The Future of ESG Reporting in the UAE: From Regulation to Global Alignment!
Environmental, Social, and Governance (ESG) reporting is swiftly becoming a focal point for companies in the United Arab Emirates (UAE), especially in Dubai, where evolving regulatory mandates and increasing investor expectations are driving a significant shift towards sustainable corporate practices. This shift is critical as the UAE, particularly Dubai, continues to reinforce its commitment to sustainability and responsible business practices across various sectors.
Regulatory Framework in the UAE
In a landmark move in 2020, the UAE Securities and Commodities Authority (SCA) mandated all public joint-stock companies listed on the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX) to produce an annual sustainability report. This regulation aligns with the Global Reporting Initiative (GRI) standards, setting a structured framework for companies to disclose:
Long-term Sustainability Strategy: Outlining their sustainable objectives and the strategies to achieve them.
Impact on Environment, Society, and Economy: Reporting on their holistic impact, promoting transparency and accountability.
Adherence to Recognized Frameworks: Encouraging consistency and comparability through established frameworks like GRI.
Independent Assurance: Ensuring the reliability of disclosures through third-party verification.
Additional regulations from Dubai Municipality and the Dubai Electricity and Water Authority (DEWA) further emphasize a comprehensive approach to sustainability.
Challenges in ESG Reporting
Despite these advances, ESG reporting presents several challenges. Companies often struggle with the lack of standardization across various reporting standards such as SASB, CDP, and TCFD, leading to confusion and inconsistency in reporting practices. The primary challenges include the integration of new systems and processes and the significant costs involved, compounded by a limited understanding of the strategic importance of ESG reporting for long-term business sustainability.
Global Approaches to ESG Disclosure
Globally, the approach to ESG disclosure varies:
United Kingdom: As of April 2022, over 1,300 large companies are required to report in alignment with TCFD recommendations according to Marsh (2023).
European Union: Transitioning from the Non-Financial Reporting Directive (NFDR) to the Corporate Sustainability Reporting Directive (CSRD), which will impact around 50,000 companies starting in 2024 (Keegan et al., 2024).
United States: The Securities and Exchange Commission (SEC) proposed enhanced rules in 2022 for climate-related disclosures by publicly traded companies (SEC | Morrison Foerster, 2024).
Regulatory Efforts for Standardization
The International Sustainability Standards Board (ISSB) has released draft proposals for IFRS Sustainability Disclosure Standards to unify and standardize ESG reporting. This initiative aims to enhance the interoperability of global standards and streamline reporting processes across different jurisdictions.
The Way Forward for the UAE
As the UAE gears up to host significant global events like COP28 and continues to promote the "Year of Sustainability," the integration of ESG reporting standards becomes increasingly pertinent. The commitment to a net-zero target by 2050 further underscores the need for robust, transparent ESG disclosures.
Strategic Considerations and Benefits
For companies in Dubai and the broader UAE, excelling in ESG reporting means:
Identifying Material Aspects: Focusing on the most critical ESG factors relevant to their operations.
Enhancing Stakeholder Engagement: Ensuring inclusive and relevant reporting.
Improving Data Management and Transparency: Developing robust systems for accurate data collection and transparent reporting.
The benefits of adopting comprehensive ESG reporting include enhanced reputation, better access to capital, operational efficiencies, and stronger stakeholder relationships.
Conclusion
The UAE, particularly Dubai, is poised to become a leader in sustainability practices. By aligning with global ESG reporting standards and addressing the challenges and trends in sustainability, companies in the UAE can not only comply with regulatory demands but also leverage these practices for strategic advantage, fostering a sustainable future for the region and its economy.
OCean360: Your Partner on the Journey to Sustainability
In this exciting journey towards sustainability, having the support and expertise of a reliable partner can make all the difference. We stand out as a leader in sustainability consulting, offering comprehensive and tailored services that help companies transition to more sustainable practices.
From initial assessment to implementation and ongoing monitoring, at OCean360, we work hand in hand with our allies to develop customized strategies and sustainable practices that align with your values and business objectives. With a focus on consulting, training, and carbon footprint tracking, we provide the support needed for you to achieve your sustainability goals and make a positive contribution to the world around us.
Connect with us and start your journey at contact@ocean360.mx
References:
Jacob, B. P. (2023, December 29). How the UAE’s ESG framework is shaping its business landscape! -. Esgtimes.in. https://www.esgtimes.in/esg/how-the-uaes-esg-framework-is-shaping-its-business-landscape/#:~:text=The%20incorporation%20of%20ESG%20principles,for%20businesses%20in%20the%20region.
SEC Adopts Climate Change Disclosure Rules for Public Companies | Morrison Foerster. (2024). Morrison Foerster. https://www.mofo.com/resources/insights/240314-sec-adopts-climate-change-disclosure-rules
Keegan, H., Meston, D., & O’Malley, G. (2024). The EU Corporate Sustainability Reporting Directive (CSRD) – Application from FY 2024. Akin Gump Strauss Hauer & Feld LLP - the EU Corporate Sustainability Reporting Directive (CSRD) – Application from FY 2024; Akin Gump Strauss Hauer & Feld LLP. https://www.akingump.com/en/insights/alerts/the-eu-corporate-sustainability-reporting-directive-csrd-application-from-fy-2024#:~:text=The%20CSRD%20builds%20on%20the,in%20relation%20to%20ESG%20considerations.
Marsh. (2023). TCFD reporting in the UK: What you need to know | Marsh. Marsh.com. https://www.marsh.com/en/risks/climate-change-sustainability/insights/tcfd-reporting-in-the-uk.html#:~:text=In%20April%202022%2C%20the%20UK,with%20the%20TCFD%20reporting%20framework.
UAE Net Zero 2050 | The Official Portal of the UAE Government. (2021). U.ae. https://u.ae/en/information-and-services/environment-and-energy/climate-change/theuaesresponsetoclimatechange/uae-net-zero-2050#:~:text=The%20UAE%20Net%20Zero%20by,MENA)%20nation%20to%20do%20so.
WAM. (2024). Wam.ae. https://wam.ae/article/13qze3j-building-success-uae-president-extends-year
