KHALED AL KHAWALDEH (ABU DHABI)
Abu Dhabi Global Market (ADGM) is enhancing its regulation and oversight of sustainable finance in an effort to combat green-washing and ensure more transparent “green” labelling.
Last week, the financial centre released a public discussion paper inviting asset and fund managers to comment on proposed guidance that aims to clarify the management, marking, and marketing of ESG investment vehicles.
The industry has periodically come under scrutiny, with many schemes and sustainable funds accused of being vehicles for green-washing.
In line with ADGM’s pursuit to become a hub for sustainable financing both regionally and globally, the latest enhancements specifically attempt to combat the chances of green-washing and improper finance credentials.
This move comes as the green finance industry gains momentum in the GCC, with ADGM vying to lead the pack of emerging financial centres in the region.
A report by PwC and Strategy& consulting firms predicted that green finance could unlock up to $2 trillion in cumulative GDP contribution, creating more than 1 million jobs. PwC further predicts that by 2026, ESG portfolios will gather around $33.9 trillion in assets under management, compared with $18.4 trillion in 2021.
“As this segment of the asset management sector grows within ADGM and globally, it is important to provide clarity around regulatory expectations for ESG labels to bring discipline to and develop investor confidence in this market sector,” the discussion paper stated.
“We plan to take a step-by-step approach to developing a regulatory framework for the use of ESG labels, starting with the publication of guidance and eventually evolving to rule-making as ESG-related practices become more established globally and the sustainable finance industry becomes more entrenched within ADGM. This approach has been informed by recommendations from market participants.”
ADGM first implemented its Sustainable Finance Regulatory Framework last year, setting out a range of rules to manage the growing sector.
The new guidance aims to enhance clarity around the definition of key terms and introduce increased disciplinary measures to enforce the regulations.
This will include the possible introduction of third-party attestations for ESG credentials, increased disclosure requirements, and reinforced definitions and categorisations of different labels used to signify a financial vehicle’s sustainable credentials.
“The FSRA already has binding requirements that statements or disclosures to clients be clear, fair, and not misleading nor deceptive. The Guidance would augment and support the operation of those regulations and rules in the ESG space,” the paper reads.
The discussion paper is now open for stakeholder feedback, which it aims to use to enhance ADGM’s regulatory framework for sustainable finance and address emerging challenges in ESG-labelling, green-washing, climate-related risks, and transition planning.