Carola Uva February 24, 2026February 24, 2026 The International Maritime Organization’s (IMO) decision to postpone the formal adoption of its landmark Net-Zero Framework (NZF) until October 2026 has sent a predictable ripple of uncertainty across global shipping. This year’s long delay, driven largely by political resistance to a global emissions pricing mechanism and fuel availability, leaves the sector without a clear international investment signal and complicates long-term capital planning. Yet in the UAE, the decarbonization trajectory is not slowing. Instead, domestic initiatives are building a stable legal and financial ecosystem that continues to propel the transition forward, complementing global regulations through private contractual incentives. A key driver bridging this regulatory gap is the growth of Sustainability-Linked Loans (SLLs) in the UAE’s financial centers. Major international banks headquartered in Abu Dhabi and Dubai, many of which participate in global frameworks such as the Poseidon Principles, are increasingly aligning their ship-finance portfolios with climate objectives. At the same time, UAE national banks are being compelled to finance green initiatives not merely by voluntary external commitments, but by the Central Bank of the UAE (CBUAE) and the Federal Government’s pledge to mobilize AED 1 trillion in sustainable finance by 2030. This combination of international alignment and strong national policy signals has created a uniquely powerful regional engine for green ship finance, especially for eligible vessels under IMO regulations. This evolution fundamentally reshapes the lawyer’s role. Legal teams have become essential architects of the energy transition, responsible for embedding complex environmental commitments directly into finance documents. At the heart of any SLL is the margin ratchet, which adjusts the borrower’s interest rate based on the achievement of pre-agreed environmental Key Performance Indicators (KPIs). For the legal drafter, this requires careful construction of several critical covenants: Clear KPIs and Science-Based Targets (SPTs): The selected KPI must be genuinely material to the borrower’s environmental footprint, for example, a vessel’s Carbon Intensity Indicator (CII) or a fleet’s annual Greenhouse Gas (GHG) emissions per unit of transport work. The corresponding Sustainability Performance Target (SPT) must be ambitious, measurable, and often aligned with international pathways such as those informed by the Poseidon Principles. Mandatory Reporting Duties: Loan documentation must impose robust, continuous reporting obligations, requiring shipowners to provide verifiable, independently assured emissions data frequently sourced from the mandatory IMO Data Collection System (DCS) on a semi-annual or annual basis. Failure to report, or failure to obtain assurance, should be expressly drafted as a technical breach of the facility. Penalties and Enforcement: The covenant structure must set out clear consequences for non-performance. Missing the SPTs typically triggers a margin increase, but deliberately not reporting or misreporting may escalate to more serious contractual consequences. Legal teams therefore play a significant role in safeguarding the environmental integrity of the loan by drafting robust default and remedial provisions. ESG considerations in ship Sale & Purchase (S&P) transactions Beyond financing, ESG considerations are increasingly shaping ship sale and purchase (S&P) transactions in the UAE. Buyers and financiers are focusing on a vessel’s regulatory trajectory, not merely its present compliance. As a result, S&P documentation is evolving to include enhanced environmental representations and warranties, disclosure of historical emissions and CII ratings, and specific risk allocation mechanisms addressing future regulatory upgrades or operational limitations. From a transactional perspective, ESG due diligence has become a value driver: vessels with a clear decarbonization pathway and credible retrofit potential command stronger pricing and are more readily financeable, while older tonnage with uncertain compliance profiles increasingly faces valuation pressure. Legal advisors therefore play a pivotal role in aligning technical, commercial, and regulatory expectations at the point of transfer of ownership. The UAE’s financial free zones reinforce this contractual approach. The Abu Dhabi Global Market (ADGM) Sustainable Finance Regulatory Framework supported by its formal designation mark for sustainable products provides institutional credibility and regulatory oversight, reducing the risk of greenwashing and giving international investors’ confidence in SLL structures. Coupled with the UAE’s National Hydrogen Strategy, which is actively derisking the future alternative fuel supply chain, these frameworks create a virtuous cycle in which capital can be deployed confidently toward cleaner maritime assets. Ultimately, the IMO’s delay has not slowed the momentum for change; it has merely highlighted the need for complementary mechanisms. While the world awaits political consensus, UAE-based banks and legal practitioners are shaping a new form of climate governance, where the loan agreement itself incentivizes environmental performance, ensuring that the legal and financial imperatives of sustainability continue to drive the maritime sector’s green transition. Four short practice area updates are below: Abu Dhabi Global Market (ADGM) Evolving Sustainable Finance Framework As of June 2025, ADGM’s FSRA issued a consultation on draft “Principles for Climate Transition Planning”, strengthening governance, metrics, reporting, and risk management for ESG-linked finance. Once finalized, these standards will influence maritime financing, including SLLs and green bonds, by shaping documentation, reporting, and compliance. This evolution enhances transparency, investor confidence, and the credibility of sustainability-linked instruments issued under ADGM’s jurisdiction. UAE’s Domestic Push: First Middle East LNG Bunkering Operation (January 2025) In January 2025, the UAE completed the Middle East’s first LNG bunkering, enabling vessels to refuel with a lower-emission alternative to heavy fuel oil. This milestone supports the country’s transition toward cleaner maritime fuels and positions it as a regional hub for LNG, methanol, ammonia, and hydrogen. For shipowners and financiers, it reduces fuel-availability uncertainty, enhancing the viability of sustainability-linked or green-financed vessels. UAE Joins Global Ports Hydrogen Coalition and Green Shipping Corridors Alliance The UAE formalized its commitment to maritime decarbonisation by joining the Global Ports Hydrogen Coalition and the Green Shipping Corridors Alliance. This strategic move supports the development of hydrogen and ammonia infrastructure, ensuring zero carbon fuel availability. For shipowners and financiers, it de-risks investments in dual-fuel vessels by guaranteeing compliant fuel supply and viable trade routes, strengthening long-term asset sustainability in the region. Federal Decree‑Law No. 11 of 2024: UAE’s Climate Law Goes Live Federal Decree Law No. 11 of 2024 took effect on 30 May 2025, with the objective of managing emissions within the UAE so as to ensure effective contribution to international efforts aimed at mitigating the impacts of climate change and achieving climate neutrality; and obliging all entities across the UAE including free‑zone enterprises to measure, report, and verify greenhouse gas emissions. Entities must prepare emissions‑reduction plans under the nation’s net zero agenda. Non‑compliance triggers fines from not less than AED 50,000 and up to AED 2 million. The law marks a shift: climate action in the UAE is now a mandatory legal requirement rather than voluntary.
