The Abu Dhabi Global Market (ADGM) is all set to enhance its Sustainable Finance Regulatory Framework aiming to combat greenwashing and promote more transparent ‘green’ labelling.
The financial centre released a public discussion paper last week inviting comments from asset and fund managers on the proposed guidance aiming to clarify the marking, management and marketing of ESG investment vehicles. This industry has been under scrutiny several times for greenwashing allegations.
The latest enhancements are being made in the framework to combat the chances of improper finance credentials and greenwashing. The move comes as ADGM strives to lead the emerging financial centres in the region.
The public discussion paper by ADGM stated, “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.”
It further reads, “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.”
The Sustainable Finance Regulatory Framework of ADGM was introduced 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 will further help enhance ADGM’s regulatory framework for sustainable finance and address emerging challenges in ESG labelling, green-washing, climate-related risks, and transition planning.
