Why ESG is on the Rise in UAE & Dubai

The sustainability of investment is a core concern for every investor, and there are no better markers of a company’s performance than the environmental, social, and governance (ESG) ratings. ESG analysis elucidates matters which might be left uncovered by mainstream financial analysis and thus aid investors in making informed decisions as regards investments.

The ESG index drive is to improve the status of the companies that perform well following environmental, social, and governance practices and place them in the top tier amongst their counterparts.

ESG in UAE

UAE has the second-largest economy in the Arab world and the fourth largest in the Middle East. Although there have been successful efforts in diversifying the economy through tourism and a host of other industries, petroleum and natural gas continue to play a central role in the UAE’s economy. With the UAE being home to the most luxurious hotels, tourism stands to be the biggest source of non-oil revenues.

At the heart of UAE and Dubai investment strategy for suffering funds are the ESG standards. The Abu Dhabi security exchange ADX pledged commitment to fostering sustainability in the financial markets by becoming a part of the United Nations-led initiative— The Sustainable Stock Exchanges initiative (SSE).

In recognition of the scope and depth of sustainability and alignment with the UAE national Vision 2021 and Abu Dhabi economic vision, the ADX has set down ESG disclosure guidance to aid the path of listed companies and issuers’ sustainability reporting.

The ADX acknowledges the uniqueness of sustainability disclosure to every sector and companies’ operation and set up voluntary guidance which provides the listed companies with thirty-one ESG indicators that are considered essential to be reported following the recommendations of the Sustainable Stock Exchanges (SSE) Initiative and the World Federation of Exchanges (WFE). 

Companies willing to render a more comprehensive sustainability report are also permitted to utilize Global Reporting Initiative (GRI) indicators. To ensure that companies and issuers’ only report essential matters that can have an impact on financial conditions, the ADX guidance adopts a four-stage cycle:

Identification: All companies are required to identify ESG factors that are liable to affect the company’s finance, products, and services while considering the principles of sustainability context and stakeholder inclusiveness.

Prioritization: Following identification, companies are required to prioritize in their reporting the matters that evoke the most concern.

Validation: This entails presenting these matters in the light of the scope of reporting, impact boundaries, and reporting period.

Review: The review takes place upon completion of the reports before publishing.

The ESG Integration trajectory reflects the proactivity and readiness of the UAE to promote sustainable development goals while aiding companies and issuers. This positions them on the pedestal of high standing and status among their peers internationally.

The Abu Dhabi 2030 vision aspires to create a sustainable and diversified, high value-added economy incorporated into the global economy and that furnishes more accessible opportunities for all its citizens and residents.