ESG is moving from voluntary to mandatory

Business in the Middle East cannot ignore the ESG shift. As regulations tighten both globally and regionally, companies must adapt to new rules, manage risks and seize opportunities for sustainable growth, writes Dr. Wendy Dobson of FTI Consulting.

For most of the last decade, ESG sat in the realm of persuasion. Investors persuaded. Customers persuaded. Employees persuaded. And boards, in turn, persuaded their organisations to publish voluntary reports and pilot a few initiatives. That era is closing fast. Around the world and across the Middle East, ESG has moved from a stakeholder narrative to a legal narrative, enforced through listing rules, central-bank expectations, corporate reporting standards and product-labelling regimes. The practical question for general counsel and executives in the region is no longer whether ESG matters, but which rules apply, when, and how to comply while creating business value.

Recent executive sentiment underlines this shift in hard numbers, with 80 per cent of CEOs saying sustainability is a value driver that can raise revenues, profitability and cash generation while lowering the cost of capital, which is why it is increasingly being treated as a board-level discipline rather than a marketing choice.

From voluntary to mandatory: The global picture

Two structural forces have driven the global shift toward mandatory ESG reporting. First, investors want consistent, decision-useful data that allows them to compare performance across markets, sectors and time. Second, policymakers increasingly see climate and sustainability issues as financial risks that belong alongside revenues, cash flows and capital allocation in company reports. It is telling that 92 per cent of senior leaders expect climate change to affect their business models by 2050 and that almost one quarter already see it as a present risk, which helps explain why disclosure expectations are converging with financial reporting norms.

This has accelerated momentum behind the International Sustainability Standards Board (ISSB) baseline, now endorsed by IOSCO and rapidly adopted or aligned with by jurisdictions representing a large share of global GDP. While different markets are introducing their own disclosure rules and phased approaches, the direction is unmistakable: ESG and climate information are moving onto a common baseline and being integrated into mainstream corporate reporting worldwide.

The Middle East: Fast followers with regional characteristics

The Middle East is moving in the same direction, with local institutions shaping frameworks that reflect the region’s markets and ambitions. Legal functions across the region are already feeling this in their workload and risk registers, with 99 per cent of general counsel expecting sustainability workloads to rise and law departments reporting high concern about reputational harm, regulatory enforcement and lawsuits tied to sustainability issues.

Stock exchanges and securities regulators are codifying guidance. The Qatar Stock Exchange (QSE) has issued ESG guidance for listed issuers to improve the quality and comparability of disclosures. Oman’s Muscat Stock Exchange has published ESG reporting guidelines and supporting materials to help listed companies standardise sustainability reporting. Saudi Arabia’s exchange has developed sustainability disclosure guidance and continues to refine it as part of a broader market-development agenda.

Supervisors are also signaling expectations to financial institutions. In the UAE, the Sustainable Finance Working Group led by financial authorities has issued principles for managing climate-related financial risks across the banking system, elevating climate risk to a core prudential consideration. Abu Dhabi Global Market, for its part, has advanced a sustainable-finance framework to channel capital and clarify product standards within its jurisdiction. This regulatory tightening is taking place against a global litigation backdrop that now includes 2,250 active climate cases across 55 countries, which raises the stakes for disclosure quality, governance and legal review.

The direction of travel is clear: listed companies face growing disclosure obligations; banks are expected to understand and manage climate risk; and capital-markets authorities are building sustainable-finance taxonomies and product rules to scale credible green and transition funding.

Why enforcement is tightening

Several practical reasons sit behind this regulatory wave. Companies themselves have asked for a level playing field, so leaders and laggards alike face the same minimum floor. Asset owners and managers need comparable data to price risk and allocate capital across regions. And governments want to catalyse sustainable-finance markets, including green bonds and transition instruments, which requires credible, comparable disclosure.

The ISSB baseline offers the common language. Regulators in and beyond the region are aligning with it because it looks and feels like financial reporting: governance, strategy, risk, metrics and targets, supported by assurance over time. At the same time, boards are still building capability, with only 37 per cent of respondents saying their board has sustainability expertise, and most CEOs wanting directors to deepen their understanding of regulations, labelled instruments and disclosure, which makes the general counsel’s role even more central.

What this means for Middle East businesses

From a legal and operational standpoint, companies should assume three realities. First, your disclosure perimeter is likely to expand. Even if you are not directly in scope of a local rule today, customer and lender requirements, value-chain due diligence and export markets can pull you in. A GCC manufacturer selling into Europe will feel CSRD-driven data requests long before it is directly captured by an EU regulation.

Second, banks and insurers will ask for more. As supervisors push climate risk into core prudential frameworks, relationship managers will need transition plans, financed-emissions data and sector-specific information to meet their own obligations. In the UAE and within ADGM, this trajectory is already visible.

Third, assurance and liability will rise. As disclosures migrate from glossy PDFs to audited sections of annual reports, the standard of care, internal controls and legal review must strengthen accordingly. The UK’s TPT framework and the EU’s CSRD illustrate how transition plans and sustainability statements are becoming core corporate documents subject to governance and potential scrutiny.

A pragmatic roadmap: From compliance to value

So, how should legal and executive teams in our region proceed? In my work with clients across sectors, I recommend a staged, business-first approach that treats ESG as risk, opportunity and compliance, in that order.

1. Map your regulatory perimeter. Identify the rules that apply based on your listings, size, sector, jurisdictions and financing mix. Include extraterritorial effects such as EU CSRD value-chain requests, UK expectations on transition planning and any ISSB-based filings in markets where you operate. Keep a close watch on evolving rules in Australia and the US, which may affect global groups and financing counterparties.
2. Run a gap analysis against the ISSB baseline. Even where local rules are still maturing, using S1 and S2 as your template future-proofs your reporting. The exercise will surface missing data, unclear accountabilities and systems gaps that can then be remedied through a multi-year plan.
3. Decide your ambition level. Compliance sets the floor, not the ceiling. Some companies will aim for leadership to reduce cost of capital, qualify for sustainable-finance products and differentiate in tenders. Others will target solid compliance. Either choice is legitimate, but you should decide explicitly and resource accordingly.
4. Build governance that fits your business. The right “owner” varies. In heavy industry, operations may drive the agenda because energy efficiency and waste reduction are core to margins. In financial services, risk and finance functions often lead. Increasingly, general counsel is central, coordinating disclosure controls, overseeing claims in the market and ensuring that sustainability statements are consistent with filings and contracts. The days when sustainability and legal never spoke are over.
5. Integrate climate and ESG into enterprise risk management. Supervisors expect banks and large corporates to quantify, manage and govern climate-related financial risks. Even before formal rules land, start with scenario analysis, materiality assessments and board-level oversight. The UAE’s principles for managing climate risk provide a practical lens for banks and borrowers alike.
6. Prepare for assurance. Treat sustainability data like financial data: define controls, assign process owners, document assumptions and methodologies, and test systems ahead of assurance. This is where many first-time reporters stumble.
7. Link to opportunity. Once the compliance rails are in place, connect them to value creation: lower energy and water costs, supply-chain resilience, product innovation, access to sustainability-linked loans or bonds and eligibility for government programs. ADGM’s sustainable-finance framework and other regional initiatives are expanding the menu of credible instruments.

Sector and size still matter

Regulators are taking a proportionate approach, but expectations differ by sector. Energy and heavy industry face deeper scrutiny on transition planning and environmental controls. Banks and insurers are under pressure to incorporate climate and broader ESG risks into risk appetite, capital allocation and product design. For listed companies of all stripes, the bar is rising because public markets demand comparability.

Against this backdrop, law departments are expanding their remit into areas once handled elsewhere in the business, often stepping into ethical and reputational questions alongside legal ones, which further increases the need for clear authority, resources and skills development within legal teams.

Equally, company size is a proxy for impact and capability. Larger groups are expected to move first and at greater depth. That said, mid-market and private companies supplying listed firms will feel the pull through contractual clauses, data requests and financing terms, especially where they export to or seek finance from jurisdictions with advanced rules.

The next 3–5 years: What to expect in the Middle East

Expect steady convergence on the ISSB baseline across the region, particularly for listed issuers. Expect central banks and financial regulators to deepen expectations on climate and, over time, nature-related risks. Expect sustainable-finance taxonomies and product rules to mature so that green and transition labels mean the same thing to issuers, investors and regulators. And expect a more active dialogue between regulators and industry to position the Middle East as a hub for climate and transition finance connecting capital to projects across the Global South. The building blocks are visible already in local exchange guidance, sustainable-finance principles and financial-centre frameworks.

Getting started, even if it’s not perfect

My final counsel is simple. Start. Don’t wait for every rule to be final or for a perfect dataset. Establish a cross-functional team, pick the ISSB baseline as your north star, run a pragmatic gap analysis and put your first disclosures into the market with a clear improvement plan. No one gets everything right on the first pass. The organisations that learn fastest, build credible governance and treat ESG as a source of risk intelligence and commercial advantage will be the ones that thrive as voluntary expectations become legal obligations. If you need one further nudge, note that investors, regulators, NGOs and customers are among the strongest sources of pressure on law departments to act on sustainability, which means your stakeholders are already watching and will reward credible progress.

That is the evolution of ESG regulation in a sentence: it is becoming part of how capital markets work. If you treat it with the same discipline you apply to financial reporting and risk management, you will not only stay compliant; you will make better decisions, win more business and lower your cost of capital.

Text by:

Dr. Wendy Dobson, senior advisor, strategic communications and ESG, FTI Consulting