What is ESG?
‘Responsible investing’ is the trending investment strategy adopted by many key investors seeking to account for both financial returns and social/environmental good in their investment decisions.
This new investment approach acknowledges the relevance to the investor of environmental, social and governance (ESG) factors, and of the long-term health and stability of the market as a whole. Many investors have started to integrate ESG factors into their investment portfolios and investment decisions when assessing a potential investment in a company. There is a noticeable confidence that ESG analysis can provide valuable insights about factors having a significant impact on the financial metrics of a company and therefore better inform investment decisions and financial performance. ESG is increasingly important for investors in public companies and so, to win the battle for capital, public companies must respond by improving their ESG credentials and mindset and correspondingly inform the market. ESG is also a major pillar of public policy and strategic planning for governments and, on the global platform, is a part of the United Nations Sustainable Development Goals.
In acknowledgment of the positive impact of companies’ adherence to ESG criteria on the economy and society, the United Arab Emirates Securities and Commodities Authority (SCA) now requires public joint stock companies listed in the UAE to adhere to specific ESG disclosure requirements.
In accordance with Article (76) of the Chairman of SCA Board Decision No. (03 R.M.) of 2020 concerning adopting the Corporate Governance Guide for Public Joint Stock Companies (Governance Code), public joint stock companies listed on the Abu Dhabi Securities Exchange (ADX) or the Dubai Financial Market (DFM) in the UAE (Listed PJSCs) must publish a sustainability report. On 10 January 2021, SCA issued a general clarification to Article (76) of the Governance Code which sets out in more detail the required contents of sustainability reports and a confirmation that such report must be published annually.
What should listed PJSCs do?
Listed PJSCs are required to prepare a sustainability report reflecting the company’s long-term strategy and its impact on the following fields:
- the environment – the impact of the company’s operations and decisions on the environment and the communities in which the company operates
- society – how the company’s policies and operations contribute or could contribute to social justice, the well-being of workers and employees and the surrounding community
- the economy and governance – how the company is contributing to the economic benefit of society and the impact of the company’s operations on the local economy.
In addition, Listed PJSCs must comply with the Global Reporting Initiative (GRI) standards and also any sustainability standards and requirements that are issued by the DFM or ADX, depending on which market the Listed PJSC is listed on.
Is this new requirement already in force?
Yes. Listed Companies are required to submit their annual sustainability report for the financial year 2020 no later than six months following the end of the financial year. This is a specific requirement for the 2020 financial year. For subsequent financial years, Listed PJSCs must submit the sustainability report to SCA within 90 days from each financial year end or before the date of the annual general assembly meeting, whichever is earlier.