UAE Sustainability Framework Mandates ESG Reporting for Companies

The UAE Sustainability Framework makes ESG reporting a statutory duty under Federal Decree-Law No. 7 of 2023: public joint-stock companies must file an annual ESG statement, while large private firms become obligated once they meet any two of the law's quantitative thresholds, with disclosures aligned to GRI, SASB and TCFD standards.

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WHAT ARE THE MANDATORY ESG DISCLOSURE THRESHOLDS FOR UAE COMPANIES?

The framework establishes a tiered test that mirrors the size-based criteria used in many jurisdictions for sustainability reporting. Public joint-stock companies are automatically captured; they must prepare an ESG report each year regardless of revenue, assets or headcount. For private entities, the trigger is met when any two of the following three conditions are satisfied in the most recent financial year:

• Annual revenue exceeding AED 100 million;
• Total assets exceeding AED 200 million;
• Employee count of 250 or more.

These thresholds are articulated in Article 4 of Federal Decree-Law No. 7 of 2023. Once a company satisfies the dual-condition test, it assumes a mandatory reporting duty that cannot be avoided by internal policy choices. The law does not provide a "soft-opt-out" for firms that hover just below the limits; instead, such entities may volunteer to publish an ESG statement, but they are not legally compelled to do so.

The reporting window is fixed: the completed ESG report, together with an external assurance statement, must be lodged with the Securities and Commodities Authority (SCA) within 120 days after the close of the fiscal year in which the threshold was first met. This deadline is absolute; extensions are not granted under the decree-law, although the SCA may, in exceptional circumstances, accept a late filing subject to the penalties outlined in Article 12.

WHICH REPORTING STANDARDS MUST COMPANIES FOLLOW UNDER THE UAE SUSTAINABILITY FRAMEWORK?

Compliance hinges on alignment with three globally recognised frameworks:

1. Global Reporting Initiative (GRI) Standards - the baseline for universal ESG disclosures;
2. Sustainability Accounting Standards Board (SASB) Standards - industry-specific metrics that reflect financially material sustainability factors;
3. Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations - the climate-risk component that requires scenario analysis, target setting and resilience planning.

These requirements are spelled out in Article 6 of the decree-law. The law also acknowledges integrated reporting (IR) as an permissible format, provided the IR follows the International Integrated Reporting Council (IIRC) framework and still satisfies the GRI/SASB/TCFD mapping.

The SCA has issued Guidance Note SCA-GN-2024-01, which cross-references each mandatory metric to its corresponding GRI indicator, thereby ensuring comparability across sectors. Required disclosures include, but are not limited to:

• Scope 1 and Scope 2 greenhouse-gas emissions (with optional Scope 3 where material);
• Water consumption and waste generation volumes;
• Employee turnover, gender pay gap, and diversity statistics;
• Board composition, independence, and remuneration policies;
• Anti-bribery and anti-corruption controls;
• Human-rights due diligence processes where relevant.

Failure to adopt the prescribed standards is treated as a substantive breach under Article 12, exposing the company to fines and other sanctions. The law does not permit substitution of voluntary initiatives such as the UN Global Compact for the mandatory GRI/SASB/TCFD alignment; such frameworks may only supplement the required disclosures.

WHAT ARE THE LEGAL LIABILITIES FOR NON-COMPLIANCE WITH ESG REPORTING OBLIGATIONS?

Non-compliance triggers a layered liability regime that blends administrative penalties, market restrictions and civil exposure.

• Administrative fines - Article 12 prescribes a sliding scale:
• Late submission (missing the 120-day window): AED 50,000 - AED 500,000;
• Material misstatements or omissions (including qualified auditor opinions): AED 200,000 - AED 2,000,000.

The exact amount depends on the gravity of the breach, the company's size and any remedial steps taken after detection.

• Trading and financing restrictions - The SCA may suspend the entity's ability to issue new securities, draw down credit facilities or engage in certain capital-market activities for up to six months. This measure is designed to protect investors from potentially misleading information.

• Civil claims - Shareholders, bondholders or other stakeholders can institute a lawsuit alleging breach of statutory duty. UAE courts may award compensatory damages for actual loss and, in cases of gross negligence or reckless disregard, exemplary (punitive) damages. The law does not cap such awards, leaving the quantum to judicial discretion based on the harm suffered.

• Reputational sanctions - The SCA maintains a public register of non-compliant entities. Publication on the regulator's website can deter counterparties, affect credit ratings and impede future fundraising efforts.

Because the framework treats ESG reporting as a continuous obligation, companies that correct a prior omission must still file the missing report and may be subject to retroactive fines for the period during which the disclosure was absent.

HOW DOES THE UAE SUSTAINABILITY FRAMEWORK INTERACT WITH FREE-ZONE REGULATIONS SUCH AS DIFC AND ADGM?

The federal ESG reporting regime applies to all entities incorporated in the UAE mainland and to free-zone companies that either:

• Conduct business outside the free zone (i.e., have UAE-based clients, suppliers or assets); or
• Are listed on a UAE securities exchange (e.g., DFM or ADX).

Free zones such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) retain autonomous regulatory regimes. Nevertheless, both have adopted the UAE ESG Reporting Guidelines into their own conduct rules:

• DIFC Rule 5.4.1 obliges licensed entities to prepare ESG reports consistent with the federal framework when they engage in activities that fall under UAE federal securities law.
• ADGM Regulation 3.2.2 mirrors this requirement, mandating ESG disclosure for ADGM-registered firms that market products or services to UAE investors.

Consequently, a DIFC-registered investment fund that promotes its units to UAE retail or institutional investors must comply with the same thresholds, standards and filing deadlines as a mainland public joint-stock company. Conversely, a purely internal ADGM holding company that holds assets solely outside the UAE and does not solicit UAE-based capital may be exempt from the federal ESG obligation, though it may still choose to report voluntarily to satisfy investor expectations.

Entities operating across multiple jurisdictions should map their activities to the relevant regulator's scope to avoid duplicate reporting or contradictory obligations. Engaging local counsel familiar with both the federal statute and the specific free-zone conduct rules is the most reliable way to determine applicability.

WHAT DOCUMENTATION AND PROCEDURES ARE REQUIRED TO PREPARE AN ESG REPORT?

Preparing a compliant ESG statement is a structured process that blends internal controls, data governance and external validation. The typical workflow comprises six stages:

1. Materiality assessment - Identify the ESG issues that are most significant to the business and its stakeholders, using tools such as stakeholder surveys, industry benchmarks and risk matrices.
2. Data collection - Gather quantitative and qualitative information from enterprise resource planning (ERP) systems, human-resources platforms, environmental management software and supply-chain partners. Key data points include energy consumption, emissions factors, water usage, waste metrics, workforce demographics and governance policies.
3. Gap analysis - Compare the collected data against the GRI, SASB and TCFD requirements to pinpoint missing disclosures or methodological shortcomings.
4. Implementation of data-management controls - Establish standardized calculation methodologies, retain raw data files, and institute review protocols to ensure accuracy and traceability.
5. Drafting the report - Assemble the narrative and tables in accordance with the chosen reporting format (stand-alone ESG report or integrated report). The draft must include a clear statement of board approval and a description of the assurance process.
6. External assurance - Engage an auditor accredited by the UAE Ministry of Economy to perform a limited assurance engagement. The auditor's statement must accompany the submission to the SCA.

Supporting documentation-emission calculation worksheets, employee survey results, board meeting minutes, third-party audit reports-must be retained for a minimum of five years from the date of filing, as stipulated in Article 10 of the decree-law. This retention period facilitates regulatory inspections and potential litigation.

Cost considerations vary widely. External assurance fees typically range from AED 30,000 to AED 150,000, depending on the complexity of the data set and the size of the organization. Internal resource allocation-staff time, system upgrades and consultancy-often represents 0.5 %-2 % of the annual operating budget. The SCA's annual guidance note publishes indicative cost bands to enable firms to budget appropriately, though no fixed fee schedule is prescribed by law.

FREQUENTLY ASKED QUESTIONS

What is the deadline for submitting the first ESG report under the new framework?
The inaugural report must be filed within 120 days after the end of the fiscal year in which the company first satisfies the dual-condition threshold outlined in Article 4. Subsequent reports follow the same annual cadence.

Can a company rely on voluntary ESG frameworks such as the UN Global Compact instead of GRI/SASB?
Voluntary initiatives may augment the mandatory disclosures but cannot replace the required alignment with GRI, SASB and TCFD. Article 6 makes compliance with those three frameworks a condition for satisfying the legal obligation.

Are there any exemptions for small-and-medium enterprises (SMEs)?
SMEs that do not meet any two of the thresholds in Article 4 are exempt from mandatory reporting. The exemption is expressly noted in SCA Guidance Note SCA-GN-2024-02. Such firms may still elect to publish a voluntary ESG statement.

What penalties apply if an auditor issues a qualified opinion on the ESG report?
A qualified opinion is treated as a material misstatement under Article 12, attracting fines of AED 200,000 - AED 2,000,000 and potentially triggering a suspension of trading privileges or credit-facility access, depending on the severity of the qualification.

How does the framework address climate-related risk disclosure?
Companies must disclose climate-related risks and opportunities in accordance with the TCFD recommendations, including scenario analysis, greenhouse-gas emission reduction targets, and resilience strategies. These requirements are detailed in Article 6(2) of the decree-law.

Is there a requirement to obtain external assurance for the ESG report?
Yes. Article 9 obliges qualifying entities to secure limited assurance from an auditor accredited by the UAE Ministry of Economy. The assurance statement must accompany the report submitted to the SCA.

Note: The above content is for general informational purposes only and does not constitute legal advice.

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