How global ESG standards, IFRS sustainability disclosures, and UAE climate mandates are reshaping financial compliance and why SMEs must be part of the shift.
As Environmental, Social, and Governance (ESG) reporting transforms from a voluntary exercise to a regulatory mandate, finance leaders are being pulled into unfamiliar territory. In this column, I reflect on my learning journey to explain how ESG is changing financial compliance across the UAE and GCC, why small and medium enterprises (SMEs) cannot stay out of the conversation, and how finance leaders can turn regulation into measurable value.
Until recently, my understanding of ESG stemmed from seminars and brief mentions in leadership forums, and I associated ESG with large, listed corporations and global investors. Like many finance professionals, I considered it a “big company” agenda, something that primarily concerned listed corporates and multinationals. As a finance leader, my focus was on profitability, compliance and governance in the traditional sense.
That view has changed completely. ESG has become a financial reality influencing valuation, lending, and market access.
The deeper I have looked into global and regional regulatory trends, the clearer it has become that ESG is no longer a voluntary initiative or a branding exercise. It is becoming an integral part of how governments, lenders, and investors assess business resilience, and this applies equally to small and medium-sized enterprises (SMEs) as it does to large corporations.
According to PwC’s Global Investor Survey 2024, more than 85 per cent of institutional investors now consider ESG information a key factor in investment decisions. Global sustainable investment assets already exceed USD 33.9 trillion, and the market for ESG reporting software and assurance is expected to surpass USD 2.1 trillion by 2030. Closer to home, the GCC issued USD 11 billion in green bonds and sukuk in 2024, up 32 per cent from 2022 (DIFC data). This acceleration confirms that capital is flowing toward companies that measure and disclose their impact.
- The Global Picture: ESG Under Pressure
Across the world, ESG reporting sits at the intersection of politics, policy, and performance. Regulators are setting disclosure requirements while some governments are debating their scope. Despite these differing approaches, one direction is consistent: ESG is moving from voluntary to mandatory.
Europe: From Voluntary to Mandatory
The Corporate Sustainability Reporting Directive (CSRD) now covers around 50,000 companies, requiring them to report under the European Sustainability Reporting Standards (ESRS) with limited assurance. It is estimated that compliance costs for first-time reporters will range from EUR 120,000 to EUR 250,000 per year; however, the European Commission projects a net benefit of greater transparency and lower capital costs over time. The EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR) complete the architecture that integrates sustainability into financial reporting.
ESG-aligned firms in Europe are already seeing financial rewards. According to MSCI’s 2023 ESG Leaders Index, companies with strong ESG ratings outperformed their peers by 5.7 per cent annually over five years.
United States: Polarisation and Uncertainty
The U.S. Securities and Exchange Commission (SEC) proposed climate disclosure rules in 2024 but subsequently paused their implementation due to legal challenges. In contrast, California’s Climate Disclosure Law will require more than 5,000 companies to report emissions by 2026. The political divide is evident: U.S. asset-manager support for ESG resolutions fell to 25 per cent in 2024, compared with Europe’s 81 per cent.
Despite the debate, U.S. companies continue to report that they retain investors and supply-chain partners voluntarily. Those with robust ESG scores enjoy borrowing costs that are 50 to 80 basis points lower than those of their non-compliant peers (S&P Global Sustainable Finance Report, 2024).
Asia-Pacific: Rapid Convergence
Across the Asia-Pacific region, countries such as Singapore, Hong Kong, Japan, and New Zealand are introducing mandatory ESG disclosures aligned with international standards. A Bain & Company study found that more than 75 per cent of Asian companies lack robust systems for sustainability reporting. This demonstrates that compliance readiness is as much about internal capability as it is about regulatory alignment.
- IFRS Sustainability Standards: The New Global Language
A turning point came in 2023 when the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards (IFRS) Foundation issued two global ESG disclosure standards:
- IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2 – Climate-related Disclosures
These establish a global baseline for sustainability information that directly connects with financial statements. More than 60 jurisdictions, including the United Kingdom, Canada, Singapore, and Saudi Arabia, plan to adopt or align with them. For regions such as the UAE and GCC, which already follow IFRS for financial reporting, the integration is a natural step.
Early adopters are already seeing value. According to a Deloitte study, companies that align with IFRS S1 and S2 expect a 10 to 15 per cent reduction in audit time once sustainability data is fully integrated with financial systems. For finance leaders, this means fewer surprises and more consistency between ESG metrics and financial outcomes.
- The Middle East Landscape: From Principles to Enforcement
GCC Coordination
The GCC Exchanges Committee introduced 29 unified sustainability indicators in 2023 for listed companies, aligned with the Global Reporting Initiative (GRI). While voluntary for now, these indicators signal that regional markets are preparing for mandatory ESG disclosures.
UAE: From Guidelines to Governance
The Securities and Commodities Authority (SCA) now require all companies listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM) to publish annual sustainability reports aligned with GRI, the Sustainability Accounting Standards Board (SASB), and the ISSB’s IFRS S1 and S2.
Reports must be filed within 90 days of the end of the year or before the annual general meeting, aligning sustainability disclosures with the timeline of financial reporting.
The UAE’s Federal Decree-Law No. 11 of 2024 on Climate Change adds a quantitative dimension. It requires companies to measure and report greenhouse-gas emissions and imposes fines of up to AED 2 million for non-compliance. The Abu Dhabi Global Market (ADGM) and the Dubai Financial Services Authority (DFSA) have introduced similar rules for financial entities, ensuring alignment with international standards.
Across the region, other markets are also moving quickly: Oman will require GRI-aligned reports for listed firms by 2025, Qatar plans to adopt ISSB standards by 2026, and Kuwait will make ESG mandatory for its premier-market companies by 2025.
The financial implications are real. According to the IMF, GCC countries could attract USD 150 billion in green investment annually by 2030 if ESG reporting becomes fully standardised. For companies operating in these markets, compliance is not just a legal obligation but also a gateway to investment.
- Why SMEs Cannot Stay Out of the Equation
At first glance, ESG reporting may seem like a requirement for large listed entities. However, Small and medium enterprises make up 94 per cent of companies in the UAE and contribute almost 60 per cent of the national GDP (MoEI data). Although most are not yet required to publish ESG reports, they will be indirectly impacted through supply chains, banking relationships and client requirements.
- Supply Chain and Client Requirements
Many SMEs supply or contract with large corporations that are now required to report their ESG footprint. Under frameworks such as IFRS S2 and the GHG Protocol, companies are required to disclose Scope 3 emissions, which encompass indirect emissions from their suppliers. A Dubai Chamber survey found that 68 per cent of listed UAE companies plan to collect ESG data from vendors by 2026. SMEs without verifiable information may lose contracts or face delayed payments.
- Financing and Banking
Banks and investors are linking lending terms to ESG risk ratings. Banks are embedding ESG into lending criteria. According to Emirates NBD, borrowers with verified ESG frameworks secure loan margins that are 40 basis points lower than those without. SMEs that can demonstrate basic governance and environmental controls are already benefiting from preferential terms under green finance programs.
- Talent and Reputation
Younger employees and global customers prefer organisations that demonstrate social and environmental responsibility. EY reports that 63 per cent of UAE employees under 35 prefer to work for companies with visible sustainability commitments. For SMEs competing for talent and international contracts, ESG is now a brand differentiator.
- How SMEs Can Begin Their ESG Journey
The encouraging reality is that ESG adoption for SMEs does not have to be expensive or complex. It begins with awareness and practical steps.
- Start with a Baseline
Understand what ESG means for your business model. Map your energy use, waste generation and workforce profile. Even a simple spreadsheet establishes a starting point for tracking improvement.
- Focus on What Is Material
You do not need to report hundreds of data points. Choose five to ten key metrics that are most significant for your stakeholders, such as energy efficiency, diversity, fair pay, or community engagement.
- Use Existing Templates
Frameworks such as GRI for SMEs and the simplified IFRS SME guidance (currently under development) provide user-friendly disclosure models. Even a short sustainability summary can help SMEs demonstrate accountability to banks and clients.
- Collect Data Digitally
Use simple digital tools to track energy consumption, waste management, or workforce data. Reliable data today will make future ESG reporting easier if regulations tighten.
- Communicate Transparently
Include a brief “Sustainability and Responsibility” section in your company profile or annual report. Stakeholders value transparency more than perfection.
In the UAE, where sustainability reporting is rapidly evolving, SMEs that act early will stand out as preferred vendors and creditworthy borrowers. The Dubai Chamber of Commerce notes that SMEs participating in sustainability programmes see average utility-cost reductions of 12 per cent within a year, proving that ESG discipline often translates into operational savings.
- The Expanding Role of Finance
For finance leaders, ESG is becoming an extension of existing responsibilities related to control, data quality, and assurance. The introduction of IFRS S1 and IFRS S2 brings sustainability disclosures into the same assurance framework as financial reporting.
CFOs and finance managers can create value by standardising metrics, building assurance processes and translating ESG results into financial impacts. According to KPMG’s 2024 CFO Outlook, 72 per cent of CFOs in the Middle East expect to oversee sustainability reporting within two years. Finance teams are therefore becoming the guardians of ESG integrity.
- Learning ESG, One Regulation at a Time
When I first started exploring ESG, the number of frameworks, such as the GRI, the Task Force on Climate-related Financial Disclosures (TCFD), the ISSB, and the CSRD, felt overwhelming. Yet, beneath the complexity lies a simple principle: ESG is about creating value responsibly and demonstrating that value through data.
For finance leaders and SMEs alike, the starting point is to measure what matters, set achievable targets, and establish internal discipline around data. This approach turns ESG from a regulatory burden into a performance tool that reduces risk and cost.
- The Road Ahead
The Middle East is taking a practical approach to ESG implementation. Regulators are aligning with global standards, banks are tying lending to verified data, and investors are rewarding companies that can prove their impact. As a finance leader, I see this as a strategic shift toward sustainable profitability.
For large corporations, ESG compliance has already become a prerequisite for operating. For SMEs, it is the path to growth, funding and credibility. The UAE and GCC are laying the groundwork for a new economy where financial returns and responsible operations are aligned.
ESG is not about ticking boxes; it is about building trust with regulators, investors, clients, and society. For those of us still learning, the important thing is to begin now, because the cost of inaction will soon outweigh the effort required for compliance.