2021 marks the Golden Jubilee of the United Arab Emirates (“UAE”).
In 2010, the UAE Vision 2021 (the “Vision”) was launched by H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai; its aim is to make the UAE among “the best countries in the world” by the Golden Jubilee.
The Vision is based on 4 pillars which are as follows:
A seven year National Agenda was developed to achieve the Vision (the “National Agenda”).
Two new national priorities, gender balance and environmental, sustainability and governance (ESG”), have emerged recently with the introduction of new corporate governance rules in the Public Joint Stock Companies (“PJSCs”) Governance Guide (the “Corporate Governance Code”), and clarifications thereof, issued by the Securities and Commodities Authority (the “SCA”).
Gender balance is described by the UAE Government as “a top national priority,” as the country aims to enhance the participation of women in both society and the economy.
In order to promote diversity and increase gender representation , the SCA, first introduced in 2020 (1) a requirement that women must represent a minimum of 20% of board members of each PJSC; (2) an obligation that each PJSC disclose the percentage of female representation on its board of directors in its Annual Governance Report, and (3) a requirement that PJSC boards set policies on gender diversity (including the objectives and actions to meet such objectives). Those provisions were implemented following a “comply or explain” approach.
On 28 March 2021, the aforementioned provisions of the Corporate Governance Code were amended and now provide a requirement that a PJSC board include at least one female member.
The relevant articles read as follows:
3. The company’s articles of association shall define the method of forming the board of directors, the number of its members and the term of membership, provided that the representation of women shall not be less than one member in the formation of the board of directors. Moreover, the company shall be obligated to disclose this representation in the annual governance report.”
The companies must fulfil the requirement for women representation in the boards of directors in appointment, election, vacancy or increasing membership therein.”
The mandatory wording included in the amended provisions means that they will no longer be implemented on a “comply or explain” basis (i.e. it will no longer be possible for non-compliant PJSCs to “explain” their non-compliance and make disclosures in that respect). Any breach of these provisions (which have come into force effective as of 1 April 2021) by a PSJC thus puts the PSJC at risk of the penalties provided for in Article 82 of the Corporate Governance Code, which the SCA has the discretion to impose in case of non-compliance with mandatory provisions of the Corporate Governance Code.
Sustainability and ESG
The ESG umbrella encompasses many factors and covers a wide spectrum of issues considered by investors when making investment decisions.
Consistent with the inclusion of the creation and maintenance of a “Sustainable Environment And Infrastructure” as a focus in the National Agenda in line with the “United in prosperity: A nurturing and sustainable environment for quality living” Vision pillar, there has been a push for companies to disclose their ESG performance in the past years at the Emirate level (with the issuance by the Abu Dhabi Securities Exchange and the Dubai Financial Market of ESG disclosure guidelines) and at the Federal level by the express inclusion of reporting obligations as regards to “Sustainability” in Article 76 of the Corporate Governance Code, which requires PSJCs to publish sustainability reports annually as part of their reporting obligations.
Earlier this year, the SCA issued a general clarification in respect of Article 76, offering guidance as to the required contents for the sustainability report. The SCA’s clarification is not yet available to the public.
ESG and Diversity & Inclusion considerations are increasingly shaping our client’s objectives and are at the centre of their strategic priorities in the UAE and beyond. For more information and resources, please visit: Environmental, Social, and Governance (ESG) (hoganlovells.com)
For more information on our Middle East Regional Practice, please visit: Middle East Regional Practice (hoganlovells.com)
Authored by: Ilham Kabbouri, Kelly Tubman Hardy.