By Anthon?Garcia? and Emmy Borromeo
ESG strategies are a driving force in today’s era where embracing sustainability is an imperative movement. The Middle East, as a region, is at a critical moment. ESG adoption is evolving, driven by government initiatives and green finance expansion. Yet issues like inconsistent reporting and skills shortages remain.
In a world where climate crises continue to escalate by the day, one thing is inevitable: Funds are needed to accelerate sustainability goals and mitigate the consequences of climate change. The rise of ESG (Environmental, Social, and Governance) investing underscores the urgency of this financial imperative.
By 2026, ESG-related assets under management (AUM) will hit $33.9 trillion, according to PwC. This is a substantial increase from 2021’s $18.4 trillion.
A big part of this shift comes down to performance. The PwC study shows that 60% of institutional investors have already seen their ESG investments outperform traditional ones. Additionally, 78% are willing to pay higher fees for ESG funds, highlighting just how integral ESG has become in investment decision-making
This is a trend seen in major regions of the world, including in the Middle East. The region is currently at a pivotal moment: While it experiences an ESG boom, its progress remains uneven — with an ESG landscape characterised by ambitious national sustainability goals, expanding green finance markets, and the challenge of translating commitments into tangible impact.
National visions and strategies are in place
In the Middle East, national visions and strategies are driving ESG investment growth. For instance, under Saudi Arabia’s Vision 2030, the country aims to have half of its power generated from renewable sources by 2030. And by 2060, Saudi Arabia targets to hit net-zero emissions. Like Saudi Arabia, Bahrain has pledged to achieve net zero by 2060. Meanwhile, the United Arab Emirates (UAE) and Oman aim to reach this goal by a decade earlier: 2050.
“To meet these goals, the region has made a strategic shift towards renewable energy, investing in solar and wind power, as well as hydrogen production. Saudi Arabia, the UAE, and Oman are positioning themselves to be major producers and exporters of green hydrogen, which is expected to play a key role in the decarbonisation of harder-to-abate sectors,” Dr. Valentina Dedi, Lead Economic Advisor at KBR, says in an email interview with the World Financial Review. KBR is a world-leading science, technology, and engineering solutions provider.
“These investments are creating new opportunities for economic growth and employment beyond oil and gas and fostering technological innovation, leading to more diversified and resilient economies. As the region aligns with global trends and practices, it also enhances its competitiveness, attracting global capital,” she adds.
Habiba Al Mar’ashi, Co-Founder and Chairperson of Emirates Environmental Group, shares the same sentiment, noting that having robust government policies and regulations is a major trend driving the ESG boom in the Middle East.
“The region is increasingly focused on sustainable development, with governments like Saudi Arabia’s Vision 2030 and the UAE’s Net Zero by 2050 commitments driving ESG initiatives. These policies are encouraging both public and private sector investment in green technologies, renewable energy, and sustainable infrastructure,” she states in an email interview.
Financial markets catalyse adoption
Across the region, another notable trend is how financial markets are catalysing ESG adoption.
For instance, the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX) both mandated that listed companies publish annual sustainability reports. Apart from these, there’s also the strategic collaboration between AirCarbon Exchange and Abu Dhabi Global Market (ADGM), leading to the creation of ACX Abu Dhabi, the world’s first fully regulated carbon trading exchange.
“This provides a regulated marketplace for businesses to trade carbon credits and offset emissions,” Dr. Valentina explains, adding that the rise of green financing is also evident.
“The financial sector in the region has also made significant advancements in promoting sustainable and responsible investment. The National Bank of Abu Dhabi issued the region’s first green bond of $587 million in 2017, with Saudi Arabia following this example. The Saudi Public Investment Fund made its debut in 2022 by listing a $3 billion green bond on the London Stock Exchange. The Saudi Arabian Ministry of Finance then introduced the Green Finance Framework, which is expected to reduce emissions by increasing public and private participation in climate financing,” she further shares.
“The green financing trend is expected to maintain its momentum. Recent developments, such as the $750 million sustainable bond issued by the UAE Sharjah government, the publication of Oman’s Sustainable Finance Framework, and Qatar’s green bond debut in May last year, all indicate a persistent trend,” she enthuses.
Habiba also emphasises this trend, “The rise of green bonds and sustainable finance products will continue to attract investments. With the global demand for sustainable investments increasing, Middle Eastern financial markets are aligning with international green financing standards, making it easier for investors to fund projects that support climate goals.”
Increased demand and focus on innovation
Beyond governance and finance-driven initiatives, ESG adoption in the Middle East is evolving into a broader movement — one marked by an increased consumer demand and a focus on innovation and technology.
According to Habiba, “There is growing recognition of the need for businesses to address environmental and social issues. Consumers and investors alike are demanding more sustainable and ethical business practices. This shift is pushing companies to adopt ESG practices in order to attract investment and maintain their reputation.”
As for tech, she notes that “technological advancements, particularly in renewable energy, clean tech, and resource-efficient solutions, will continue to shape the ESG landscape. The region’s strong focus on innovation, alongside its significant investment in technology, will facilitate the development of sustainable industries.”
So, what are the most promising ESG-driven industries in the region?
Apart from renewable energy, Habiba mentions sustainable infrastructure and green building.
“The push for sustainable urban development, supported by visionary projects like Saudi Arabia’s and UAE’s eco-friendly initiatives, will drive investments in green buildings, energy-efficient infrastructure, sustainable construction, and Net-Zero buildings. These sectors will grow as cities and businesses adopt climate-resilient solutions to meet both regional and global sustainability targets,” she says.
Additionally, water and waste management and sustainable agriculture are industries that will help address critical environmental challenges while driving ESG investments in the region.
“The MENA region faces unique environmental challenges related to water scarcity and waste management. As governments and private enterprises focus on sustainable water usage, desalination technologies, and recycling solutions, investments in water and waste management will become increasingly crucial. ESG investors will look to fund projects that promote resource conservation and waste minimisation,” Habiba states.
Challenges remain: On ESG reporting and skills shortage
Talks about ESG have continuously grown, given its importance in accelerating sustainability initiatives. One of the most critical concerns, however, is translating pledges into real-world impact.
According to Dr. Valentina, “The Middle East faces unique challenges in implementing ESG practices. There is little mandatory regulation on sustainability, which remains the most compelling driver for ESG adoption. Unlike Europe and the US, sustainability reporting in the Middle East remains largely voluntary.”
This regulatory gap presents a key challenge for investors and companies alike, as the lack of standardised ESG metrics makes it difficult to compare and assess sustainability performance across different organisations.
While there’s progress — PwC’s Sustainability in the Middle East 2024 report notes that around 79% of companies in the Middle East now have a formal Sustainability/ESG strategy — much is yet to be done. The study shows that only 40% of surveyed companies produce full sustainability reports, while 24% disclose only selected ESG metrics.
Without consistent disclosure frameworks, investors may struggle to evaluate the true impact of ESG initiatives.
Habiba reinforces this point. Nonetheless, she acknowledges that even though the Middle East is not yet as advanced as other regions, it has immense potential.
“Overall, while the Middle East may not yet be as advanced as other regions in ESG investing, the region offers tremendous growth potential, particularly for those who recognise the long-term value in aligning with sustainable practices.”
Apart from government- and investor-prompted shifts, the region could also largely benefit from improving ESG expertise.
“Skills shortages pose another challenge, as companies struggle to find employees with the necessary knowledge and capabilities to drive their sustainability strategies and initiatives. Sustainability-related roles are still relatively new, with universities and training centers gradually starting to offer relevant programs. However, it will take some time to bridge this gap, requiring businesses to also invest in in-house upskilling,” Dr. Valentina emphasises.
With such developments and challenges, one thing is clear: ESG in the Middle East is at a pivotal point. Bolder action — from organisational to national level — is imperative to positioning the region as a global sustainability leader.
About the Authors
Anthon?Garcia?is an award-winning journalist and book editor based in Dubai, United Arab Emirates. He currently writes freelance for Economy Middle East, Energy and Utilities, Inc. Arabia and Cityscape Intelligence. He graduated with an AB English degree from the University of the Philippines and an MBA from Western Global University.
Emmy Borromeo is a writer and digital content strategist based in the Philippines. With a background in Economics from the University of the Philippines, she has written freelance for publications across the Middle East and the UK, covering business, economy, technology, and energy.
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