Financial services have a major role in enabling economies to transition to net zero by helping channel capital towards environmentally sustainable projects and activities. Well-calibrated and progressive regulation can foster the growth of sustainable finance by creating robust standards that encourage investor trust in sustainability-focused products and services and requiring companies to become more sustainable. Consequently, many financial services regulators are enhancing their regulatory and legislative frameworks in ways that will help facilitate the growth of sustainable finance. This has resulted in the recent issuance of new laws and regulations in different parts of the world.
Abu Dhabi Global Market (ADGM) and its Financial Services Regulatory Authority (FSRA) are playing a leading role in sustainable finance by taking significant steps in establishing a comprehensive and progressive regulatory framework which will foster its growth. In light of this and on other sustainability-related topics Chief Executive Officer of the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) Emmanuel Givanakis shared his views during his interview with ESG Mena.
ADGM chairs the Sustainable Finance Working Group (SFWG), which comprises regulatory authorities, federal ministries and securities exchanges from across the UAE working towards a set of common principles and goals. The SFWG is focused on coordinating action to help its members adopt regulatory frameworks that facilitate sustainable finance. In 2023, the SFWG’s agenda includes committing to implement regulatory frameworks that require firms to take account of climate risks in their governance and risk management frameworks, coordinating regulatory action to ensure ESG disclosure frameworks are in place across the UAE, and helping to further the development of a Green Taxonomy for the UAE. In this way, the SFWG promotes effective action that will provide concrete outcomes and help achieve the UAE’s net-zero targets.
Mr. Givanakis elaborated on ADGM’s sustainability agenda, emphasising the importance of not only comprehensive regulations, creating awareness and collaboration, but also developing a diversified ecosystem of sustainability-focused products and companies in ADGM. He explained, “the development of a thriving sustainable finance ecosystem requires firms, governments and key stakeholders to come together.”
Legislation
Being the Financial Services Regulatory Authority of ADGM, the FSRA is charged with ensuring its regulatory framework facilitates ADGM’s emergence as a hub for sustainable finance. In that regard, ADGM’s FSRA has introduced several changes to its regulatory framework to help cultivate a sustainable finance ecosystem. One such change has been introducing an ‘environmental instrument’ as a class of financial instrument, an approach that has allowed carbon offsets to come under its regulatory umbrella. “Our innovative regulatory framework has allowed for the world’s first regulated voluntary carbon trading exchange and clearing house, AirCarbon Exchange (ACX) to be established here in ADGM”, Mr. Givanakis commented.
Mr. Givanakis highlighted ADGM’s proposals for a comprehensive sustainable finance regulatory framework, issued in November 2022, that provides a robust regulatory framework for sustainability-focused products and services, including rules on sustainability-orientated investment funds, managed portfolios and bonds. It also contains a framework for environmental disclosures by companies based in ADGM. ADGM’s proposed framework, which it will finalise in early 2023, aims to enable accelerated growth of a sustainable finance ecosystem in the jurisdiction and support the UAE’s transition to net zero greenhouse gas emissions.
Alignment with UAE’s Sustainability Vision
The UAE is committed to tackling climate change and ADGM playing its part in powering the green economy. Mr. Givanakis said, “We work collaboratively across Abu Dhabi and the UAE with various stakeholders to achieve our shared strategy and goals to achieve net zero by 2050. Evidence of this commitment can be seen in the Abu Dhabi Sustainable Finance Declaration, which has so far over one hundred signatories. We also are working with stakeholders across the UAE as part of the journey to COP28, and beyond.”
According to Mr. Givanakis, the ADGM’s regulatory framework will enable ADGM to host a thriving marketplace of sustainability-focused investment products and services. These sustainability-focused products and services will channel investment into green projects and companies, not only in the UAE but in the wider region and indeed globally. Mr. Givanakis explained, “This will help capital flows to get to the right place to help accelerate the economy towards the Net Zero by 2050 target, and also as an international financial centre, ADGM is here to play its part as a key enabler to help capital flow towards the green transition.”
Global efforts
Globally, legislative frameworks are increasingly taking centre stage as regulators are charged with helping to enable a paradigm shift towards investment in the green transition. International standard-setters such as the International Organisation of Securities Commissions (IOSCO) are ever more focused on encouraging regulators to take concrete action. In this context, ADGM is emerging as a regional and global leader in the field, both in terms of its substantive action to foster a sustainable finance ecosystem and its innovative approach to doing so.