The Rise of Sustainability & ESG Reporting in the UAE and Why Compliance Builds Recession Resilience
Introduction:
The development of sustainability and ESG reporting in the UAE is not a coincidence; it is the result of decades of national commitment to the environment and good governance. The government’s agenda is clear, climate comes first under the UAE Net Zero by 2050 strategy, a nationwide plan to reach net-zero emissions by 2050, the Middle East’s and MENA’s first such commitment. This article lays out the basics of sustainability reporting in the UAE, what the law requires, and how compliance can actually make businesses more resilient to economic downturns.
What is Sustainability Accounting & ESG Reporting?
The terms “sustainability accounting” and “ESG” are related but not identical.
Sustainability accounting is the measurement and reporting of performance apart from traditional financials, typically on environmental and social performance.
Examples include measuring greenhouse-gas (GHG) emissions, energy and water usage, waste, and reporting on people-related investment (e.g., health & safety, training, inclusion).
ESG (Environmental, Social, and Governance) reporting is the disclosure of those environmental, social, and governance metrics to external stakeholders such as shareholders, investors, regulators, and the general public.
Why Is ESG Reporting on the Rise in the UAE?
Besides the conventional national focus on sustainability, the UAE Net Zero 2050 strategy gave a clear target timeline. In pursuit of this, the UAE enacted Federal Decree-Law No. 11 of 2024 on the Reduction of Climate Change Effects. The climate law transitions ESG from “good to have” to “must do” for entities causing GHG emissions, by obligating them to measure, monitor, and manage those emissions in line with national and sector targets.
Obligations Under UAE Climate Rules as per Federal Decree-Law No. 11 of 2024
Who is covered: The law applies to sources in the state (public, private, sole proprietors or individuals) including freezones that are contributing to GHG emissions anywhere in the UAE.
When it starts: Mandatory compliance from 30 May 2025.
What is required:
1. Track and report emissions: Measure and report emissions data in accordance with government guidelines.
2. Design and implement reduction measures: Implement actions to reduce emissions, e.g., energy efficiency, renewable energy, carbon capture and storage, and participation in approved carbon-offset programs.
3. Retain emissions records: Keep records of emissions for at least five years and make them available for auditing.
4. Avoid Penalties: Non-compliance can be fined between AED 50,000 and AED 2,000,000; subsequent offenses within two years can have penalties doubled.
How Compliance Strengthens Companies During an Economic Downturn:
Compliance with the law is more than a way of avoiding penalties. Done well, it builds operational discipline that matters when the economy slackens:
• Cost control you can prove: Metering energy, fuel, water, and waste under the climate law often unleashes quick efficiency improvements like lower utility bills, simplified processes, and better asset performance. Those savings cushion margins when revenue slows.
• Better credit conversations: Banks and investors increasingly ask for ESG data. Clear, consistent reporting reduces uncertainty and can make it easier to access financing on more predictable terms during tight credit cycles.
• Fewer regulatory surprises: Sound governance, policies, and auditable records reduce the risk of fines, lawsuits, or sudden remedial capex avoiding costly surprises you don’t want during a downturn.
• Supply-chain and customer trust: Demonstrated compliance (emissions data, reduction initiatives, safety and ethics policies) can win key contracts and customer trust when buyers are more selective.
• Faster board-level decision-making: A small group of ESG KPIs befitting to the entity especially those required by law gives directors a “single source of truth or reality” to make timely cost, risk, and liquidity decisions.
What UAE Companies should be aware of:
Climate obligations are now law for covered entities (Federal Decree-Law No. 11 of 2024). Good governance remains extremely important under the UAE Commercial Companies Law (Federal Decree-Law No. 32 of 2021) and the SCA Corporate Governance Code for Public Joint Stock Companies (board oversight, controls, disclosure).
Using Exchange Guidance to Streamline ESG Reporting: The ADX ESG Disclosure Guidance and DFM ESG Reporting Guide directs companies in reporting concise, decision-useful ESG information that investors and lenders can review with ease.
Global comparability: Mapping your metrics to International Sustainability Standards Board (ISSB), (IFRS S1/S2) provides clarity to global stakeholders without changing your UAE obligations.
Conclusion
Sustainability and ESG reporting are gaining traction in the UAE for a reason: national strategy, binding climate commitments, and mature governance regulations. Non-compliance with the climate law is heavily sanctioned (AED 50,000 to AED 2,000,000 and more for recurring offenses). But beyond penalties, companies that monitor the correct data, keep proper records, and report clearly are better able to manage costs, avoid surprises, and hold on to capital and customers in economic downturns. In other words, ESG compliance isn’t only about meeting requirements; it’s a shield against downcycles.
Copyright: Dr. Mohammed Hassan Al Raeesi Advocates & Legal Consultants retains all intellectual property rights to this content. No third party may use, copy, or modify any part of it without prior permission and without proper attribution to our firm.
Disclaimer: This is a conceptual framework intended for thought leadership and does not constitute legal or financial advice. For professional evaluation of your company’s financial and ESG governance policies, please contact our firm.
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