Dubai FSA adopts UAE principles for managing climate-related financial risks

The Dubai Financial Services Authority (DFSA), a founding member of the UAE Sustainable Finance Working Group (SFWG), has adopted, alongside other financial regulators of the UAE, the principles for the effective management of climate-related financial risks (the Principles).

This is the Middle East region's first initiative of this nature. On 9 November, the DFSA, together with other members of the SFWG, attended an official ceremony hosted by the Central Bank of the UAE to launch the Principles.

Ian Johnston, chief executive of the DFSA, said: "We are embedding climate risk considerations within our regulatory framework, in line with our regulatory objectives and international regulatory developments. We are confident there will be a strong commitment from our firms to address relevant climate concerns in their strategies and risk management."

The SFWG was established in 2019 as a joint platform to promote and enable the UAE's adoption of sustainable finance at the national level. The Principles, developed by the SFWG, reflect a number of recent publications from international standard setters, including the Principles for the effective management and supervision of climate-related financial risks from the Basel Committee on Banking Supervision, and the Guide for supervisors: integrating climate-related and environmental risks into prudential supervision by the Network for Greening the Financial System.

Ahead of the UAE's Presidency of COP28, the Principles, which the DFSA and other UAE regulators consulted on earlier this year, set joint expectations of UAE regulators for the safe and prudent governance and risk management of climate-related financial risks by financial sector entities operating in the country. Relevant firms will be encouraged to embed considerations around climate risk identification, assessment and management in their business strategies and decision-making processes, including collecting relevant data to enable them to achieve these goals.

The Principles align with the 10 Economic Principles of the UAE, unveiled by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, at the UAE Government Annual Meetings 2023 held on 7-8 November, as well as the Dubai Economic Agenda D33, both of which aim to drive economic growth and ensure stability of the financial sector, while promoting sustainable and energy-efficient businesses.

Following the official launch, the DFSA will shortly write to its regulated firms setting out its supervisory guidelines and expectations on climate-related financial risks. The guidelines, which are not yet formally binding, will serve as a foundation for these discussions in the context of the DFSA's existing supervisory expectations of how to consider and manage climate-related financial risks.