Abu Dhabi Global Market (ADGM) has taken an important step for institutionalising environmental, social and governance accountability among its registered companies. The Registration Authority had last year issued ADGM’s ESG Disclosures Guidance, issued under Sections 399A to 399D of the ADGM Companies Regulations 2020. The guidelines have been issued with the objective of encouraging good practices by the ADGM companies to disclose the impact of their operations on Economic, Social and Governance (ESG) factors.
Applicability
The ESG Disclosure framework is not applicably to all ADGM entities. The framework is mandatorily applicable if an entity satisfies one of the two threshold conditions which are as follows:
i. Turnover Threshold: A company’s annual turnover exceeds US$ 68 million,
ii. AUM Threshold: If AUM surpasses US$ 6 billion for an FSRA-licensed asset management companies during the financial year.
Entities not falling under these thresholds may voluntarily adopt the framework. The framework exempts several types of entities from its scope which include foundations, limited liability partnerships, restricted scope companies, investment companies, branches of foreign companies, and publicly listed entities that already comply with equivalent obligations.
A company incorporated in or continued into ADGM will be required to comply with the ESG
Disclosures Framework in the third year following its incorporation or continuance if it satisfies the threshold conditions.
The entities must submit the ESG Disclosure together with the company’s annual accounts, or in a separate document which accompanies the company’s annual accounts, to the Registrar on the ADGM Online Registry Solution portal (ORS).
Comply or Explain
The framework currently provides for comply or explain approach, which effectively means that a company subject to the ESG disclosure may choose not to submit ESG disclosures with a description of the reasons for its determination. If it chooses to comply and submit disclosures, it must prepare its submissions with a globally recognized standard like GRI, ISSB, TCFD, CDP, or UNSDG.
The flexibility of comply or explain approach gives leeway to newly established companies to ensure compliance readiness. It is important to note that the Registration Authority (RA) may in future decide to impose a mandatory ESG disclosures framework instead of the above stated ‘comply or explain’ approach.
Conclusion
The ESG Disclosures Guidance is an evolving setup as it encourages companies to make their ESG disclosures publicly available in the spirit of transparency. and advancing the UAE’s net zero by 2050 strategic initiative. Disclosure obligations beginning from the third year from incorporation provides an onboarding period for compliance readiness. However, there are high chances that the framework will become obligatory going forward to ensure that the entities are in line with UAE’s Net Zero by 2050 strategic initiative.
“This article is for information purposes only and does not constitute legal or professional advice”.
