Environmental, Social, and Governance (ESG) Practices in the UAE

                                                                                               LISTEN TO THIS ARTICLE

The global landscape of business is undergoing a significant shift. Investors and consumers alike are demanding greater transparency and accountability from corporations regarding their environmental, social, and governance (ESG) practices. Recognizing this trend, the UAE implemented regulations and frameworks to promote sustainable and responsible business conduct.

Regulatory Efforts in the UAE

In 2020, the UAE Securities and Commodities Authority (SCA) issued a Corporate Governance Code applicable to public joint-stock companies (PJSC) listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM). This code emphasizes transparency, accountability, and ethical business practices. In 2021, the SCA mandated integrated reporting for PJSCs. This requires companies to disclose not just financial performance, but also their environmental and social impact. The reports are expected to be aligned with global standards like the Global Reporting Initiative (GRI) and the UN Sustainable Development Goals (SDGs).

Embracing ESG 

Introducing ESG regulations is one side of the coin while implementing them in true spirit is another side. It is the responsibility of the corporations operating in the UAE to implement these regulations proactively. Corporations must adhere to the following aspects to ensure compliance with ESG standards:

ESG Due Diligence & Materiality Assessment: A comprehensive assessment of a company's environmental practices, social impact, and governance structures helps identify areas for improvement. Companies need to prioritize ESG issues most relevant to their operations and stakeholders. This involves identifying environmental concerns specific to their industry, such as waste management for a hospital or a restaurant chain, or diversity and inclusion initiatives for a service provider.

Developing an ESG Strategy: Based on the due diligence and materiality assessment, companies can create a roadmap for integrating ESG principles into their operations. This strategy should outline measurable goals, action plans, and resource allocation for achieving sustainable practices.

Stakeholder Engagement: Open communication and collaboration with stakeholders, including investors, employees, and communities, is vital for successful ESG implementation. Stakeholder feedback helps companies refine their ESG goals and ensures their strategies address concerns that truly matter.

Implementing ESG is not a standalone exercise. It must be implemented by the company in collaboration with external advisors and must be monitored on a continuous basis. 

ESG Reporting 

In UAE, PJSCs must submit the ESG sustainability report within 90 days from the end of the financial year or before their annual meeting. Depending on the specific requirements of the stock exchange where the company is listed, ESG reporting may be in the form of annual reports, sustainability reports or integrated reports. 

Through ESG reports, companies can communicate the results of their due diligence the ESG strategies adopted based on the materiality and risk parameters with the investors. ESG reports communicate the qualitative (eg. long term outlook, plans implemented and in pipeline etc.) as well as the quantitative (funds allocated year-wise, number of people benefited etc.) aspects of a company’s ESG strategies. 

Needless to say, non-compliance with ESG reporting attracts penalties. 

Conclusion

By embracing ESG principles, companies not only contribute to a sustainable future but also unlock long-term business benefits. Investors increasingly prioritize ESG performance alongside financial metrics. Strong ESG practices can enhance a company's reputation and attract ethical investors.

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.