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In this blog, we offer a deep dive into ADGM’s ESG Disclosures Framework, outlining its technical aspects, implications for businesses, and why compliance is an opportunity rather than a mere obligation.

What is the ADGM ESG Disclosures Framework?

ADGM’s ESG Disclosures Framework is part of a broader Sustainable Finance Regulatory Framework, introduced in July 2023. The framework mandates ESG disclosures for in-scope entities and complements initiatives like the ADGM’s Principles for Sustainability-Related Disclosures, released in 2024.

Purpose and Goals

The framework has been designed to:

• Enhance corporate transparency regarding environmental, social, and governance impacts.
• Encourage sustainable business practices in alignment with the UAE’s national sustainability agenda.
• Establish ADGM as a global hub for sustainable finance by fostering trust among investors and stakeholders.

This initiative is not a standalone effort but part of a larger drive by UAE regulators to create a robust ecosystem for ESG-focused growth and investment.

Scope and Applicability of the Framework

One of the critical elements of ADGM’s ESG Disclosures Framework is its clearly defined scope and applicability criteria.

Who Needs to Comply?

The framework mandates compliance for entities that meet the following thresholds:

1. Turnover Threshold: Companies with an annual turnover exceeding USD 68 million.
2. Assets Under Management (AUM) Threshold: FSRA-licensed fund and asset managers with AUM greater than 6 billion USD

These thresholds ensure that the framework targets entities with the most significant potential impact on ESG factors, focusing on companies and financial institutions with substantial resources and influence.

Voluntary Participation

Other entities registered with ADGM—such as foundations, branches of foreign companies, and investment firms—are encouraged to voluntarily adhere to the framework. This flexibility opens the door for smaller organizations to enhance their sustainability credentials and gain competitive advantages in a market increasingly shaped by ESG priorities.

Compliance Timeline

In-scope entities must comply starting from their third year of incorporation within ADGM. This phased implementation gives businesses time to build the necessary infrastructure for ESG reporting while avoiding abrupt operational disruptions.

The “Comply or Explain” Approach: A Strategic Balance

One of the unique aspects of ADGM’s ESG Disclosures Framework is its ‘comply or explain’ methodology. This approach introduces flexibility while promoting accountability, making it a progressive and business-friendly regulation.

What Does It Mean?

Under this approach, businesses have two options:

1. Comply: Submit detailed ESG reports that align with the framework’s guidelines.
2. Explain: If a business chooses not to comply, it must provide a clear and substantiated explanation to ADGM regarding its decision.

Strategic Implications

While the “explain” option offers a degree of flexibility, companies should approach it with caution. The absence of ESG disclosures—or inadequate justifications—can result in:

• Reputational Risks: Stakeholders, including investors and customers, increasingly expect transparency.
• Missed Opportunities: ESG-focused investors and clients may prioritize competitors with robust sustainability practices.
• Regulatory Scrutiny: As global ESG standards evolve, non-compliance could result in stricter oversight in the future.

IFRSLAB helps businesses craft robust compliance strategies or communicate non-compliance decisions effectively, minimizing risks and maintaining stakeholder trust.

Choosing the Right ESG Reporting Standards

ADGM’s framework allows businesses to select from globally recognized ESG standards, giving them the flexibility to align with frameworks that best suit their operations and goals.

Available Standards

ADGM recognizes the following globally accepted frameworks:

• Global Reporting Initiative (GRI): Focused on broad ESG performance metrics, including environmental, social, and governance aspects.
• Task Force on Climate-Related Financial Disclosures (TCFD): Emphasizes climate-related risks and opportunities and their financial implications.
• International Sustainability Standards Board (ISSB): Offers standardized ESG reporting for investors.
• Carbon Disclosure Project (CDP): Prioritizes environmental data, particularly related to carbon emissions.
• Higg Index: Commonly used by apparel and footwear industries to measure environmental and social sustainability.
• United Nations Sustainable Development Goals (UNSDG): A high-level framework aimed at aligning business practices with global sustainability goals.

Challenges in Standard Selection

While this flexibility is advantageous, it also presents challenges:

1. Complexity: Each standard has unique metrics and methodologies.
2. Alignment: Businesses must ensure the chosen standard aligns with their operations and stakeholder expectations.
3. Integration: The reporting framework must integrate seamlessly into existing governance and data systems.

IFRSLAB provides expert guidance to help organizations conduct a gap analysis, choose the most suitable framework, and implement it effectively.

Data Management and Analysis: The Backbone of ESG Reporting

Comprehensive data collection and analysis are essential for ESG reporting. Each standard requires a unique combination of quantitative and qualitative data, including:

Quantitative Requirements

• Environmental Metrics: Carbon footprint, energy usage, water consumption, and waste management.
• Social Metrics: Workforce diversity, employee well-being, and community engagement.
• Governance Metrics: Board diversity, executive compensation, and ethical compliance.

Qualitative Requirements

• Risk Assessments: Identification of physical and transitional risks related to climate change.
• Sustainability Strategies: Long-term plans for improving ESG performance.
• Governance Structures: Processes for overseeing ESG risks and opportunities.

Why ESG Compliance Matters

ESG compliance is not just a regulatory requirement—it’s a strategic advantage. Here’s why:

1. Attracting ESG-Focused Investments

Investors increasingly prioritize companies with strong ESG performance. Compliance with ADGM’s framework can significantly enhance a company’s attractiveness to institutional investors and fund managers.

2. Building Stakeholder Trust

Transparent ESG disclosures strengthen relationships with stakeholders, including customers, employees, and partners.

3. Gaining a Competitive Edge

By aligning with global sustainability standards, companies can differentiate themselves in a market that values ethical and responsible practices.

4. Future-Proofing the Business

Compliance positions companies to adapt to future regulations and market trends, ensuring long-term sustainability.

How IFRSLAB Supports Your ESG Journey

At IFRSLAB, we are committed to helping businesses navigate the complexities of ADGM’s ESG Disclosures Framework. Our tailored services include:

1. Regulatory Compliance: We guide businesses through the ‘comply or explain’ process, ensuring effective communication with ADGM regulators.
2. Standard Selection: Our experts help businesses choose the most suitable ESG reporting framework, aligning with their operational needs and sustainability goals.
3. Data Management Solutions: We provide advanced tools for data collection, validation, and analysis, streamlining the reporting process.
4. Sustainability Strategy: Beyond compliance, we help organizations integrate sustainability into their core strategies, driving long-term value creation.

Conclusion: The Future of ESG in UAE

ADGM’s ESG Disclosures Framework is a transformative regulation that underscores the UAE’s commitment to sustainable growth. For businesses, it presents an opportunity to lead the way in ESG excellence, attract investment, and build lasting stakeholder trust.

At IFRSLAB, we combine deep expertise with cutting-edge solutions to empower organizations on their ESG journey. Whether you’re preparing for compliance or enhancing your sustainability strategy, our team is here to guide you every step of the way.

Contact us today to learn how IFRSLAB can help you achieve ESG excellence.