As ESG regulation matures in the Gulf, the days of high-level sustainability statements and voluntary disclosure are fading. Financial regulators are sharpening expectations, investors are asking harder questions, and capital is beginning to flow differently. ESG is no longer a communications issue. It is a strategic imperative that requires operational clarity and leadership accountability.

In this article, we explore what ESG in practice looks like for institutions in the GCC and what it takes to move from intention to implementation.

The Regulatory Shift in the GCC

Across the region, regulators are shifting ESG from the periphery of compliance to the centre of financial supervision. In the UAE, the Central Bank’s ESG Reporting Guidelines have placed sustainability squarely on the regulatory agenda. The Capital Market Authority in Saudi Arabia has introduced disclosure rules that align with Vision 2030 and the broader Financial Sector Development Programme. Meanwhile, the Dubai Financial Services Authority has issued guidance on managing climate-related risks, including expectations around stress testing and financial disclosures.

These frameworks mark a turning point. Regulators are moving from principles to prescription, with tangible expectations and enforcement mechanisms. As Emmanuel Givanakis, CEO of the Financial Services Regulatory Authority at ADGM, observed, “We are committed to identifying and addressing practices that do not meet our commitment to combat financial and environmental risks through robust regulation.”

This shift is not unique to the GCC. According to the International Monetary Fund, over 30 jurisdictions have introduced or announced climate-related financial disclosures aligned with global standards. For firms operating across borders, this means ESG compliance is no longer a jurisdictional choice. It is a strategic necessity.

Where ESG Strategies Fall Short

Despite regulatory progress, ESG implementation remains fragmented. Many organisations focus on external ratings or marketing-led disclosures without embedding ESG into operational decision-making. This disconnect often leads to inconsistent data, weak ownership and lack of board-level engagement.

The governance gap is particularly stark. ESG responsibilities are frequently delegated to compliance teams or sustainability officers, with minimal influence over strategy, procurement or capital allocation. A report by the World Economic Forum found that fewer than 10 percent of emerging market firms have the internal systems needed to meet global ESG data standards.

The risk is not reputational alone. Poor ESG alignment can create regulatory exposure, credit downgrades and weakened stakeholder confidence. As Larry Fink, CEO of BlackRock, noted, “Stakeholder capitalism is not about politics. It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers and communities your company relies on to prosper.”

Building ESG Into Risk and Compliance

The most effective ESG strategies are grounded in risk, not branding. Financial institutions are beginning to treat ESG factors as part of their enterprise risk frameworks, integrating climate, governance and social risks into third-party assessments, credit scoring and operational resilience.

This involves defining material ESG risks by sector and geography, aligning ESG indicators with existing risk metrics and applying scenario-based analysis to stress test exposure. Key performance indicators can include emissions intensity per unit of revenue, gender diversity at senior levels, and the percentage of procurement aligned with ESG criteria.

The Task Force on Climate-related Financial Disclosures found that while 79 percent of global financial firms acknowledge climate-related risk as material, fewer than half have fully integrated these risks into core risk management processes. This gap represents both a vulnerability and an opportunity for firms seeking to lead.

Sustainable Finance in Practice

Sustainable finance in the GCC is evolving beyond labels. ESG-linked loans, sustainability-tied sukuk and blended finance mechanisms are emerging as credible instruments that link capital to measurable outcomes.

One UAE-based lender recently structured a sustainability-linked loan with margin adjustments tied to emissions reductions and board gender parity. In Saudi Arabia, listed entities are exploring hybrid structures to de-risk innovation in high-emissions sectors such as energy and logistics.

These instruments are also gaining traction for their ability to balance impact with returns. “For lenders, sustainability-linked loans help safeguard and de-risk their investments while also increasing their risk-adjusted returns on capital,” notes Hamza Hassan, Project Director at Earth Active.

These developments are not happening in isolation. Regional regulators are encouraging the adoption of ESG-based capital frameworks. The Central Bank of the UAE has signalled support for sustainable finance by aligning supervisory expectations with ESG disclosure mandates. Similarly, the Bahrain Bourse has launched templates to guide listed companies on environmental and social disclosures.

As Hani Kablawi, Chairman of International at BNY Mellon, puts it, “Sustainable finance is no longer a niche offering. It is becoming a fundamental component of how capital markets function.”

From Compliance to Culture

The final challenge — and arguably the most difficult — is building an organisational culture where ESG is part of how business gets done. This means equipping boards with ESG literacy, linking executive compensation to sustainability outcomes and integrating ESG into procurement, vendor selection and product development.

Too often, ESG is treated as a compliance obligation or branding exercise, rather than a core strategic lens. This can lead to false company promises and green-washing, which has little real impact other than achieving short-term financial goals. As Mark Scott, Head of Risk at j. awan & partners, notes, “Effective ESG integration means embedding environmental and social risks into business decision-making — not just climate disclosures, but also labour practices, community impact, and ethical governance. A balanced, risk-informed approach to ESG ensures companies aren't just meeting standards, but that they build resilience and deliver long-term value.”

This cultural transformation is not about ticking boxes. It is about creating long-term value and resilience. As Mark Carney, now Prime Minister of Canada and former Governor of the Bank of England and UN Special Envoy on Climate Action, observed, “Companies that fail to adapt will fail to exist.”

Final Thoughts

In the GCC, ESG is no longer about staying ahead of the curve. It is about staying compliant, competitive and credible. Regulation is evolving. Capital is moving. Stakeholders are watching. The institutions that take ESG seriously — not as a slogan but as a strategy — will be the ones that thrive in the next decade of economic transition.

For insights into how j. awan & partners is helping financial institutions, fintechs and corporates embed ESG into risk, compliance and governance, get in touch with our advisory team today.

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