Is ESG Reporting Mandatory in the UAE?
The UAE has been making headlines in recent years as it becomes a more prominent player in the global economy.
In order to support its growing stature, the UAE government is making moves to strengthen its regulatory framework, including in regard to ESG reporting. This has led to confusion whether ESG reporting is mandatory in the UAE or not.
In this Sandpaper guide, we’ll be answering all your questions about the regulations surrounding ESG reporting in the UAE.
What Is ESG Reporting?
ESG (Environmental, Social, and Governance) reporting is defined by the Global Reporting Initiative as:
“The process of disclosing information about a company’s performance on key environmental, social, and corporate governance indicators in order to provide a better understanding of the overall sustainability performance of an organization.”
In other words, ESG reporting is a way for companies to publicly disclose the social and environmental impacts of their operations so that investors, consumers, and other stakeholders can assess the sustainability of their business.
Where Does the UAE Stand on ESG Reporting?
Currently, the UAE is the only Middle Eastern country to introduce a mandatory ESG disclosure requirement.
According to Article No. 76 of the Chairman of SCA Board Decision No. 3 (issued in 2020), all Public Joint Stock Companies (PJSCs) listed on the ADX or DFM are legally required to issue annual sustainability reports with their financial statements.
The SCA later issued a clarifying update regarding the scope of these reports a year later.
What Are the ESG Reporting Guidelines for PJSCs in the UAE?
The SCA’s update to Article No. 76 made a number of requirements crystal clear for PJSCs trying to comply with the new ESG reporting requirements. Below, we’ve outlined the general requirements so that you can start preparing your sustainability report:
For an ESG report to be compliant, it needs to cover the full ESG spectrum—namely, environmental, social, and governance topics. For each topic, the government of the UAE has issued general definitions to simplify the process:
- Environment: How has your company minimized its environmental impacts?
- Social: How have you addressed social issues (e.g., human rights, health and safety)?
- Governance: How have you maintained ethical business practices?
For an ESG report to be compliant, it needs to adhere to the Global Reporting Initiative (GRI) standards. The GRI is an international non-profit organization that develops sustainability reporting standards.
Adoption of the GRI standards has been spotty around the Middle East. As such, the UAE’s universal adoption marks a massive step forward for the region.
PJSCs listed on either the ADX or DFM must submit their ESG reports annually as part of their financial statements.
For the 2023 reporting period, PJSCs must submit their reports by April 30th, 2023.
What Is the Penalty for Non-Compliance?
The government of the UAE has set up a strict compliance timeline, and failure to comply with ESG reporting requirements can result in significant fines.
As stated in the SCA’s original guidelines, public companies that fail to submit their ESG reports on time could face fines of up to AED 50,000 (approx. USD 13,500) which accrue additions and interest over time.
Public companies that fail to comply with the GRI standards, on the other hand, could face fines of up to AED 20,000 (approx. USD 5,500).
Where Can You Find More Information About Compliance?
Given the fines, it’s understandable that many companies are rushing to get up to speed with the SCA’s new ESG reporting requirements.
Fortunately, there are a few resources available to help companies understand and comply with their obligations, including:
- Global Reporting Initiative (GRI): The GRI website provides comprehensive information about ESG reporting standards, as well as resources to help companies implement them.
- Ministry of Economy: The ministry publishes updates on the laws and regulations related to ESG reporting in the UAE.
- Securities and Commodities Authority (SCA): This is the official source of information about securities and sustainability regulations in the UAE. The website also includes a section dedicated to ESG reporting.
How Can You Ensure Compliance With Regulations?
The best way to ensure that your company is compliant with all UAE sustainability regulations is to work with a professional ESG consultancy.
These companies provide comprehensive services, such as environmental and social risk assessments, stakeholder engagement plans, and reporting templates that are tailored to the UAE’s regulations. They will also review your reports before submission to make sure they meet all legal requirements.
At Sandpaper, we provide tailored ESG consulting services to help you ensure compliance with the UAE’s regulations and improve your sustainability performance. We work with companies across the Middle East to develop beautiful sustainability reports that inform, inspire, and comply.
Contact us today to learn more about how we can help!