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SCA and DFM plan to launch a governance index, the first of its kind, for listed companies

The index is intended to urge listed companies to adopt the highest levels of transparency, disclosure, and social responsibility, in line with the best international standards
In response to directives from the wise government that urges the introduction of innovative initiatives that address the challenges faced in various sectors, H.E. Eng. Sultan bin Saeed Al Mansoori, Minister of Economy and Chairman of the Securities and Commodities Authority (SCA), adopted an initiative by the Dubai Financial Market (DFM) to launch a governance index for joint-stock companies listed on local markets. The idea is to create a benchmark that measures the level of compliance with the implementation of the principles of wise governance. This will foster and support the rights of shareholders and investors in UAE-based securities markets as they will have knowledge of the companies that comply with the implementation of governance rules before they buy and invest in their stocks.

The ESGUAE index aims at measuring compliance with the implementation of corporate governance and institutional discipline standards across listed companies in an effective, efficient, and professional manner. It also aims to foster the culture of governance and to raise awareness among these companies of the importance of putting into effect the principles of governance and transparency to help them improve their performance, identify current and future challenges, come up with solutions, and make appropriate recommendations by assessing the performance of their boards.
H.E. Al Mansoori said: “The governance controls enforced on public joint-stock companies subject to SCA’s decision on the standards of institutional discipline and the governance of public joint-stock companies are intended to urge the implementation of the principles of wise governance through transparency and integrity, thus providing protection to all shareholders while taking into account the interest of the business and limiting the use of power without regard to the public interest. This is based on the key standards and international principles concerning the rules regulating the management of companies developed by the Organization for Economic Co-operation and Development (OECD).

For his part, H.E. Dr. Obaid Al Zaabi, CEO of SCA, said that SCA has been encouraging initiatives that promote the implementation of governance controls and institutional discipline standards through developing mechanisms to enforce corporate governance in accordance with the best international practices, thus contributing to the development of the financial industry and promoting the rights of shareholders and investors in UAE-based securities markets.He explained that SCA has already incorporated into its above-mentioned decision clauses on measuring a sub-index on regulating transactions with related parties (whether board members or the executive management). This stresses the importance of creating an index that measures compliance with the implementation of the principles of wise governance among listed companies. 

For his part, H.E. Essa Kazim, Chairman of the DFM, said: “It gives us great pleasure to have our initiative supported by SCA. This is part of the joint efforts intended to improve the financial markets sector and to enhance its competitiveness, especially that the right implementation of governance controls and institutional discipline standards will help to enhance investor confidence and attract capital on the long run. Over the past years, the DFM worked tirelessly to spread the best governance practices across listed companies through programs designed and executed in collaboration with specialized establishments. The DFM made it mandatory to have the board secretaries in listed companies certified. This has resulted, to date, in certifying 49 secretaries already certified by governance institutes”.

The index is the fruit of collaboration between the DFM, Hawkamah, and Standard & Poor’s, which prepared technical studies on this subject. Under this index, companies will be classified according to qualitative and quantitative measurements and their weight will be determined based on their degree of governance.

The index is premised on the idea of assessing companies by the information they voluntarily disclose to the DFM using around 200 internationally-recognized variables that cover governance, environment, and corporate social responsibility. This is inspired by the wise leadership’s vision that focuses on corporate governance and sustainability, as well as environmental preservation. 

According to the study, five criteria were approved for calculating the index, including ownership structure and rights of shareholders, financial statements and operational information, the operating principles of the board of directors, the principles of transparency and disclosure, and the principles of social and environmental responsibility.

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