9 November 2023

12 min read

ESG in the Gulf: style over substance?

A group of oil rigs in front of a sunset in the Arab Gulf

The growing global focus on a transition to more sustainable and inclusive economies and business practices is prompting countries to evaluate their approach to Environmental, Social and Governance issues (‘ESG’).

For the Gulf states, which have gained their wealth through oil and gas and largely prioritised economic growth over social and corporate governance reforms, this shift poses some unique questions regarding how they manage their relationships with broader society and enable future economic growth. How the Gulf states wish to be perceived on the world stage, as well as their commitment to legislation and regulation both domestically and internationally, matters for ESG globally. The region’s extensive overseas investment, largely through state-backed vehicles, and its presence in corporate supply chains means that the Gulf’s new interest in ESG matters to corporate decision-making everywhere – despite whether it is more stylistic or substantive. 

In this article, Natalie Stafford and Emma Johnston examine the current state of ESG in the Gulf, focusing on the Gulf Cooperation Council (‘GCC’) members — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (‘UAE’) - analysing the extent to which these states are making progress within the environmental, social, and governance pillars of ESG, and further opportunities for development.


With their economic growth historically, and contemporarily, reliant on fossil fuels, Gulf states are significant producers of carbon emissions. As of 2020, the World Bank ranked Qatar, Bahrain, Kuwait, the UAE, and Oman first, second, fourth, fifth, and sixth for the highest CO2 emissions per capita. However, as the world grapples with the implications of climate change, the Gulf states have begun to present themselves as embracing “sustainable” solutions, positioning themselves in name at least as “transitioning” towards greener energy. There is considerable effort being made to present GCC countries as leaders in areas such as renewable energy, green finance, and sustainable tourism, with well-publicised investment in renewable energy projects, such as solar and wind power, to diversify their energy mix away from fossil fuels. The majority of the GCC countries have committed to “net zero” emissions targets, but these promises gloss over the region’s continued economic reliance on fossil fuels.

Dubai is set to host COP28 in late November and December of this year, which will provide the first comprehensive assessment of progress on greenhouse gas emissions since the Paris Agreement in 2015. The conference, led by Sultan Al Jaber, the chief executive of the Abu Dhabi National Oil Company, has already faced persistent criticism of “greenwashing”. According to the Centre for Climate Reporting, Al Jaber’s Wikipedia page is regularly edited to remove environmental criticism, and an army of fake social media accounts has appeared promoting the country’s climate record. The contradiction is lost on few that the UAE will be hosting the world’s biggest climate conference just one year after it brought forward a planned 5 million bpd oil production capacity expansion, from 2030 to 2027, to meet rising global energy demand. Whilst driven by market forces, this highlights the broader challenges ESG faces in the Gulf, and further afield, as cheap and reliable oil and gas are set to remain a continued and significant part of global energy production for the foreseeable future.


Dubai is set to host COP28 in late November and December of this year, which will provide the first comprehensive assessment of progress on greenhouse gas emissions since the Paris Agreement in 2015.”


In the same vein, Saudi Arabia is building its flagship NEOM megaproject, currently the biggest green investment in the region, and a USD 5 billion plant to produce green fuel. Yet, as recently as COP27, Saudi Arabia reportedly pushed to remove from the summit’s final statement a call for nations to phase out fossil fuels, and, in 2020 the country still generated less than 1-percent of its electricity from renewables.

Nonetheless, as ESG becomes more embedded into corporate decision-making and investment strategies, and as climate legislation and GHG disclosure requirements elsewhere in the world come into effect, more scrutiny will be placed on the GCC states’ policies around the energy transition. Their decarbonisation strategies rely on the rapid deployment of technology-based solutions, and, for Saudi Arabia, Oman, and the UAE, a pathway to green hydrogen.

The region has the ability and financial capital to drive the innovation required for the energy transition. The GCC countries have some of the highest solar exposures in the world and have high-velocity wind resource sites in the region making the cost of producing solar, wind, and green hydrogen significantly lower than the average worldwide. The Gulf already invests in carbon capture - the amount of CO2 captured from industrial facilities in the GCC countries alone accounts for 10-percent of the CO2 captured globally. But there remain question marks around this approach – much of the technology that forms part of the region’s decarbonisation strategies is unproven and pathways forwards are not clear, leading to some criticism that this is just a smokescreen. Even then, the Gulf’s focus on technologies rather than reducing emissions may not meet the standards required elsewhere in the world.


As climate legislation and GHG disclosure requirements elsewhere in the world come into effect, more scrutiny will be placed on the GCC states’ policies around the energy transition.”


Another area where the Gulf has the potential to show it prioritises the substance of reduced environmental impact over the headlines of hydrogen cities and nascent but untested technologies is through the phase out of subsidies for electricity, fossil fuels, and water. States in the region have long relied on a model of significant government intervention and support, which can lead to wasteful consumption of resources and harmful environmental outcomes. For example, as of 2020 annual per capita water use in GCC countries was 560 litres per day, compared with a global average of 180. Mandating resource usage reporting for listed companies, and the slow phase out of water subsidies, could position the Gulf as a leader in environmental sustainability, but will require a rolling back of the state that would represent a more fundamental shift in the state-society relationship across the region.


Beyond the inherent dilemma of decarbonisation in a region heavily dependent on fossil fuel revenues, the Gulf faces a number of challenges regarding the social pillar of ESG. The Gulf region has a diverse population, with a substantial expatriate workforce often compromised by poor labour rights and workplace safety. At a time when many other governments across the world are implementing legislation around modern slavery and human rights, Gulf states will need to consider how they tackle these issues if they are to demonstrate they have a genuine commitment to ESG.

In the majority of the Gulf states, the kafala, or sponsorship, system still provides private individuals and businesses nearly unlimited control over migrant workers' employment and immigration statuses. Workers lack protection under the host country's labour law because the system frequently falls under the purview of interior rather than labour ministries. The kafala system gives private citizens – rather than the state – control over workers' legal statuses, creating a power imbalance that can be exploited by sponsors. International pressure has resulted in some limited labour market reform. For example, in 2020, with the support of the International Labour Organisation, Qatar removed the need for migratory workers to obtain their employers' consent to change occupations. However migrant workers across the Gulf remain at the mercy of their employers. Passport confiscation is still commonplace, along with many companies facing no penalty for failing to renew the residency permits of their employees, who are then left in legal limbo.


There has been some progress in improving labour conditions...However, reforms which safeguard workers' rights and enhance workplace safety regulations have not been widespread in the region.”


There has been some progress in improving labour conditions, such as Bahrain’s 2009 Mobility Law, and the establishment of the Labour Market Regulatory Authority which now allows for marginally higher worker mobility and ends migrant worker’s dependence upon employers during the entry and exit process. However, reforms which safeguard workers' rights and enhance workplace safety regulations have not been widespread in the region. In 2022, the Labour Rights Index, a global index that measures employment regulation, did not rank a single GCC country as having higher than a “limited access to decent work”. The 2022 FIFA World Cup also shone a spotlight on human rights abuses by Qatar, and in the Gulf more widely, where migrant workers laboured in extremely high temperatures to construct roads, hotels, and stadiums for the tournament. The conditions reportedly contributed to the deaths of thousands of migrant workers over the past decade.

Labour market reform will be a prerequisite to ESG being taken seriously across the Gulf, and, like its Environmental pillar, the more pressing Social issues for ESG will require a fundamental rethink of the state-society dynamic in the region.


The Gulf states are moving at different speeds on ESG regulation and reporting. While the stock exchanges of all the GCC states are part of the UN’s Sustainable Stock Exchange (‘SSE’) initiative, reporting requirements, measuring instruments, and guidance varies widely between countries. In the UAE, both the Dubai Financial Market and the Abu Dhabi Securities Exchange are required to publish annual sustainability reports, while Oman’s Muscat Stock Exchange, the last of the GCC stock exchanges to join the SSE in March 2022, has not mandated ESG reporting for listed companies until 2025. However, in the majority of the GCC countries, while reporting guidance exists, it is still not included as a listing requirement. On top of the variation in individual stock exchange reporting requirements, in 2023 the GCC Exchanges Committee published a further set of voluntary ESG disclosure standards for listed firms in the Gulf region. While ESG reporting guidance can assist listed companies in their disclosure, it remains largely toothless as a means of ESG regulation given companies can pick and choose how much, if anything, to disclose.

At the more granular level, too many GCC companies still operate with concentrated shareholder profiles and at present there is little appetite either for significant change or to ensure appropriate checks and balances are in place if controlling shareholders weaken the independence and effectiveness of companies’ boards. The structuring of many Gulf economies, through the dominance of family-owned and run companies, means there is a persistent risk of undue influence being exercised by the controlling shareholders, potentially extending to the composition of board committees and appointment of board members. A 2020 report from the American University in Sharjah found that a small number, on average 2.7, of shareholders with more than 5-percent of a company's voting rights, represented on average 52.7-percent of the shareholding of listed GCC companies in the period from 2007 to 2015.


Too many GCC companies still operate with concentrated shareholder profiles”


Various regulatory reforms are promised under the strategic initiatives outlined by the Gulf states, from Saudi Arabia’s Vision 2030 framework, to the UAE’s 2050 strategy. Some have already been enacted, such as the Abu Dhabi Securities Exchange requirement for all listed companies to have at least one woman on their board, and in 2023, the Ministry of Commerce and Industry in Kuwait issued a resolution regarding the procedures of determining the identity of ultimate beneficial owners. But, reforms are still generally some way behind the requirements of exchanges in Europe, for example, and they remain piecemeal. To meet some of the ambitious targets set out in the region’s big strategic initiatives, reforms will need to move quicker and go much further.


The growing prevalence of ESG and sustainable finance in the GCC region is forcing states here to consider how they engage with Environmental, Social and Governance issues. The presence of ESG, and particularly the energy transition, within some of the grand strategic visions laid out by many states of the region, and in the new ESG reporting guidance laid out by its stock exchanges, certainly suggests that this is a movement being taken seriously. Yet, progress remains hampered by some of the challenges and contradictions facing the region. The Gulf heavily promotes its investment in environmentally sustainable initiatives and technology, but this is countered by allegations of greenwashing and ongoing global reliance on fossil fuels. Whilst technology may yet offer some of the solution to a shift to a greener economy, the states of the Gulf face a trickier question regarding their relationships vis-a-vis their populations. More than simply designing and implementing ESG reporting practices, they need to consider if they are willing to deal with some of the fundamental labour market and governance reform required to show that they are taking ESG seriously.


Regulatory requirements


  • Joined the SSE: 2019
  • ESG reporting: Voluntary
  • Annual sustainability report: Yes
  • Net Zero Target: 2060
  • Labour Rights Index rating: 67/100 (Limited Access to Decent Work)

  • Joined the SSE: 2017
  • ESG reporting: Voluntary
  • Annual sustainability report: Yes
  • Net Zero Target: 2050 (oil and gas), 2060 (other sectors)
  • Labour Rights Index rating: 61/100 (Limited Access to Decent Work)

  • Joined the SSE: 2022
  • ESG Reporting: Mandatory from 2025 onwards
  • Annual sustainability report: No
  • Net Zero Target: 2050
  • Labour Rights Index rating: 49/100 (Total Lack of Decent Work)

  • Joined the SSE: 2016
  • ESG reporting: Voluntary
  • Annual sustainability report: No
  • Net Zero Target: None
  • Labour Rights Index rating: 47/100 (Total Lack of Decent Work)

Saudi Arabia
  • Joined the SSE: 2018
  • ESG reporting: Voluntary
  • Annual sustainability report: Yes
  • Net Zero Target: 2060
  • Labour Rights Index rating: 62.5/100 (Limited Access to Decent Work)

  • Joined the SSE: 2016 (DFM), 2019 (ADX)
  • ESG reporting: Mandatory for listing
  • Annual sustainability report: Yes
  • Net Zero Target: 2050
  • Labour Rights Index rating: 47/100 (Total Lack of Decent Work)

ESG Watch is S-RM’s round-up of the latest regulatory and policy updates relating to ESG from around the globe. Read the October 2023 edition now.


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