   c. The extent of authority of the Board as a whole and each member.
   d. Procedures the Board must follow while performing its duties. e. Powers of each board committee, including details of the board committee for addressing sustainability and responsibilities related to sustainability and climate.
6. The Board establishes policies and procedures to understand and support the requirements of this Guide. Where necessary, it must provide development programs for the Board and executive management to ensure the implementation of the Guide.
7. The Board is responsible for ensuring the establishment, training, and maintenance of a team of people knowledgeable in corporate governance, sustainability/ESG developments, climate-related risks, corporate reporting, and the application of this Guide. The team is responsible to the Board through the CEO for the accurate assessment and preparation of the annual report on compliance with this Guide in the form and manner requested by the Iraqi Securities Commission (ISC). The Board must be responsible for supporting the ESG reporting team by providing authority, resources, and information retrieval systems to enable accurate reporting.
8. No reports to the Iraqi Securities Commission (ISC) regarding compliance with this ESG Code of Conduct Guide may be submitted by untrained or inexperienced individuals in corporate governance, sustainability, and ESG practices. The Board's Environmental, Social, Governance, and Sustainability Standards Committee must review the accuracy of reporting to the Iraqi Securities Commission (ISC) regarding compliance with this ESG Code of Conduct Guide. The Company's CEO and Board Chair must sign the reports submitted to the Iraqi Securities Commission (ISC) regarding compliance with this Guide and attest to the accuracy of the reports submitted.
9. The Iraqi Securities Commission (ISC) must establish, guide, and implement the method, style, and timing of submitting annual reports on compliance with this Guide.
10. The Board of Directors and executive management must ensure that reports related to compliance with this Guide are integrated into the annual activities of the Board and executive management and into the company's strategies, policies, and practices.
11. The company must publish the "Company's Environmental, Social, and Corporate Governance Standards Code" and other key ESG documents on its website for public audit. It must be ensured that they are updated and reviewed regularly and understood by all board members and employees.
12. The Board must approve the implementation of the Code of Conduct and conflict of interest policies applied to all board members and company employees. The Code of Conduct and conflict of interest policies must be published on

13 the company's website and in the annual report. The Board must ensure that all employees are aware of these policies and receive training on them annually.
13. The Board must establish a risk management framework that includes the identification, assessment, and management of ESG risks. This framework must be integrated into the company's overall risk management system.
14. The Board must ensure that the company has a process for identifying and assessing material ESG issues that are relevant to the company's business and stakeholders. This process must be reviewed annually.
15. The Board must ensure that the company discloses material ESG information in a timely and accurate manner. This disclosure must be consistent with the company's ESG Code and other relevant policies.
16. The Board must ensure that the company has a process for engaging with stakeholders on ESG issues. This process must be reviewed annually.
17. The Board must ensure that the company has a process for monitoring and evaluating its ESG performance. This process must be reviewed annually.
18. The Board must ensure that the company has a process for reporting on its ESG performance. This process must be reviewed annually.
19. The Board must ensure that the company has a process for improving its ESG performance. This process must be reviewed annually.
20. The Board must ensure that the company has a process for communicating its ESG performance to stakeholders. This process must be reviewed annually.

14 the company's website and in the annual report. The Board must ensure that all employees are aware of these policies and receive training on them annually.
13. The Board must establish a risk management framework that includes the identification, assessment, and management of ESG risks. This framework must be integrated into the company's overall risk management system.
14. The Board must ensure that the company has a process for identifying and assessing material ESG issues that are relevant to the company's business and stakeholders. This process must be reviewed annually.
15. The Board must ensure that the company discloses material ESG information in a timely and accurate manner. This disclosure must be consistent with the company's ESG Code and other relevant policies.
16. The Board must ensure that the company has a process for engaging with stakeholders on ESG issues. This process must be reviewed annually.
17. The Board must ensure that the company has a process for monitoring and evaluating its ESG performance. This process must be reviewed annually.
18. The Board must ensure that the company has a process for reporting on its ESG performance. This process must be reviewed annually.
19. The Board must ensure that the company has a process for improving its ESG performance. This process must be reviewed annually.
20. The Board must ensure that the company has a process for communicating its ESG performance to stakeholders. This process must be reviewed annually.