ESG Regulations in United Arab Emirates

The UAE has taken a several different initiatives to address climate change. These include developing several national plans, launching both the Sustainable Finance Working Group and Sustainable Finance Framework, and being a signatory to a number of global agreements.

Recognizing the risks posed by climate change, the UAE has developed strategies such as (1) the UAE Vision 2021, (2) the National Green Agenda 2015-2030, and (3) the National Climate Change Plan 2017-2050 to transition towards a green economy and prioritize sustainability, resource efficiency, and inclusiveness.

Key elements of each plan include:

1. UAE Vision 2021

- Focuses on sustainability, resource efficiency, and inclusiveness.

- Aims to achieve sustainable development by balancing economic growth, environmental protection, and social well-being.

- Emphasizes the integration of sustainability principles into all sectors of the economy.

- Aims to increase the share of renewable energy in the energy mix and reduce reliance on fossil fuels.

- Focuses on efficient water management, water conservation, and reducing water consumption.

- Committed to biodiversity conservation and protection of ecosystems and wildlife.

2. National Green Agenda 2015-2030

- Aims to transition to a green economy and promote sustainability.

- Focuses on developing a sustainable and diversified economy.

- Emphasizes resource efficiency, including energy, water, and materials.

- Highlights the importance of environmental governance and policy frameworks.

- Focuses on climate change mitigation and adaptation measures.

- Encourages clean technologies, eco-friendly industries, and sustainable infrastructure.

3. National Climate Change Plan 2017-2050

- Aims to address climate change and transition to a low-carbon economy.

- Commits to achieving carbon neutrality by 2050.

- Focuses on reducing greenhouse gas emissions across energy, transportation, and industry sectors.

- Emphasizes building climate resilience and adapting to climate change impacts.

- Promotes green finance mechanisms and investment in renewable energy and energy efficiency projects.

- Engages in international cooperation and contributes to global climate change efforts.

Consistent with the National Climate Change Plan, the UAE has instituted a Net Zero by 2050 strategic initiative that is aligned with the Paris Agreement’s focus on limiting the rise in global temperatures to 1.5 C. The UAE has also established additional sustainability-focused initiatives, such as the Sustainable Finance Working Group (SFWG), which is working closely with the Securities & Commodities Authority (SCA) to promote sustainable finance practices and position the country as a hub for sustainable finance in the region. The SFWG is focusing on strengthening sustainability disclosure; fostering sustainability-focused corporate governance; and designing the UAE’s Sustainable Finance Taxonomy, targeting corporations, asset owners and investment managers.

Another step by the UAE to promote sustainable finance and address climate change risks is the implementation of the Sustainable Finance Framework, which was developed by the UAE’s Ministry of Climate Change and Environment in 2021. The framework recognizes the detrimental effects of climate risks on various sectors and discusses the government's dedication to foster a green economy. It builds upon previous initiatives and consultations with financial institutions, drawing from international benchmarks and the recommendations outlined in the 2016 State of Green Finance in the UAE report. The framework establishes key milestones and initiatives by government entities and regulators to reinforce sustainable finance practices in the UAE. It operates under three core pillars:

1. Mainstreaming sustainability in financial decision-making and risk management: This pillar suggests embedding sustainability considerations into policies and legislation, as well as developing regulatory guidelines for managing environmental, social, and governance (ESG) and climate-related risks.

2. Enhancing supply and demand for sustainable finance products and green investment projects: The framework proposes measures to scale up green finance, such as developing a common taxonomy for sustainable finance and creating incentives for green finance.

3. Strengthening the enabling environment for sustainable finance practices: This pillar aims to improve data quality and clarity, support capacity-building and education programs on sustainable finance, and foster collaboration between relevant stakeholders.

The overall objective of the Sustainable Finance Framework is to establish an enabling environment that facilitates sustainable finance, increases the volume of climate- and green-focused investments, and aids the transition to a green economy in the UAE. It underscores the significance of sustainable finance in mitigating existing and future risks associated with environmental, social, and climate factors.

Although the UAE does not currently have a carbon tax in place, the country has taken other measures to reduce its carbon footprint. The UAE has set renewable energy targets, with the aim of producing 50% of its energy from renewable sources by 2050. The country is also investing in carbon capture and storage technology and has launched a number of sustainable transportation initiatives, such as the Dubai Metro and Abu Dhabi's electric bus fleet.

Additionally, the UAE has signed on to several global sustainability-focused agreements. Several UAE investment managers are signatories to the Principles for Responsible Investment (PRI), a United Nations-supported initiative promoting responsible investment practices globally that helps guide investors toward ESG integration and reporting. Furthermore, different UAE financial and governmental institutions are signatories and committed to aligning with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The country is also a signatory to the Paris Agreement and will be the host of the 28th UN Conference of Parties.

The UAE has adopted both mandatory and voluntary corporate ESG reporting initiatives. The UAE’s Securities & Commodities Authority (SCA) mandates public joint stock companies (PJSCs) listed in the UAE to comply with a number of ESG disclosure requirements.

Listed PJSCs are required to submit a sustainability report to SCA within 90 days from each financial year-end or before the annual general assembly meeting, whichever is earlier, as per article No. 76 of the Chairman of SCA Board Decision No. 3 (issued in 2020). The sustainability report should outline the company’s long-term strategy and its impact on the following fields:

• Environment: the environmental and social impact of the company's activities and actions.

•Society: how the company's policies and activities contribute to or may contribute to social justice, worker and employee well-being, and the well-being of the surrounding community.

•Economy and governance: how the firm contributes to societal economic gain and the influence of the company's activities on the local economy.

PJSCs must comply with the Global Reporting Initiative (GRI) standards and any sustainability standards and requirements issued by the DFM or ADX, depending on which market they are listed on.

In addition to the SCA requirements, the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) have also deployed initiatives to promote the adoption of ESG among listed companies and investors, having issued ESG reporting guidelines. These voluntary guidelines cover such issues as the importance of ESG, the benefits of ESG reporting, materiality, reporting frameworks, and ESG metrics.

Non-listed companies and state-owned companies are also encouraged to adopt ESG frameworks and reporting.

At the fund level, the UAE does not have specific regulations mandating Environmental, Social, and Governance (ESG) requirements. However, there has been growing interest in sustainable investment and ESG considerations. Regulators, such as the Securities and Commodities Authority (SCA) and the Dubai Financial Services Authority (DFSA), are increasingly urging companies and funds to consider ESG factors as mentioned above, although no specific rules have been formalized yet.

Some individual financial institutions, investment funds, and companies in the UAE have started voluntarily incorporating ESG factors into their investment decision-making processes. They usually align with global standards such as the UN Principles for Responsible Investment, Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the International Integrated Reporting Framework (IIRF), among others.

In addition, March 2023 has seen the introduction of new categories of specialized funds, including ESG funds, as part of the new regulations issued by the Securities and Commodities Authority (SCA). This indicates that ESG funds are recognized and accommodated within the new investment funds framework. While the regulation does not provide specific details on ESG requirements or guidelines for funds, the mention of ESG funds within the new specialized funds' categories suggests a growing recognition and importance of sustainable and responsible investing in the UAE.