Circular Letter dated June 30, 2026 Regarding the Implementation of the Environmental and Social Risk Management System (ESRMS) within Sustainable Financing Policies and the Guideline for Implementation

Cairo, June 30, 2026

Dear Mr. Chairman of the Board of Directors,

Greetings,

With reference to the periodic letters issued in the field of enhancing sustainable financing, including the periodic letter dated November 3, 2022, concerning the instructions for sustainable financing, which includes the obligation for banks to include sustainable financing policies within their credit and investment policies.

And in light of the Central Bank's role in maintaining financial and banking stability, supporting the trend towards enhancing sustainable financing, and strengthening banks' capacity and readiness to face risks, the importance of directing banks towards establishing foundations for managing environmental and social risks by implementing a system for managing these risks (Environmental and Social Risk Management System - ESRMS), as well as managing financial risks associated with climate change, has emerged. This is achieved through the issuance of the attached guideline, with the aim of clarifying the mechanisms for applying this system and integrating it into credit and investment decisions and the bank's internal governance and supervision frameworks, working to raise awareness regarding these risks and prepare for their detailed management.

In light of the above, the following must be complied with:

1. Implement the Environmental and Social Risk Management System (ESRMS) by no later than January 2028 and consider it an integral part of the bank's sustainable financing policies and the general risk management framework. The Bank's Manager of Sustainability and Sustainable Financing Department shall be responsible for coordinating between the relevant bank sectors, reviewing related reports, and submitting them to the Sustainability Department at the Central Bank, indicating the implementation of the aforementioned system. The Environmental and Social Risk Management System shall include, as a minimum:
   a. Executive procedures, including roles and responsibilities, and mechanisms for classifying, evaluating, and monitoring projects, including the negative screening process and preparing related reports. b. Identifying the financing and investment processes that must be subject to this system and conducting periodic monitoring of them.

2. Refer to the attached guideline in applying procedures for managing financial risks associated with climate change.

3. Build the technical capacities of bank employees in the fields of financial risks associated with climate change and the application of the Environmental and Social Risk Management System.

Tarek El-Khouly

Guideline for Implementing the Environmental and Social Risk Management System and Managing Financial Risks Associated with Climate Change

First: Environmental and Social Risk Management System

In light of the increasing frequency of environmental and social risks and climate change risks and their potential financial impacts, and in line with the international and national trend towards achieving Sustainable Development Goals (SDGs) and commitments related to the Paris Climate Agreement and Egypt Vision 2030, regulatory authorities, including central banks, are directing financial institutions to implement the Environmental and Social Risk Management System (ESRMS). This is the institutional framework that includes the necessary procedures and institutional capabilities to identify, evaluate, manage, and monitor environmental and social risks associated with customers' activities and projects. Climate change risks are managed as an integral part of the Environmental and Social Risk Management System through applying the same stages and procedures used for risk management, expanding the evaluation scope to include risks resulting from activities that contribute to exacerbating climate changes, including high-emission activities or those incompatible with national and international trends to reduce emissions.

Therefore, the section on implementing the Environmental and Social Risk Management System within this guideline has been prepared to clarify the mechanisms for applying and activating this system. The guideline includes the system's elements and basic components, and clarifies the executive procedures for identifying, classifying, evaluating, and monitoring environmental and social risks - including climate change risks - thereby supporting the building of institutional foundations and capabilities, as well as supporting the technical capacities of institution employees to enhance the efficiency of managing these risks.

This part of the guideline has been prepared based on local and international frameworks and standards upon which banks rely when preparing and implementing the Environmental and Social Risk Management System (ESRMS), such as:

• Egyptian Ministry of Environment Environmental Impact Assessment Models
• World Bank Group Environmental and Social Framework
• International Finance Corporation Performance Standards
• European Bank for Reconstruction and Development Performance Requirements
• Equator Principles

The scope of application of the Environmental and Social Risk Management System (ESRMS) includes the following elements:

1. Environmental and Social Risk Management Policy (ESRMS)
   A policy is prepared and adopted that defines the scope of application, its objectives, and mechanisms for integrating the system into the credit and investment cycle. This policy must be adopted by the bank's Board of Directors and included in the bank's general risk management framework, ensuring consistency and integration with credit and investment policies and risk management policies. It must be reviewed and updated every three years at the latest or whenever necessary.

2. Screening
   Conduct an initial screening of activities and projects under financing or investment to determine their compliance with the requirements of the Environmental and Social Risk Management System (ESRMS) based on the bank's adopted application scope, evaluation, and vision.

3. Environmental and Social Risk Categorization
   Financing or investment processes are classified according to the level of environmental and social risks, including climate change risks, which may result from the economic sector in which the customer operates, the size of the activity, and the project's geographical location, by referring to local and international frameworks. The classification includes three main categories:

• High-risk projects: Include activities or sectors that may involve serious environmental or social risks that are difficult to avoid or mitigate.
• Medium-risk projects: Include activities with potential or limited environmental or social impacts, which can be largely mitigated through appropriate procedures.
• Low-risk projects: Include activities expected to have negligible or no environmental or social impacts.
  This classification serves as the primary reference for all subsequent steps within the system for making credit or investment decisions and monitoring implementation procedures.

4. Environmental and Social Due Diligence Procedures
   A detailed examination of environmental and social risks - including climate change risks - is conducted based on the classification level of the financing or investment processes under consideration, including analysis of the economic sector, funded activity, project characteristics, and the customer's compliance with relevant legislation, instructions, and standards. This aims to determine the nature and severity of these risks and support sound credit or investment decision-making.

The bank may, in cases of high risks, require the customer to submit an Environmental and Social Impact Assessment (ESIA) approved by the Egyptian Ministry of Environment or environmental experts appointed by Multilateral Development Banks (MDBs).

In cases where due diligence results reveal material risks, the bank requires the customer to prepare and implement an Environmental and Social Action Plan (ESAP) that includes corrective measures and implementation timelines proportional to the nature, size, and level of risks associated with the financing or investment process, with monitoring of implementation throughout the financing period. In case of non-compliance with corrective measures, the bank takes necessary actions, including modifying financing terms and conditions to ensure compliance.

5. Integrating ESRMS Results into Credit or Investment Decisions
   The results of the Environmental and Social Due Diligence are documented in a report attached to the credit or investment memo to guide decision-making, including determining financing or investment conditions.

6. Mechanism for Handling Complaints and Engaging with Stakeholders
   Ensure the availability of appropriate mechanisms for the customer to handle complaints from affected stakeholders regarding negative impacts of the customer's activity, manage and resolve complaints appropriately, and provide suitable means for communication with them.

7. Monitoring
   The environmental and social performance of customers and financing or investment processes is monitored throughout the financing or investment period according to the Environmental and Social Action Plan (ESAP) in cases where due diligence results reveal material risks, as well as agreed financing or investment terms and conditions.

8. Handling Cases of Rising Environmental and Social Risks for Customers (Control & Escalation)
   Necessary corrective measures are taken in case of detecting a rise in the level of environmental or social risks for the customer, which may include re-evaluating risks, modifying financing or investment terms, or making decisions to terminate financing or investment when necessary.

9. Documentation and Reporting
   The bank documents the policy, procedures, and results of implementing the Environmental and Social Risk Management System (ESRMS) and uses this information to prepare related reports to support risk management and decision-making.

10. Roles and Responsibilities
    The bank's executive management is responsible for implementing the policy adopted by the Board of Directors regarding environmental and social risk management. Relevant roles and responsibilities for system implementation are defined, with the Bank's Manager of Sustainability and Sustainable Financing Department responsible for coordinating between relevant bank sectors.

11. Building Institutional Foundations and Employee Technical Capacities
    Work on building and developing institutional foundations and capabilities and building the technical capacities of employees necessary to support the effective implementation of environmental and social risk management, thereby enhancing institutional awareness.

Second: Managing Financial Risks Associated with Climate Change

Climate change issues have gained increasing interest internationally and locally in recent years due to growing challenges related to climate phenomena and their economic, social, and environmental impacts, followed by growing international efforts and commitments towards climate issues, including the Paris Climate Agreement and Nationally Determined Contributions (NDCs), aimed at supporting the transition towards a more sustainable and climate-resilient economy.

Central banks and international regulatory authorities have also increased their interest in integrating climate-related risks into regulatory frameworks, considering them factors affecting financial stability and the banking sector's integrity, given the expanding scope of their impacts on economic activities, asset quality, and business continuity. Additionally, climate change risks spill over into traditional financial risks, including credit, market, liquidity, and operational risks, as well as strategic and reputational risks.

Climate change risks include physical risks resulting from climate phenomena and environmental changes (e.g., floods, droughts, etc.) and transition risks resulting from the shift towards a low-emission economy. These risks affect certain sectors and economic activities, thereby impacting customers' repayment capacity.

To support banks in establishing an effective framework for managing financial risks associated with climate change, thereby enhancing the banking sector's ability to deal with these risks and supporting financial stability in the short, medium, and long term, the section on managing financial risks associated with climate change within this guideline has been prepared based on the principles of the Basel Committee on Banking Supervision and relevant international standards and practices. This clarifies procedures for managing financial risks associated with climate change, including the following:

1. Governance and Internal Control

• The bank's Board of Directors adopts a policy for managing financial risks associated with climate change and receives related reports to ensure the integration of these risks into the bank's general risk management framework, acceptable risk levels, and business strategy.
• The bank's executive management is responsible for implementing the frameworks and policies adopted by its Board of Directors regarding managing financial risks associated with climate change and establishing procedures to ensure the effective implementation of these policies and frameworks, including:
  o Identifying material financial risks associated with climate change and evaluating their potential impacts on the bank's business strategy and the resilience of its business models in the short, medium, and long term, considering the impact of the transition to a low-emission economy on credit and investment portfolios within capital planning processes, and their impact on the bank's ability to achieve its objectives. o Defining the tasks and competencies of bank departments responsible for managing these risks and ensuring effective supervision by specialized committees.
• The bank relies on an internal control framework for managing financial risks associated with climate change, based on the three lines of defense model, in accordance with the Central Bank of Egypt's instructions on governance and internal control for banks, ensuring the separation of execution, supervision, and independent review tasks.

2. Climate Risk Management
   The risk management process involves establishing a mechanism to identify, evaluate, measure, mitigate, and monitor financial risks associated with climate change, particularly material risks that directly affect credit, market, liquidity, and operational risks, which may impact banks' financial positions. This mechanism must be updated periodically, according to the following:

1-2 Risk Identification

• Potential climate change risks on credit and investment portfolios, including physical and transition risks, are identified, and channels for the transmission of these risks to traditional bank risks are determined, including declining customer repayment capacity, decreased value of collateral and assets, and increased operating or production costs.
• Appropriate automated systems are developed to collect, manage, and analyze data related to climate change risks.

2-2 Assessment and Measurement of Material Financial Risks Associated with Climate Change

• A comprehensive and periodic assessment of financial risks associated with climate change is conducted, with clear criteria and thresholds established to determine the materiality level of these risks.
• Analysis of material financial risks associated with climate change is monitored by identifying sectoral and geographical concentrations, financing structure and duration, and evaluating the impact of these risks on asset quality, liquidity, profitability, and capital, as well as assessing the ability of different customers or sectors to withstand shocks.
• Material risks are integrated into all stages of the credit cycle, including due diligence procedures and continuous monitoring of these risks at the customer level.
• The impact of material risks on the bank's overall operations and its ability to continue providing basic activities and services is evaluated, and the impact of these risks on business continuity is analyzed.
• The impact of material risks on other risks, including strategic, reputational, and compliance risks, is evaluated, taking these risks into account.
• Appropriate tools and methods are developed and applied to measure and assess current exposure to these risks at the credit and investment portfolio level based on identified material financial risks associated with climate change, using quantitative or qualitative indicators, or measurement proxies. In the absence of direct data, the methodologies and assumptions used must be documented in proportion to the size and complexity of the bank's activities.

3-2 Risk Mitigation

• Executive procedures are developed to mitigate material financial risks associated with climate change, which may include setting limits on sectoral and geographical exposures, requesting transition plans or measures for customers to implement adaptation measures, and may require modifying financing terms, collateral, or monitoring mechanisms.
• According to the study of sectors most exposed to transition risks, the bank identifies financing and investment opportunities and communicates with them to understand their readiness to transition towards more sustainable business models, working with clients to reach their transition plans, taking into account the principles of a Just Transition, which aims to transition towards a low-emission economy in a way that considers economic and social dimensions, ensuring the minimization of negative impacts on employment, communities, and the most affected groups.

3. Impact of Climate Change Risks on Internal Capital Adequacy Assessment

• Material financial risks associated with climate change and the results of the tests mentioned in the following paragraph (number 5) are integrated into internal capital adequacy assessment processes, reflecting the potential impact of climate risks on capital adequacy.

4. Monitoring and Reporting

• The process of monitoring financial risks associated with climate change, particularly material ones, is continuous, ensuring the tracking of the development of these risks and evaluating their potential impact on the bank. Reports are periodically presented to senior management and the board of directors, including material risk exposures, risk indicators, and major developments related to financial risks associated with climate change and related concentration risks, contributing to monitoring and supporting decision-making.
• Qualitative and/or quantitative indicators are established to evaluate, monitor, and prepare reports related to financial risks associated with climate change, in proportion to the bank's size and the nature and complexity of its activities.

5. Scenario Analysis and Stress Testing

• Scenario analysis and stress tests are conducted to evaluate the resilience of business models and the bank's strategy and determine their impact on overall financial risks for the bank. These scenarios should include the impact of climate-related risks on credit, market, operational, and liquidity risks, and concentration risks, considering the timeframes of these risks, contributing to evaluating their potential impact on asset quality, profitability, liquidity, capital, and business continuity.
• Necessary systems and expertise are provided to ensure that the bank conducts climate scenario analysis in proportion to the bank's size, business models, and level of activity complexity.

6. Disclosures on Financial Risks Associated with Climate Change

• Financial risks associated with climate change are disclosed in the bank's financial statements progressively based on its readiness, taking into account relevant international standards and practices. Guidance is drawn from the International Sustainability Standards Board (ISSB) standards and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), considering the nature, size, and complexity of the bank's activities.

7. Building Technical Capacities

• Work on enhancing awareness and building the technical capacities of employees, senior management, and board members regarding financial risks associated with climate change and their potential impacts on banking activities and financial risks, thereby supporting the effective implementation of this guideline.