Sustainability reporting likely to become mandatory in the UAE for listed companies
In recent years, awareness about sustainability has gained momentum in the UAE. We are witnessing an increasing rate of sustainability reporting, as well as a greater number of companies making an effort to improve their performance. The topic also now features heavily on the agenda in the boardroom.
Security exchanges paving the way
This trend is apparent among the leading security exchanges in the UAE. Abu Dhabi Securities Exchange (ADX) and Dubai Financial Markets (DFM) have announced that they will promote sustainability reporting among listed companies. Both exchanges are actively positioning themselves as leading sustainable financial markets in the Middle East, with ADX recently joining DFM as a member of the United Nations Sustainable Stock Exchange Initiative (SSE).
In July 2019, DFM launched the Sustainability Strategic Plan 2025, which focuses on four pillars: sustainability reporting and disclosures; sustainable investment education; green products and listings; and gender balance and empowering people. As part of the strategy, DFM has also established a Sustainability Committee. This aims to generate awareness amongst local and regional investors, and encourage listed companies to adopt environmental, social and governance (ESG) reporting practices.
ADX has taken it a step further and introduced guidelines for the companies listed on its exchange, specifying 31 indicators that should be included in a sustainability report. ADX requires its listed companies to comply with these guidelines and release sustainability reports by the end of 2019.
Growing awareness but some challenges
These developments are perhaps unsurprising, as there appears to be heightened awareness of the importance of sustainability and its social, economic and environmental effects, particularly in the financial sector. The UAE government is a signatory to both the Paris agreement on climate change and the UN’s sustainable development goals (SDGs). It has spearheaded several local initiatives in recent years, such as UAE Vision 2021. Meanwhile, in January 2019, 25 local entities signed the Abu Dhabi Sustainable Finance Declaration, announcing their intent to advocate sustainable finance and investments.
Although there has been an uptick in the frequency of ESG reporting in the UAE, there is an imperative for incentives to encourage more companies to disclose their sustainability performance. For entities already doing so, the publication of the detailed guidance is a welcome move anticipated to contribute towards more consistent reporting across the industry. The guidance is expected to challenge companies to identify issues and indicators that are the most material to their businesses, and include these in their reporting. Although this has been established practice for some companies, which were already issuing reports aligned with international reporting standards such as the Global Reporting Initiative, it is expected that a large number of companies will need to perform a materiality assessment and set up a cohesive sustainability engagement program.