Part V – Environmental, Social and Governance
Introduction
This Part V sets out:
• Environmental, social and governance [ESG] disclosure requirements; and • Potential scope and direction of further regulation of ESG by VARA.
VARA acknowledges the importance of regulating and managing the ESG impact of VASPs, Virtual Assets and VA Activities. Accordingly, VARA will continue to monitor appropriate ways to regulate such impact and shall issue further Rules or Guidance where required.
A. Application
1. VASPs shall satisfy ESG disclosure requirements as set out in this Part V of this Company Rulebook. 2. During the licensing process, VARA will determine the ESG disclosure level required of each VASP, which shall be communicated to the VASP by VARA and required as a condition of the VASP’s Licence. 3. In making such determination, VARA may consider, but shall not be limited to, the following factors with respect to the VASP and its Group—
a. the number of Staff members or other personnel engaged by the VASP; b. turnover and/or other financial information; and c. business models and VA Activities.
4. VASPs may choose at any time to comply with a higher ESG disclosure level than that set by VARA as a condition of its Licence. 5. To the extent possible, VASPs should maintain the same ESG standard across its Group. Notwithstanding the preceding provisions of this Rule V.A of this Company Rulebook, such standards should be set and maintained at the highest level of any jurisdiction which is applicable to a VASP’s Group, including in respect of the VASP’s activities in the Emirate.
B. ESG Disclosure Levels
1. VARA has established three different levels of ESG disclosure requirements, which it may add to or amend from time to time—
a. Voluntary ESG Disclosure; b. Compliance ESG Disclosure; and c. Mandatory ESG Disclosure with Voluntary ESG Disclosure being the lowest and Mandatory ESG Disclosure being the highest.
C. Voluntary ESG Disclosure Requirements
1. VARA may issue non-binding Guidance setting out “best practice standards” regarding the conduct of specified VASPs or classes of VASPs in respect of ESG issues. Such “best practice standards” could include considerations of sustainability that are consistent with such Entities’ investment management strategies [if applicable], and diversity and inclusion practices within a VASP. 2. VASPs who comply with the Voluntary ESG Disclosure requirements understand that any compliance with the Guidance issued in accordance with Rule V.C.1 of this Company Rulebook is voluntary, though encouraged. However, VARA may require relevant VASPs to provide transparency into their ESG practices on a Compliance ESG Disclosure basis.
D. Compliance ESG Disclosure Requirements
1. VASPs required to comply with a Compliance ESG Disclosure level will be required to explain their ESG strategies in the UAE [including but not limited to investment or operational strategies relating to Virtual Asset mining or staking] or otherwise provide relevant information, for the purpose of increasing transparency into a VASP’s ESG practices. 2. VARA may require VASPs to make their ESG strategies or relevant information public and/or otherwise made available to Virtual Asset market participants.
E. Mandatory ESG Disclosure Requirements
1. VASPs required to comply with a Mandatory ESG Disclosure level must, establish practices and procedures to raise awareness of ESG-related activities and opportunities including providing relevant information on their websites and/or social media sites. 2. VASPs which are required to comply with a Mandatory ESG Disclosure level must publish an annual ESG report which shall disclose, at a minimum—
a. governance policies, metrics and targets relating to how the VASP identifies, assesses, and manages risks and opportunities relating to sustainability, diversity and inclusion; b. details on how material risks and opportunities relating to sustainability, diversity and inclusion are factored into the VASP’s overall business strategies and VA Activity processes, including, where relevant, the data and/or methodologies used in identifying investments [whether or not denominated in Virtual Assets] and talent; and c. factual summaries on the environmental and climate-related impact of data-intensive activities in the Virtual Asset sector.
3. VASPs which are required to comply with a Mandatory ESG Disclosure level shall make publicly available, in a prominent place on their website, up-to-date information related to the diversity and inclusion initiatives undertaken by such VASPs.
F. Virtual Asset Mining and Data-Intensive Activities
1. Notwithstanding a VASP’s ESG disclosure level, all VASPs which have investments in Virtual Asset mining or staking businesses or conduct or facilitate Virtual Asset mining or staking activities [including by way of selling equipment] shall make publicly available in a prominent place on their website, up-to-date information related to—
a. the use of renewable and/or waste energy [e.g. hydroelectric energy, flared gas] by the VASP or its Group in the course of conducting Virtual Asset mining or staking activities [e.g. any renewable energy certificates purchased by the VASP and/or relevant Entities]; and b. initiatives relating to decarbonisation [e.g. purchase of carbon offsets] and emission reduction of Virtual Asset mining or staking activities.
2. VARA may also require VASPs to provide the information referred to in Rule V.F.1 of this Company Rulebook in relation to other data-intensive activities.
G. Confidentiality
1. VARA shall maintain information presented in ESG reports, or other ESG disclosures, on a confidential basis, provided VARA may, in its sole discretion, publicly disclose information gathered in such ESG reports, or during such other requests, on an anonymous basis. 2. VASPs submitting ESG reports are deemed to consent to such anonymous, public disclosures, provided such disclosures are not required to be anonymous if they relate to an enforcement action commenced by VARA in accordance with the Regulations.
H. Service Providers to VASPs
1. When selecting service providers, VASPs should carefully consider the impact of their decision to contract with a service provider on all stakeholders. This includes taking into account the VASP’s social and environmental responsibilities and whether the decision to contract with a service provider would have any negative impact on the VASP’s ability to discharge such responsibilities. 2. With regard to service providers and, if applicable, their sub-contractors, VASPs should be satisfied that the service provider acts in an ethical and socially responsible manner and adheres to international standards on environmental protection and appropriate working conditions.