The rise of sustainability and ESG reporting in the UAE is not a coincidence; rather, it is supported by years of the UAE’s commitment to the environment and good governance. The government’s role is evident in keeping the climate first through a net-zero strategy. Specifically, this strategic initiative is a national drive to achieve net-zero emissions by 2050. This, in turn, will make the UAE the first in the Middle East and MENA region to do so. In this blog, we’ll discuss the basics of sustainability reporting and how it will impact businesses in the UAE.
What is Sustainability Accounting & ESG Reporting?
The terms “sustainability accounting” and “ESG” almost mean the same; however, there is a slight difference between the two. Sustainability accounting refers to the process of measuring and reporting an entity’s performance in areas beyond financial. These areas typically focus on the environment and social impacts. For instance, calculation of carbon emissions or footprints, water usage or wastage, investment in people building, and so on. ESG (Economic, Social, and Governance) reporting, on the other hand, involves disclosing the economic, social, and governance performance to external shareholders. These include shareholders, investors, the government, and the general public. In our further discussion, we will consider both terms similar.
Some of the global standards or frameworks covering ESG reporting include:
- Global Reporting Initiative (GRI)
- International Sustainability Standards Board (ISSB)
Why is there a Rise of Sustainability and ESG Reporting in the UAE?
In addition to the UAE’s long-term commitment towards protecting the environment, social and governance impact, there is one more area to consider here. It is “The UAE’s Net-Zero 2050 Strategy.” So what does this strategy entail? The prime goal of this strategy is to bring emissions to net-zero by 2050. This is an alignment with the Paris Agreement that brings countries together to reduce greenhouse gas (GHG) emissions and limit the rise in global temperature to 1.5°C compared to pre-industrial levels.
In line with the 2050 strategy, the UAE introduced Federal Decree-Law No. 11 of 2024 on the reduction of climate change effects. The law mandates businesses across the UAE to quantify, track, and manage their GHG emissions. It is designed to support national sustainability objectives by enforcing compliance with carbon neutrality objectives. Firms will now be required to implement strategies that will reduce emissions while in conformity with national and sector-based goals.
Key Requirements for Businesses – Federal Decree-Law No. 11 of 2024
The law is applicable to all types of entities, public or private, or individual businesses that contribute to greenhouse gas emissions. The compliance is mandatory from 30th May, 2025. As per the respective law, firms must:
- 1. Monitor and Report Emissions
Firms will need to measure and submit emissions information as per the government-specified guidelines.
- 2. Develop Reduction Strategies
Corporations will need to put in place measures that will reduce emissions. These measures may include raising energy efficiency and adopting ways or processes that use renewable energy sources. Furthermore, firms may utilize carbon capture and storage technologies and engage in programs that offset carbon.
- 3. Maintain records
Entities must maintain records for at least five years. They must ensure that emission records are accessible for government audits for this period.
- 4. Avoid Penalties
The non-compliance with the mandatory reporting will result in penalties. These will range from AED 50,000 to AED 2,000,000. However, the recurrence of a violation within 2 years (from the date of conviction) will result in double penalties. Thus, firms must ensure they avoid fines and penalties in this regard.
What Businesses Must Do to Ensure Compliance?
Companies must comply with the law from 30 May 2025; therefore, they must align their objectives with those of the law. To reduce the climate change impacts and comply with sustainability accounting and ESG reporting, these are the action points.
- 1. Develop GHG Inventory
- 2. Conduct a Climate Risk Assessment
- 3. Set De-carbonisation Targets and Strategy
- 4. Invest in Training and Capacity Building
- 5. Monitor and Report Emissions
- 6. Maintain Records
Conclusion
Sustainability and ESG reporting are gaining significant momentum in the UAE. With the implementation of the UAE’s Net Zero 2050 Strategy and the enactment of climate change legislation, sustainability reporting has become a legal requirement. Non-compliance carries substantial penalties, ranging from AED 50,000 to AED 2,000,000, with higher fines applicable for repeated violations. Organisations contributing to greenhouse gas emissions must take proactive measures to assess their compliance obligations and ensure adherence to the law.
