ESG in MENA: Why It's Shifting to Risk & Governance

Introduction

ESG in MENA is undergoing a structural shift. What began as sustainability-led initiatives and voluntary reporting is increasingly moving into the domains of risk management, governance, and compliance.

This transition reflects a broader change in how sustainability is evaluated. ESG disclosures are no longer treated as standalone narratives. Instead, they are becoming controlled disclosures that resemble financial reporting, requiring traceable data, governance oversight, and consistent sign-offs across multiple reporting channels.

Sustainability teams continue to play a critical role in strategy, decarbonisation initiatives, and stakeholder engagement. However, the accountability for ESG disclosures and associated risks is increasingly shifting toward governance, risk, and compliance functions.

For many organisations operating in the region, ESG is no longer simply a sustainability initiative. It is becoming a governance discipline linked to enterprise risk management, regulatory compliance, and board oversight.

Understanding this transition is important for organisations operating across the region. As disclosure expectations rise, companies that build governance structures around ESG today will be better positioned to respond to investor, regulatory, and stakeholder scrutiny.

ESG Regulation in MENA: What Is Driving the Shift

Several developments are driving the shift in ESG ownership in MENA from sustainability teams toward governance and risk management functions.

1. Investor Expectations

First, investor expectations are evolving. Institutional investors increasingly expect sustainability disclosures that demonstrate governance oversight, traceable data, and alignment with recognised reporting frameworks.

2. Global Regulatory Requirements

Second, global regulatory developments are influencing companies in the region. Even where ESG regulations in MENA remain at the early stages of implementation, companies with international financing, foreign listings, or cross-border operations face pressure to align with global sustainability disclosure standards.

3. ESG Ratings

Third, ESG ratings and assessments are becoming more influential. Ratings agencies such as MSCI, CDP, and S&P Global require increasingly detailed information and supporting evidence. This forces organisations to establish consistent reporting methodologies and stronger internal controls.

As a result, ESG conversations increasingly move beyond sustainability initiatives and into discussions around disclosure governance, internal controls, and enterprise risk management.

In practice, ESG reporting is moving closer to the same governance processes that support financial disclosures.

ESG Risk Management in MENA: Why Sustainability Teams Cannot Carry Disclosure Risk Alone

Sustainability teams are typically responsible for developing ESG strategies, coordinating sustainability initiatives, and managing stakeholder engagement. However, ESG disclosures increasingly intersect with areas that require governance-grade oversight.

In many organisations, sustainability data is collected across multiple departments through spreadsheets and manual reporting processes. Definitions of ESG metrics may vary across subsidiaries or operational units, and supporting evidence is often distributed across different internal systems.

When ESG claims appear in annual reports, investor presentations, sustainability reports, or ESG ratings submissions, they become matters of governance and compliance.

At that point, organisations must ensure that sustainability disclosures demonstrate:

• Consistent Methodologies
• Documented Approval Processes
• Traceable Data Sources
• Clear Accountability Structures

These requirements align more closely with enterprise risk management frameworks than traditional sustainability programmes.

Legal and compliance teams are therefore becoming increasingly involved in ESG oversight, particularly as concerns around greenwashing and reputational risk grow.

For many organisations, ESG reporting is evolving into a cross-functional governance responsibility rather than a single department's initiative.

ESG Board Oversight in MENA: Building a Practical Governance Model

As ESG disclosure expectations mature, organisations are formalising governance structures to support oversight and accountability. A practical governance model distributes ESG responsibilities across several functions within the organisation.

1. Operational Teams

Operational teams remain responsible for implementing sustainability initiatives and collecting operational data. Risk, compliance, and legal teams define governance frameworks, review ESG disclosures, and ensure sustainability claims are supported by evidence.

2. Finance Teams

Finance teams consolidate ESG metrics across business units and ensure sustainability disclosures remain consistent with financial reporting narratives. Internal audit functions review ESG controls and help ensure reporting processes remain reliable.

3. ESG & Sustainability Teams

Some companies establish a dedicated ESG or sustainability committee responsible for climate risk oversight and sustainability disclosures.

4. Internal Audit & Risk Teams

Others integrate ESG oversight within an audit or risk committee, ensuring sustainability risks are reviewed alongside financial and operational risks.

Regardless of structure, boards must address several key questions:

• Who approves sustainability targets?
• Who signs off on ESG disclosures?
• How are climate and transition risks evaluated?
• How are ESG metrics validated and reviewed?

Clear governance structures help ensure that sustainability disclosures remain credible and defensible.

Embedding ESG into ERM and Governance Frameworks

Integrating ESG risks into enterprise risk management processes is one of the most effective ways to strengthen ESG governance. When sustainability risks remain outside formal risk management frameworks, they often become disconnected from strategic decision-making and operational planning.

Embedding ESG into ERM typically begins by defining an ESG risk taxonomy aligned with the organisation's material sustainability topics. Common ESG risk categories for organisations operating in MENA include:

• Climate Transition Risks
• Water and Resource Availability
• Supply Chain Disruptions
• Workforce and Labour Practices
• Regulatory Compliance Risks
• Reputational Risks linked to Sustainability Claims

These risks should be captured in a structured ESG risk register that identifies risk owners, monitoring mechanisms, and control processes. A typical ESG risk register includes:

• Risk Description
• Cause and Potential Impact
• Risk Ownership
• Monitoring Indicators
• Control Mechanisms

This approach helps organisations move ESG reporting from narrative disclosures toward structured governance and risk management processes.

ESG Governance Roles in Practice

As ESG governance evolves, organisations increasingly adopt structured responsibility frameworks to clarify ESG reporting processes.

The table below illustrates how ESG responsibilities are typically distributed across organisational functions.

Function	Key ESG Responsibility	Governance Focus
Sustainability Team	Strategy development, stakeholder engagement, programme implementation	Operational sustainability performance
Risk & Compliance	ESG risk identification, policies, and regulatory monitoring	Disclosure governance and risk oversight
Finance	Data consolidation and alignment with financial reporting	Consistency and financial materiality
Legal	Claims substantiation and regulatory review	Greenwashing and reputational risk
Internal Audit	Testing ESG controls and reviewing reporting processes	Assurance readiness

This cross-functional governance model allows organisations to maintain sustainability expertise while ensuring ESG disclosures meet governance and compliance expectations.

Key Takeaways

ESG in MENA is evolving from sustainability-led reporting toward governance-driven disclosure management. As sustainability disclosures become more relevant for investors, regulators, and lenders, organisations must ensure ESG reporting is supported by structured governance frameworks and internal controls.

Companies that integrate ESG into enterprise risk management and governance processes will be better positioned to manage disclosure risk and respond to evolving sustainability expectations.

If your organisation is strengthening ESG governance or preparing for disclosure-grade reporting, Oren supports ESG data management, governance workflows, and multi-framework reporting across MENA organisations.

Frequently Asked Questions

Q1. Why is ESG in MENA shifting toward governance and risk management functions?

ESG disclosures increasingly resemble financial disclosures and require governance oversight, internal controls, and documented evidence. This shift naturally moves ESG ownership toward risk, compliance, and governance functions.

Q2. How can organisations integrate ESG into enterprise risk management?

Companies can embed ESG into ERM by establishing an ESG risk taxonomy, maintaining an ESG risk register, assigning risk owners, and integrating ESG risks into existing risk reporting processes.

Q3. What role should boards play in ESG oversight?

Boards should oversee ESG governance structures, approve sustainability targets, review climate risks, and monitor sustainability disclosures.

Q4. What are the most common ESG reporting challenges in MENA?

Companies often struggle with fragmented sustainability data, inconsistent metric definitions across subsidiaries, and limited governance over ESG disclosures.

Q5. How do ESG ratings influence organisations in MENA?

Ratings agencies require detailed ESG data and supporting documentation, which increases the need for structured governance and reporting processes.

Q6. How can organisations strengthen ESG governance?

Companies can improve ESG governance by integrating ESG risks into enterprise risk management, implementing governance controls over ESG data, and establishing cross-functional reporting structures.