DFM launches index to gauge UAE listed companies' commitment to ESG

The new index is a collaboration with S&P Dow Jones Indices and the Hawkamah Institute for corporate governance

The Dubai Financial Market has launched a new ESG index. EPA
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The Dubai Financial Market, the only listed bourse in the GCC, on Wednesday launched the UAE Index for environment, social and governance (ESG), the first benchmark of its kind in the region that will gauge how responsible listed firms in the country are.

Developed in cooperation with S&P Dow Jones Indices and the Hawkamah Institute for corporate governance, the index is backed by the market regulator, the UAE Securities and Commodities Authority, the DFM said in a statement on Wednesday.

The move complements and supports SCA’s efforts in developing a supervisory regime that is in line with international best practices and promotes a culture of governance, Sultan bin Saeed Al Mansoori, the UAE's Minister of Economy and chairman of the SCA, said. The new index will enhance the confidence of investors in the UAE capital market, he added.

The S&P and Hawkamah UAE ESG index initially includes 20 listed companies and is based on five years of past performance. It is accessible through DFM’s website and other data dissemination platforms.

“The index provides a trusted and transparent tool that measures listed companies’ commitment to ESG,” Essa Kazim, chairman of the DFM, said.

“The appropriate implementation of best practices of corporate governance, disclosure and transparency as well as environmental and social commitment is essential to boost UAE markets’ competitiveness, attract further investments and sustain growth, noting that investment institutions across the world are increasingly factoring these matters in investment decisions process,” he added.

In February, Abu Dhabi Securities Exchange announced a tie-up with competing index provider FTSE Russell to provide a number of sector-specific indexes, as well as indexes of ESG and Sharia-compliant companies.

Tens of trillions of dollars are pouring into companies with robust ESG credentials globally, as investors move money out of businesses that are deemed to carry sustainability risks.

In an annual letter to investors in January, the chief executive of the world's biggest asset manager, Blackrock's Larry Fink, said the environment will be at the core of all new investments by the company. BlackRock, which manages about $7 trillion (Dh25.7tn) in assets, will look to exit investments that present a “high sustainability-related risk”, such as thermal coal producers, he said at the time.

Money managers across the world have faced criticism for not addressing climate change in their investment practices. An increasing number of investment firms are joining the Climate Action 100+ group that represents around $41tn in assets and includes more than 370 institutional investors, such as the asset management units of HSBC and UBS.

“There is no better time to encourage corporate responsible behaviours than now,” Ahmad Al Shaikh, chairman of Hawkamah, said. “The [DFM's] new ESG index will create good competition between listed companies to do the right thing, paying more attention to the environment, social and governance elements when managing their business.”