Double Materiality Assessment
UAE

Double materiality assessment in UAE: No mandatory CSRD equivalent; ADGM Sustainable Finance Regulatory Framework; DFSA ESG disclosure expectations; voluntary adoption of GRI, ISSB, or ESRS

The UAE does not have a mandatory sustainability reporting framework equivalent to CSRD or ISSB-based standards. However, sustainability disclosure is accelerating rapidly, driven by the UAE's COP28 presidency commitments (2023), regulatory signals from the ADGM and DFSA (the two main financial free zone regulators), increasing pressure from international investors and lenders who require ESG data from UAE entities, and the government's Net Zero by 2050 Strategic Initiative. Large UAE entities are voluntarily adopting GRI Standards, ISSB frameworks, or (for those with EU exposure) ESRS for their sustainability reporting. The concept of double materiality is not embedded in UAE regulation. Entities that voluntarily adopt GRI use an impact materiality approach. Those adopting ISSB use financial materiality. Those subject to CSRD (through EU subsidiaries or EU-listed securities) must apply double materiality per ESRS 1.20-33. For many UAE entities, the starting point is choosing which framework to adopt, which in turn determines the materiality approach. The ADGM published its Sustainable Finance Regulatory Framework in 2023, requiring ADGM-registered fund managers and financial institutions to consider ESG factors in their investment processes and make ESG-related disclosures. The DFSA has published similar expectations for DIFC-regulated entities. Neither regulator mandates a specific reporting standard, but both reference the ISSB and TCFD as appropriate frameworks.

Regulatory context: Securities and Commodities Authority (SCA); Abu Dhabi Global Market (ADGM); Dubai Financial Services Authority (DFSA)

The UAE's regulatory structure for sustainability disclosure is fragmented across multiple authorities. The Securities and Commodities Authority (SCA) regulates listed companies on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM). The SCA published ESG disclosure guidance in 2023, requiring listed companies to publish annual sustainability reports. The guidance does not mandate a specific standard but encourages adoption of internationally recognised frameworks (GRI, ISSB, CDP). The ADGM (a financial free zone in Abu Dhabi with its own legal and regulatory framework based on English common law) requires registered fund managers to disclose how they integrate ESG considerations into investment decisions. The ADGM's framework is principles-based rather than prescriptive, focusing on process disclosure rather than specific materiality assessment methodology. The DFSA (Dubai International Financial Centre's regulator) has published ESG-related expectations for regulated entities, encouraging climate risk disclosure aligned with TCFD. The DFSA has indicated interest in moving toward ISSB-aligned mandatory disclosure but has not set a timeline. The UAE's Ministry of Climate Change and Environment has published the National Climate Change Plan 2017-2050 and the UAE Net Zero by 2050 Strategic Initiative. These policy commitments create a regulatory backdrop that increases the financial materiality of climate-related risks for UAE entities, particularly in oil and gas, real estate, aviation, and financial services.

Practical guidance for UAE

UAE entities approaching sustainability materiality assessment for the first time should start by identifying which framework applies. If the entity is subject to CSRD (EU subsidiary or EU listing), apply ESRS 1.20-33 double materiality. If adopting ISSB voluntarily, apply IFRS S1 paragraphs 17-19 (financial materiality). If reporting under GRI, apply GRI's impact materiality approach. If no specific framework is required, the ISSB approach provides the broadest international acceptance and the clearest alignment with evolving UAE regulatory expectations. For the materiality assessment itself, UAE entities face specific sectoral considerations. Oil and gas entities (a significant share of UAE GDP) face E1 Climate change materiality on both dimensions: impact materiality from production emissions, financial materiality from transition risk as global demand for hydrocarbons is projected to decline. Real estate developers face E1 through building energy consumption in a climate requiring intensive cooling (the UAE's average electricity consumption per capita is among the highest globally), E3 through water desalination dependency, and S2 through construction labour conditions. Financial institutions face financed emissions exposure through their lending and investment portfolios, particularly given the UAE's concentration in hydrocarbon and real estate sectors. Stakeholder engagement for the materiality assessment should reflect the UAE's specific context. The workforce in many UAE sectors is predominantly composed of expatriate workers, which creates specific S1 and S2 materiality around labour rights, working conditions (heat exposure during summer months), and worker welfare. The UAE government has introduced worker welfare standards (including midday work bans during summer and Wage Protection System requirements), but enforcement varies. Assess S1 and S2 with specific reference to these conditions.

Audit expectations

The UAE does not currently mandate sustainability assurance. Entities voluntarily obtaining assurance typically engage Big Four or large mid-tier firms applying ISAE 3000 (Revised). As the regulatory framework develops, ADGM and DFSA may introduce assurance requirements aligned with ISSA 5000. For UAE entities subject to CSRD, sustainability assurance must meet EU requirements. This typically means engaging an assurance provider authorised in the relevant EU member state where the CSRD reporting obligation arises. UAE-based assurance providers are not currently recognised under EU assurance frameworks unless they hold equivalent EU qualifications. The UAE's audit profession is regulated by the Ministry of Economy (for mainland entities) and by the free zone regulators (ADGM, DFSA) for entities registered in those zones. The profession includes a mix of locally licensed auditors and international firms. Sustainability assurance capability is developing but concentrated among international firms.

UAE-specific considerations

The UAE's economic structure, with heavy reliance on hydrocarbons (approximately 30% of GDP) and real estate, creates a concentrated materiality profile. Oil and gas entities face the most acute double materiality challenges: their core business activity is the production of fossil fuels that drive climate change (impact materiality), while the global energy transition threatens the long-term demand for their products (financial materiality). The UAE's rapid construction and real estate development, particularly in Dubai and Abu Dhabi, creates specific E1, E3, and S2 materiality. Buildings in the UAE consume significant energy for cooling (DEWA reported that electricity demand peaks during summer months at levels 70% above winter baseline). Water supply is almost entirely desalination-dependent, making E3 material for any entity with significant water consumption. The construction sector's reliance on migrant labour creates S2 exposure around working conditions, heat stress, wage payment, and accommodation standards. The UAE's commitment to the COP28 Global Renewables and Energy Efficiency Pledge (tripling renewable energy capacity by 2030) and the establishment of the Abu Dhabi Sustainability Week signal the government's direction. Entities should anticipate that voluntary sustainability disclosure will become mandatory over the 2027-2030 period, likely aligned with ISSB standards. Planning the materiality assessment now positions entities ahead of regulatory requirements. Free zone entities (ADGM, DFSA, JAFZA, DAFZA) operate under different regulatory regimes than mainland entities. The materiality assessment should reflect the specific regulatory requirements of the entity's registration zone. ADGM-registered financial entities face more developed ESG disclosure expectations than mainland-registered entities.

Common inspection findings

The SCA's 2024 review of listed company sustainability reports found that most entities published sustainability information based on GRI or proprietary frameworks without a structured materiality assessment process or documented scoring methodology.

ADGM's supervisory reviews found that registered fund managers disclosed ESG policies but could not demonstrate how ESG materiality assessments influenced actual investment decisions.

The DFSA observed that DIFC-regulated entities were not consistently integrating climate risk into their risk management frameworks despite TCFD-aligned disclosure expectations.

UAE-listed companies with significant Scope 3 emissions (oil and gas, airlines) were not assessing or disclosing downstream emissions as part of their climate materiality analysis, focusing only on operational Scope 1 and 2.

Labour welfare organisations and media investigations identified working conditions in UAE construction and logistics sectors as a material sustainability risk that most listed companies were not addressing in their sustainability reports, indicating a significant gap in social topic materiality assessment.