UAE Green and Sustainability-Linked Bonds and Sukuk Regulations of 2023
On 2 March 2023 the UAE Securities and Commodities Authority (SCA) issued the regulations relating to Green and Sustainability-Linked bonds and sukuk* (“GBSR”).
At Ajyal Sustainability Consulting, we are delighted to have had the opportunity to contribute to SCA’s work on the GBSR.
The GBSR are part of SCA’s efforts to support the commitments of the Government of the UAE to achieve Net Zero by 2050 and apply to bonds and sukuk issued in the UAE or listed on a UAE regulated Stock Exchange where the Issuer wishes to include them in a “green” listing category.
The GBSR allow for two distinct types of instruments: green instruments as well as sustainability-linked instruments which can take the form of Bonds or Sukuk. The GBSR follow the international principles for issuing green and sustainability-linked instruments issued by the International Capital Markets Association (ICMA).
Below is a summary of their key features:
Green Instruments
Green Instruments: Are bonds or sukuk instruments where the proceeds, or an equivalent amount, will be exclusively applied to finance or re-finance in part, or in full, new and/or existing eligible Green Projects and which are aligned with the four core components of the Green Bond Principle. The GBSR refers to the four ICMA components and some of their details. These are: Use of Proceeds, selection of projects, Management of Proceeds, reporting.
Use of Proceeds
This requirement relates to the need to utilise the proceeds in eligible green projects that have clear environmental benefits.
Selection of Projects:
This requirement relates to communicating the criteria for the selection of eligible green projects financed as well as their intended impacts.
Management of Proceeds:
This requirement relates to how the proceeds of the instruments are allocated and how they are tracked to ensure allocation to eligible green projects.
Reporting
This requirement relates to the type of information that must be communicated to the investors, their frequency and means of communication.
Sustainability-Linked Instruments
Sustainability-linked Instruments: Are bond or sukuk for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined Sustainability/ ESG objectives. In that sense, issuers are committing explicitly to future improvements in sustainability outcome(s) within a predefined timeline. SLBs are forward-looking performance based instruments. Those objectives are (i) measured through predefined Key Performance Indicators (KPIs) and (ii) assessed against predefined Sustainability Performance Targets (SPTs). Unlike Green bonds or sukuk, proceeds of the Sustainability-linked Instruments are not ring-fenced to a particular project but may be used for general corporate purposes.
The GBSR incorporate the ICMA five key components of a Sustainability-linked instruments namely: Selection of KPI's; calibration of SPT's; Instrument characteristics; reporting; and Verification.
Selection of KPI's
This requirements relates to the need for the Issuer to select KPI's that are material to the Issuer's business and strategy and define them.
Sustainability Performance Targets (SPTs)
This requirements relates to the selecting the level of ambition that the Issuer is ready to commit to and how the target setting exercise is conducted.
Instrument Characteristics
This requirements relates to the consequences, financial or structural, that occur if the SPTs are achieved or not achieved and how such consequences are triggered.
Reporting
Relates to maintaining regular up-to-date information relating to the progress of the selected KPI's and targets
Verification
This requirement relates to performance of the SPT against the KPI's selected annually but also for the purpose of determining the potential occurrence of the triggers leading to the adjustment of the instrument characteristics such as increase or decrease in interest rates applicable.
The GBSR came into force on the date they were issued, 24 Mar, 2023 and will be published in the official Gazette.
WAIVER OF FEES
In further support of the UAE climate commitments and the broader COP28 agenda with regards to climate finance, SCA Board of Directors has approved this June a proposal to exempt companies wishing to list their green sustainability-linked bonds or sukuk in a local market from registration fees for the year 2023.
*Decision of the SCA Chairman No (21/R.M) for the year 2023.
CONTACT US
For any questions about the UAE GBSR Regulations or MENA sustainable finance market developments can reach out to your usual Ajyal Sustainability Consulting contact or email info@ajyalconsulting.com.
