Finance free zone takes action against greenwashing

Unsplash/Malik Shibly

• Clampdown at Abu Dhabi Global Market
• New rules for carbon trading
• Aim is ‘transparency and credibility’

A clampdown on greenwashing by “bad actors” trying to enter the fast-growing sustainable finance industry is underway in the UAE financial free zone Abu Dhabi Global Market. 

Greenwashing is the use of deceptive marketing by companies to persuade investors and the public that their products, aims and policies are environmentally friendly. 

“The challenge is [creating] transparency, trust and credibility,” said Emmanuel Givanakis, chief executive of the Financial Services Regulatory Authority at ADGM. “We need to avoid greenwashing. We don’t want bad actors taking advantage of the opportunities.” 

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In the financial services industry, consumers and investors are coming under heightened pressure to back projects designed to lower greenhouse gas emissions. This has raised appetites for green bonds, carbon trading and other types of “sustainable” finance. 

Total ESG (environmental, social and governance) assets under management globally rose to $18 trillion in 2021 and are projected to reach $34 trillion by 2026, according to PwC.  

However, gaps in regulations have brought confusion around the definition of green investments and activities and given rise to “questionable” practices such as emissions offsetting, rather than reduction, the United Nations says. This is “undermining credible efforts to address the climate crisis”. 

ADGM set out an agenda to regulate the green finance sector in 2019, starting with carbon trading in 2022, and followed by the publication of an overarching sustainable finance regulatory framework last July. 

“We wanted to bring carbon trading into a regulated space,” Givanakis said. “We wanted to make sure price discovery was done in a clear, transparent fashion and people could validate and verify [credits] through accurate, meaningful information.”

The framework sets out rules and standards for carbon trading, as well as for green bonds and funds. It requires companies to adhere to disclosure frameworks such as the International Sustainability Standards Board, and detail their low-carbon goals and policies, accounting methodologies, and risk management controls. 

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The next step, Givanakis said, includes enhancing standards for other aspects of the industry, and enshrining some of these into legislation.

Observers have welcomed the free zone’s efforts against greenwashing in the finance industry. Omar Shaikh, managing director of the lobby group Global Ethical Finance Initiative, said: “All regulators must be alert to greenwashing and virtue signalling, and the focus must be on quality.” 

Andrew Cunningham, managing director of Darien Analytics, a UK-based banking consulting firm, said that over time the investment community would “call out egregious examples of greenwashing, creating clear expectations of what is and is not acceptable. This will be a dynamic process, with a lot of change in the years ahead.”