Greenwashing Risks in the Dubai Financial Sector
- Aug 19
- 3 min read
As environmental, social and governance (ESG) investing becomes more mainstream, so too do concerns around greenwashing, in layman’s terms this is the art of talking a greener game than you’re actually playing. In finance, where sustainable labels can drive capital flows, this isn’t just cosmetic deception, it’s a regulatory risk.
Greenwashing spans a spectrum from careless buzzwords and fuzzy metrics to outright fraudulent misrepresentation. In the financial sector, the consequences go beyond reputational bruising, they hit investor confidence, distort markets, and undermine the credibility of genuine sustainability effort.
The DFSA's Sustainability Playbook
The Dubai Financial Services Authority (DFSA)'s Sustainable Finance Roadmap (2021–2024) laid the foundation, outlining how the Authority plans to respond to ESG-related risks and ensure financial market stability as sustainability becomes central to investment strategies. This commitment was reinforced in the DFSA’s 2023/2024 Business Plan, which prioritised ESG integration in corporate governance and risk management, paving the way for a possible UAE-wide ESG taxonomy.
Disclosure is the First Line of Defense
Many issuers’ countries of origin have committed to transitioning their economies to a net zero carbon environment, including for instance, the UAE Net Zero 2050 strategic initiative, accordingly ESG and climate change related risks and opportunities may have a material impact on the issuer’s financial position.
In its 2023 Markets Brief on ESG disclosures, the DFSA emphasised the importance of transparency. Furthermore, the Markets Law 2012 provides that:
Under Article 15(1), a prospectus must include everything an investor would reasonably need to make an informed decision, including ESG risks and climate-related impacts.
Article 20(1) prohibits omissions and misleading statements, particularly where ESG risks could materially impact an issuer’s financial position.
A crucial concept when weighing the risk of greenwashing is “additionality”, in the absence of specific taxonomies or industry decarbonisation or environmental pathways, a company’s action, project or product should be labelled “green” only when it can demonstrate its effective contribution towards lowering carbon emissions and when such reduction is additional to what have happened regardless of the project happening.
Therefore, if a bond is being marketed as "green," such a label needs to be proven, with the risks disclosed alongside the opportunities. Like other securities regulators, the DFSA are utilising disclosure requirements so that investors have the information needed to make an informed decision.
Together with disclosure, is the importance of education for investors where it relates to greenwashing. More awareness amongst market players, including investors and consumers, may help them avoid being blind-sided by attractive-looking but empty ‘green’ claims that do not hold true.
Systems Speak Louder than Words
According to MKT Rule 8.1.2, entities must have proper systems and controls to back up ESG claims.
This means:
Accessing reliable ESG data sources
Developing internal tools to monitor ESG Key Performance Indicators (KPIs)
Ensuring transparency and credibility through third-party verification, where applicable
Issuers of sustainability-linked instruments are also expected to define:
Clear KPIs tied to material business activities
Sustainability Performance Targets (SPTs) with timelines and benchmarking
Annual reporting to keep investors informed on progress.
ESG Bonds
The DFSA encourages alignment with international frameworks, such as the ICMA Green Bond Principles or Climate Bonds Initiative (CBI) standards, without mandating one in particular. The key expectation is High transparency, consistency, and integrity in claims that will provide investors with a deeper understanding of ESG themes and practices.
Exempt Offerors
Exempt Offerors are those not typically required to publish a prospectus. The DFSA offers modified requirements if they wish to voluntarily align with ESG-related listing rules. This offers flexibility but with tailored oversight, with the goal of supporting flexibility rather than lowering the standard.
Is Dubai Taking Greenwashing Seriously?
In our view, yes. While the DFSA hasn’t (yet) made headline-grabbing enforcement moves, they are clearly laying the regulatory groundwork. The combination of disclosure requirements, governance expectations, and ESG-specific briefings signals the time of vague virtue-signalling in finance is coming to an end, at least in the DIFC.
Final Word
Greenwashing is no longer a marketing misstep; it’s a material regulatory risk. In Dubai, the DFSA is making it clear that financial institutions are expected to back their sustainability claims with substance. In a region rapidly scaling up its green finance ambitions, the message is simple: don’t fake the green, or regulators may come knocking.
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Written by Andie Henderson, Legal and Compliance Associate, FAI Comply
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