UAE working group takes broad approach in proposed sustainable finance guidelines ahead of country’s hosting of COP28.
The United Arab Emirates’ Sustainable Finance Working Group — a body of federal ministries, financial regulators and exchanges tasked with advancing sustainable finance in the country — has published draft principles for the management of climate-related financial risks.
The proposed guidelines, issued on March 28, detail the minimum standards expected of financial institutions, across both onshore and offshore jurisdictions, when managing climate risks within their business domains.
The SFWG has listed seven principles in its consultation that are loosely based on the climate risk management standards established by the Basel Committee for Banking Supervision and the Network for Greening the Financial System.
Yet the UAE’s financial services authorities have proposed a much broader approach relative to these international guidelines. For one, the SFWG’s consultation is being applied to a “wider spectrum of financial firms”, which departs from the BCBS’ and NGFS’ focus on the banking sector.
As a result, the UAE’s standards do not include detailed references to credit risk, unlike the BCBS guidelines that incorporate a designated “comprehensive management of credit risk” principle.
Similarly, while the BCBS guidelines offer clear standards on banks’ climate-linked market, operational and liquidity risks, the SFWG’s proposals contain only a brief suggestion that relevant financial firms should “consider” climate risks in “established risk categories”.
The SFWG’s principles also omit any reference to an institution having to adequately resource climate-related risk functions and teams.
Conversely, this point is emphasised not only in the BCBS principles but also within the US Federal Reserve’s draft climate risk principles, as well as the European Central Bank’s guide on climate-related and environmental risks.
When characterising its approach to the new climate-related financial principles, the SFWG noted: “Several standards in this area are still evolving at international level. This fact has been reflected in the drafting of the Principles allowing for the necessary flexibility and adaptations to future developments.”
The UAE’s constituent financial regulators, meanwhile, will be given the discretion to “to determine the financial firms in scope of the Principles and how to apply them”, according to the published proposals.
The publication of the SFWG’s consultation, which runs until May 1, comes in the build up to the UAE hosting this year’s UN climate conference, COP28, in November and December.
As one of the world’s largest oil producers, the country has attracted intense criticism for appointing Sultan Al-Jaber, head of the Abu Dhabi National Oil Company, to the summit’s presidency.
Opponents of the UAE’s role at COP28 point to the country’s poor track record on climate and sustainability-linked issues.
For its part, the UAE has pledged to reach net zero by 2050.