UAE – The E in ESG

The principles of Environmental, Social, and Governance (ESG) occupy pole position in corporate compliance agendas globally, and the impact on Middle East businesses is significant.

As governments and regulators worldwide intensify their focus on ESG standards, these frameworks have shifted from marginal to mainstream, significantly influencing corporate operations. This evolving landscape mandates that companies reassess their interactions with the environment, stakeholder engagement, and adherence to progressively stringent regulations. We are entering an era where environmental and impact sustainability is not optional but a fundamental criterion to develop sustainable business operations.

In the first of our series on ESG, we consider the regulatory developments under the ‘E’ in ESG – which is the environmental pillar.

The UAE and climate change

In the UAE, the primary legal framework governing environmental regulation is established by Federal Law No. 24 of 1999 on the Protection and Development of the Environment (the Environment Law), along with its Executive Regulations. This comprehensive legislative structure is designed to address various environmental issues through a series of distinct chapters, each targeting specific areas of environmental concern.

The core objective of this legislation is to mitigate pollution stemming from economic, industrial, or construction activities, while also safeguarding the country's natural resources and biodiversity. To enforce these regulations, the law appoints judicial control officers who are tasked with monitoring compliance. Penalties for non-compliance can be severe, ranging from fines between AED 1,000 and AED 10 million, and may include imprisonment.

It is crucial for corporate entities to recognise that while the Environment Law provides a foundational framework for sanctions, additional regional regulations may also apply and can impose further compliance obligations.

There is no doubt that environmental sustainability is paramount to the UAE Government, investors, and consumers. In addition to the inception of the Environment Law, the UAE has launched several national initiatives, and regional regulations, to drive sustainability within corporate organisations: 

• The UAE Net Zero 2050 was launched as a national strategy to achieve net-zero emissions by 2050 and aligns with the Paris Agreement, an international call upon countries to devise long-term strategies to reduce greenhouse gas emissions. If achieved, the UAE would be the first Middle Eastern and North African nation to do so.
• The UAE has launched the National Climate Change Plan of the UAE 2017 to 2050 and the UAE Green Agenda 2030 to transition the region into a green economy while facilitating growth. The main objectives focus on managing greenhouse gas emissions while protecting natural resources and developing innovative solutions to climate change.
• The UAE Government formed the UAE Council for Climate Change and Environment to formulate strategies and policies on environmental issues and sustainable developments while working with the Ministry of Climate Change and Environment to create partnerships with the private sector.

Renewable Energy

Recently, the Minister of Energy and Infrastructure announced the development of the National Hydrogen Strategy to meet the net-zero commitments by 2050, in particular, the target of achieving a grid emission factor of 0.27 kg CO2/kWh by 2030, which is lower than the global average, to achieve net zero in the energy and water sectors by 2050. It will also help the UAE more than triple the share of renewable energy by 2030 to stay on track with its climate change mitigation goals, as well as help increase the share of installed clean energy capacity in the total energy mix to 30% by 2030. Recently, the UAE enacted legislation covering the sale of Hydrogen vehicles (Cabinet Decision 42 of 2021). Since 2009, the UAE has been a permanent host country to the International Renewable Energy Agency (IRENA) and has focused its domestic legislation on the ratification of international treaties (Vienna Convention, Kyoto Protocol and the Paris Agreement).

Sustainable Development

As the UAE aims for net-zero emissions, sustainable construction practices have become crucial. Launched in 2017, the UAE Energy Strategy 2050 aims to triple the contribution of renewable energy, addressing the rising energy demands of its burgeoning economy and reducing emissions from water and energy sectors by 2050. In support of this goal, the National Green Building Regulation was introduced in 2021 by the Ministry of Energy and Infrastructure. This regulation mandates minimum energy and water standards for all new buildings in the UAE to promote sustainability.

These efforts are in line with the Environmental Law, which restricts construction activities that could harm the environment. Consequently, developers are increasingly focusing on green developments and sustainable cities. Notable examples include Dubai’s Sustainable City and Abu Dhabi’s Masdar City, which are pioneering sustainable living with features like low emissions, integrated agricultural projects, educational programs, and wildlife conservation.

Water Scarcity

A crucial factor under ESG is the regulation of water and the marine environment. To tackle water scarcity, the Ministry of Energy and Infrastructure launched the Water Security Strategy 2036, aiming to reduce water demand, increase productivity, and enhance the use of treated water. Additionally, the Mohammed bin Zayed Water Initiative, initiated in March 2024, promotes global innovation in sustainable water desalination technology.

The Environmental Law prohibits sea dumping and pollutant disposal from ships and aircraft into marine environments, as further supported by Federal Decree Law No. 43 of 2023, which enforces measures to protect against marine pollution.

On land, activities that cause desertification are banned under the Environmental Law. To combat this, the UAE's National Strategy to Combat Desertification 2030 focuses on increasing land productivity, land rehabilitation, and water conservation. This strategy encompasses five pillars: ecosystem protection, climate change mitigation, awareness, research, technology, and international cooperation.

Waste Management

The UAE is intensifying its waste management efforts to lower greenhouse gas emissions. The Federal Law No. 12 of 2018 on Integrated Waste Management, accompanied by its Executive Regulations, was enacted to foster sustainable waste management practices. Complementing this, the Dubai Waste Management Strategy 2041 emphasises recycling and energy conversion. As part of these efforts, Dubai has introduced a levy on single-use plastic bags, with a complete ban, including on biodegradable and paper bags, effective from 1 June 2024. Additionally, the strategy targets a total ban on all plastic single-use products by January 2026, urging suppliers and manufacturers to switch to sustainable alternatives to protect future generations from microplastic pollution.

Conscious Investment and Greenwashing

As consumer awareness grows, more people are choosing products that are safely and sustainably manufactured, packaged, and delivered. This shift makes sustainability a competitive advantage. Meanwhile, organisations worldwide are using environmental buzzwords in advertising to enhance their image and sales, a practice known as "greenwashing." This involves falsely presenting products or services as environmentally friendly.

In response, the UAE has updated and introduced legislation to regulate fair market practices, notably through the Federal Law No. 15 of 2020 on Consumer Protection and its Executive Regulations. These laws rigorously combat misleading advertising and explicitly prohibit deceiving consumers about the quality, nature, or pricing of products. They empower consumers to report deceptive advertising, with penalties for organisations found guilty of such practices.

The UAE has also launched carbon credit trading in both the Dubai Financial Market and the ADGM and we expect this will allow companies to manage unavoidable carbon emissions while simultaneously pursuing decarbonisation strategies.

Where to Next!!

Regulations surrounding environmental factors are continuously evolving as the UAE Government focuses on environmentally sustainable practices, bringing in legislation to prevent and protect the environment. Globally, we expect more legislation will be issued to regulate the number of strategies and initiatives launched by the regional governments in recent years. Corporate organisations will be at the forefront of direct compliance with environmental  regulation.