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Gulf markets · · 3 min read

How Are GCC States Progressing in Implementing ESG Standards?

The Gulf states are in an intensive race to establish themselves as a global hub for sustainable finance - ESG has moved from an ethical initiative to a cornerstone of long-term economic policy and financial resilience.

WRITTEN BY

ESG Qatar Editorial

Hawkama International

The King Abdullah Financial District in Riyadh at dusk, its towers lit against a pink sky
Photograph: B.alotaby. Cropped for this page and offered under the same licence,CC BY-SA 4.0source (opens in a new tab)

Key takeaways

  • ESG in the Gulf has crossed from voluntary practice into regulatory mandate, and is now a condition of market access and capital raising rather than a reputational extra.
  • The UAE is the most advanced jurisdiction: Federal Law No. 11 of 2024 obliges every company to measure, report and reduce greenhouse gas emissions, with penalties reaching AED 2 million.
  • Qatar converted the QFC’s voluntary sustainability guidance into binding, ISSB-aligned rules effective June 2025; Oman mandated ESG reporting for all Muscat-listed companies from January 2025.
  • Saudi Arabia and Bahrain’s bourses still treat disclosure as voluntary; Kuwait requires Premier Market issuers to disclose for FY2025, with first reports due by June 2026.
  • Regional performance is strongest on the social pillar and weakest on governance - the region’s scores there are uniformly low, pointing to systemic rather than local problems.
  • Demand is real, not declaratory: Masdar’s USD 1 billion green bond issuance in May 2025 was oversubscribed 6.6 times.

The implementation of Environmental, Social and Governance (ESG) criteria across the Gulf Cooperation Council states is undergoing a rapid and structural transformation, shifting from voluntary practice to regulatory mandate and to a fundamental driver of economic competitiveness - though the pace and the priorities vary from one country to the next.

A regulatory shift: from optional to mandatory

A decade ago, sustainability practice in the Gulf was largely a marketing exercise or a set of modest voluntary initiatives. Today the states have gone a considerable distance toward embedding ESG in their financial and legal systems, driven by ambitious national visions such as Saudi Vision 2030 and Qatar National Vision 2030.

The defining feature of the present moment is the move toward regulation and obligation, alongside the adoption of international standards such as those issued by the International Sustainability Standards Board (ISSB). The aim is to strengthen transparency and attract foreign investment: ESG compliance is no longer optional but a precondition for reaching markets and capital. Demand for green bonds shows this clearly - Masdar’s USD 1 billion issuance in May 2025 drew orders 6.6 times the amount offered.

The leading and fast-moving states

  • United Arab EmiratesThe most advanced jurisdiction in the region. It has issued a federal law - Decree-Law No. 11 of 2024 - obliging every company to measure, report and reduce greenhouse gas emissions, with penalties reaching AED 2 million. Its central bank also maintains advanced climate risk management regulations.
  • QatarThe Qatar Financial Centre has converted voluntary sustainability guidance into binding rules effective June 2025, aligned with the ISSB standards, obliging financial institutions and listed companies to adopt structured disclosure frameworks.
  • Sultanate of OmanTook a decisive step by requiring every company listed on the Muscat Stock Exchange to publish ESG reports from January 2025.
  • Saudi ArabiaThe Capital Market Authority and Tadawul actively encourage ESG disclosure in line with Vision 2030, with marked momentum in green and sustainable sukuk and bond issuance - though disclosure itself remains voluntary for now.

The states at an earlier stage

  • KuwaitMoving toward obligation: companies listed on the Premier Market are required to disclose ESG information for the 2025 financial year, with the first reports due by June 2026.
  • BahrainThe Central Bank of Bahrain requires banks to report in line with ISSB guidance, while the Bahrain Bourse encourages voluntary reporting.

Strengths and challenges

Performance assessments reveal a clear regional pattern, and it is not the one an outside observer might expect.

  • Strength in the social pillarThe Gulf states perform relatively well here, supported by strong indicators in health, education and security. The UAE leads the category with a rating of A-.
  • Moderate environmental performanceThe modest score reflects high pollution levels, energy consumption and greenhouse gas emissions arising from dependence on hydrocarbons. Notable progress is nonetheless under way in renewable energy projects and water infrastructure.
  • The greatest challenge: governanceGovernance is the region’s Achilles heel. Every state scores low, which points to systemic rather than local problems - despite relatively positive indicators on political stability.

What is driving the acceleration

  • National ambitionEconomic diversification visions - Saudi Vision 2030 above all - are the primary catalyst, aiming to reduce oil dependence and build sustainable, knowledge-based economies.
  • Attracting investmentGovernments are encouraging ESG adoption to make their financial markets more attractive to global institutional investors, who build these criteria into their risk assessment.
  • External pressureMechanisms such as the EU Carbon Border Adjustment Mechanism (CBAM) are pushing regional exporters to cut their carbon footprint in order to stay competitive in global markets.
  • Alignment with Islamic financeThe compatibility of green and sustainable sukuk with Shariah principles gives the Gulf states a distinctive competitive advantage in sustainable Islamic finance.

What comes next

In sum, the Gulf states are engaged in an intensive race to establish themselves as a global hub for sustainable finance. ESG has outgrown its origins as an ethical initiative to become a cornerstone of long-term economic policy and financial resilience - a trajectory that reflects a deliberate strategic commitment to placing sustainability at the centre of the region’s growth model.

TOPICS

  • GCC ESG regulation
  • Mandatory ESG disclosure
  • Green sukuk and bonds
  • CBAM and Gulf exporters
  • Governance in the Gulf

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