- within Corporate/Commercial Law, Criminal Law and Real Estate and Construction topic(s)
Environmental, social and governance ("ESG") considerations have become the subject of numerous legislative initiatives at federal, emirate and regulator level in the United Arab Emirates ("UAE"). This is particularly true of the country's financial freezones, the Dubai International Financial Centre ("DIFC") and the Abu Dhabi Global Market ("ADGM"). The UAE's role hosting COP28 in 2023, followed by its decision to badge 2023 and 2024 as a double Year of Sustainability, put the focus on the "E" in ESG. However, this has increasingly broadened to the other areas of ESG, with 2025 being the Year of Community placing particular focus on the capacity of businesses to drive social impact.
In this article we highlight what businesses should know about ESG in the UAE.
The increase in ESG regulation in the UAE
The UAE is tending towards mandatory provisions in ESG, with a clear drive towards higher standards. Given the rapid increase in ESG regulation, companies need to be on the front foot and aware of the potential for future enforcement measures. While the increased compliance requirements can require time and resource, the enhanced business environment should result in more responsible and better managed companies with which to do business.
ESG reporting requirements
There is no single ESG reporting framework in the UAE, but depending on organisation type, sector and jurisdiction, businesses may find themselves subject to mandatory reporting requirements.
For companies listed on the Abu Dhabi Securities Exchange ("ADX") or the Dubai Financial Markets ("DFM") the Securities and Commodities Authority ("SCA") Decision No.3/RM/2020 introduced the Public Joint Stock Companies Governance Manual, containing a series of ESG reporting requirements. Additional guidance issued by the ADX and DFM advises companies on how to comply with the requirements over a wide range of ESG factors, which include providing information on the company's environmental impact, on how it fosters its people and impacts the general community, as well as its internal governance structures.
Environment: the "E" in ESG
The UAE Net-Zero 2050 strategy sets ambitious environmental targets for the UAE as a whole, reflecting a shift from an oil dependent state to global leader in solar energy. The UAE renewable energy sector is primarily regulated through the Federal Ministry of Energy and Infrastructure, with a series of additional regulators by sector and emirate.
The strength of government expertise in this area has led to many green energy projects outside of the jurisdiction being led by management based in the UAE, making this an attractive area for investment. Reflecting the desire to grow and open this sector, 100% foreign ownership is permitted for power generation and solar energy activities in the UAE. Additionally, with water scarcity a key constraint, the Water Security Strategy 2026 aims to cut average water consumption per capita in half.
For organisations subject to mandatory ESG reporting, compliance with relevant environmental regulations will form part of the existing assessment. However, the introduction of Federal Decree Law No. (11) of 2024 created additional obligations on a wider cohort of businesses, to both track their carbon and other emissions and implement reduction strategies. Following the reporting of data, this new law envisages the introduction of sectoral targets for emission cuts.
In addition, for UAE-based companies with EU presence, EU instruments may also apply where their EU activities bring them within scope. In particular, the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Deforestation Regulation (EUDR).
Social: the "S" in ESG
Globally, until the last decade the "S" in ESG had largely been an unregulated space. Key issues falling within this area include diversity concerns such as gender pay gaps and board membership, as well as responsible supply chain issues such as monitoring to ensure firms do not utilise suppliers relying on forced labour or modern slavery. For the 2025 UAE Year of Community, issues at the intersection of business and social concern have come under increased scrutiny.
The United Nations Guiding Principles on Business and Human Rights (UNGPs) is a key "soft-law" instrument in this area, with section II outlining the corporate responsibility to respect human rights. These human rights include those expressed in the International Bill of Human Rights and the International Labour Organization's Declaration on Fundamental Principles and Rights at Work. The UNGPs encourage businesses to express their commitment to meet these responsibilities through a statement of policy which stipulates the standards expected of all parties linked to its operations, which is reflected in policies and procedures embedded throughout the business.
UAE-based companies with EU activities may be within scope of EU instruments, including the EU Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Forced Labour Regulation (FLR).
Business support for social and charitable initiatives
Business support for charity and social impact initiatives is an integral and deep-rooted part of UAE business culture, reflecting Islamic practices especially around Ramadan. While corporate zakat (charitable donation) obligations may be mandated in Kuwait and Saudi Arabia, this is not typically a legal requirement in the UAE. While there are no clear statistics in this area – not least as many donors prefer to keep this work out of the public domain – PWC has estimated that the 100 largest Gulf Cooperation Council ("GCC") family-owned businesses together give at least $7 billion in charitable donations per year. A key trend in how businesses are approaching charitable giving is a drive towards a more strategic "impact philanthropy" approach, focusing on long-term projects over ad hoc grants.
Gender pay gaps and board diversity
While gender pay gap reporting is not mandated, in 2015 the UAE established the Council for Gender Balance to review the issue. Labour laws require that female workers must be granted the same wage as male workers for performing the same work, and this expectation was further reinforced with the 2018 Law on Equal Wages and Salaries for Men and Women. Employment law has tightened with regards to anti-discrimination protections, for example the ADGM's Employment Regulations 2024 expand maternity and sick leave, while clarifying the application of protected characteristics. The Dubai Women Establishment was created through a government directive to encourage policies supportive of women in the workplace, and initiatives include corporate governance training programmes to assist women into board roles.
A number of recent pieces of regulation have sought to enforce board diversity. The Public Joint Stock Companies Governance Manual introduced mandatory provisions that have seen a 200% increase in three years in the number of women in boardrooms in large UAE companies. The Public Joint Stock Companies Governance Manual requires listed companies to have at least 20% female board membership as well as to disclose their percentage of female representation at board level in its annual governance report. The board is also required to set a policy on gender diversity and monitor actions taken to achieve this. Diversity requirements apply to further categories of companies too, with cooperatives encouraged to establish criteria to promote female representation.
Governance: the "G" in ESG
Family-owned businesses represent some 90% of private companies in the UAE, and the trend towards seeking external private equity investment has driven business interest in corporate governance reforms. External management expertise, diversified leadership and an approach that is both more transparent and structured is often a prerequisite for this external investment. ESG reporting requirements for publicly listed companies and for cooperatives place a central focus on good management practices. In terms of mandatory provisions, publicly listed companies are subject to SCA governance requirements (augmented by ADX and DFM guidance, as discussed above), while a series of additional provisions apply to companies across a broader range of sizes.
Whistleblowing legislation differs between onshore UAE, the DIFC and the ADGM as well as by sector. The Dubai Financial Services Authority ("DFSA") introduced a regulatory regime for whistleblowing, followed shortly by the ADGM's Guiding Principles on Whistleblowing, as well as the ADGM Whistleblower Protection Regulations of 2024. The UAE New Penal Code contains extensive anti-bribery and corruption provisions, covering both onshore UAE, the DIFC and the ADGM.
ESG investing in the UAE
The UAE Sustainable Finance Framework set the goal of establishing the UAE as a major sustainable finance hub and has been supported by further initiatives such as the Dubai Sustainable Finance Working Group. Financial services regulators have sought to encourage ESG investing through supportive regulation. The ADGM, in conjunction with its financial services regulator the FSRA, has a system for badging Green Funds, Climate Transition Funds, Green Portfolios and Climate Transition Portfolios. These ESG investment vehicles are subject to a series of FSRA regulations and encouraged to appoint third parties to attest to their compliance with the relevant ESG taxonomy. The SCA also similarly recognises and regulates specialist ESG funds.
ESG-related disputes in the UAE
With the rise of ESG regulations as well as contractual terms incorporating these requirements, ESG-related disputes have been predicted to be a major future growth trend, including specifically in the UAE. The IBA Report on use of ESG contractual obligations and related disputes highlighted the tendency to incorporate strict ESG contractual requirements, sometimes as "boilerplate" clauses agreed without thorough review or consideration of compliance. To protect against such disputes, companies may wish to review their approach to negotiating ESG clauses and track their compliance against prior agreements.
Conclusion
The scope of ESG regulation in the UAE looks set to both broaden and deepen, making it even more important for businesses to review their internal processes. As well as the potential consequences from contractual ESG disputes, rising enforcement action could lead to substantial fines and publicity risks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
