ESG in Saudi Arabia: What Every Business Needs to Know in 2026

The Sustainability Shift

The way of doing business is changing in Saudi Arabia, with sustainability being an integral part of that change. Before this, ESG was just an insignificant topic in boardroom meetings of large firms and financial reports. Most companies considered ESG to be made for the USA and Europe only. This is no longer the case.

Banks, investors and large clients have become more aware and ask companies about their carbon footprint, energy consumption data, safety record and governance structure. These questions are asked in reviewing credit facilities, in tender documents and in due diligence checks. A company with no answers to such questions is treated as higher risk.

Saudi Arabia is gearing up for Vision 2030. It aims to bring diverse economic changes, with responsible use of all resources and transparency in reporting on its progress. Regulators are closely following these directions. For business owners, executives and compliance officers, ESG in Saudi Arabia has moved from a voluntary basis to a permanent requirement for doing business.

This article aims to explain what ESG means, where Saudi regulation and national targets stand in 2026, which reporting frameworks are the most useful, and how delays can cost significantly. The article also suggests practical ways a company can follow to get started.

What Exactly Is ESG?

ESG stands for environmental, social and governance. It is a framework used by businesses and investors to assess the sustainability, risk management and ethical impact of any organization/company to ensure that the company is managed responsibly and can continue to operate the same way in the long term.

The environmental part of ESG covers the impact of all the operations on natural resources. This includes energy use, carbon emissions, waste and water usage. Water is particularly important for Saudi Arabia, where most of the water supply comes from large-scale desalination plants. The constant use of air conditioning due to high temperatures also places a high load on energy resources. Any company that reduces its electricity use or switches to renewable energy can significantly reduce its carbon emissions and costs of doing business.

The social part of ESG covers people in the company. This includes health and safety of workforce, fair treatment for all employees, meeting Saudization targets, the impact of the company on nearby communities, and data privacy. The Personal Data Protection Law (PDPL) sets clear rules for how companies can collect, store and use personal data. Any company that holds customer or employee records falls under this law and is part of ESG.

The governance part of ESG covers the process of decision-making and who oversees it. This includes looking into board members, independent & transparent financial bookkeeping, conflict-of-interest and anti-corruption policies. Family-owned groups that are preparing to go public or looking for more investment are often looked at more closely on this governance part of ESG.

The three parts of ESG are interconnected. A company with low carbon emissions, but a poor safety record will never be able to pitch successfully to a serious investor. Similarly, a company with a strong governance model but much higher resource waste will face a similar fate.

Saudi Arabia’s ESG Landscape in 2026

The national sustainability agenda of Saudi Arabia is based on Vision 2030, which treats environmental performance as a vital part of broader economic reforms. The Saudi Green Initiative, launched in 2021, set out three main targets: a reduction of 278 million tonnes of CO₂ emissions each year by 2030, 10 billion trees plantation, and the protection of 30 per cent of the Kingdom’s land and sea area by designating them as protected areas for habitats and biodiversity.

Saudi Arabia has also set the ambitious target to reach net zero by 2060. This is based on the circular carbon economy. The idea is to treat carbon as we treat the circular economy of materials, focusing on reducing emissions, reusing and recycling produced carbon by capturing and removing emissions, not just cutting fossil fuel use.

Another part of this progress is renewable energy. Currently, approximately 2.8 GW of capacity is added to the grid, and a further 8.4 GW is in the pipeline. For a country whose sole energy dependency was on oil and gas, these figures of renewable energy mark a major shift.

Green hydrogen is another major area of renewable energy investment. Green hydrogen production splits water into hydrogen and oxygen using renewable energy, so no CO₂ is produced. In this regard, the NEOM Green Hydrogen Company, a joint venture of NEOM, ACWA Power and Air Products, is established to produce around 250,000 tons of green hydrogen per year, with the start of production set for 2026. If this target is achieved, Saudi Arabia will become an important supplier of green hydrogen.

The financial regulators are also moving in the same direction. The Capital Market Authority (CMA) and Tadawul are encouraging companies to disclose their ESG information, and Tadawul has published ESG disclosure guidelines. About 30 per cent of Saudi listed companies published sustainability or ESG reporting in 2024, up from about 20 per cent in 2023.

Currently, ESG reporting is voluntary for most companies. But the direction is very clear. Other markets followed the trajectory from a voluntary basis to mandatory reporting, and Saudi Arabia is on the same path. Listed companies should expect mandatory disclosure soon. Private companies that supply listed firms or borrow from banks should expect the same.

The Frameworks That Matter

A common reason for delays in ESG reporting in many companies is confusion over the number of standards available. Four ESG frameworks are more suitable for Saudi Arabia. Each one is designed for a different purpose.

The most used sustainability reporting system in the world is the GRI standards, issued by the Global Reporting Initiative. GRI focuses on the impact of a company on economic development, environmental issues and communities. For most Saudi companies, it can be the most natural starting point. GRI provides a clear report structure and material which is important to stakeholders and investors.

IFRS S1 and S2 were issued by the International Sustainability Standards Board (ISSB) in 2023. These are becoming the global baseline for ESG. S1 pertains to sustainability-related opportunities and associated risks, while S2 covers climate-related reporting. Tadawul highly recommends compliance with these standards for ESG reporting. Companies that are planning to raise capital abroad or an international credit facility should follow these guidelines closely.

The Task Force on Climate-related Financial Disclosures (TCFD) introduced the practice of reporting climate risk along the same lines as financial risk. It revolves around governance, risk management, strategy, and associated metrics & targets. In Saudi Arabia, climate risks include extreme heat, water stress and changes in global energy demand. The task force has since been merged with the ISSB, and the same structure now forms the basis of IFRS S2.

The GHG Protocol provides a structured method to account for greenhouse gas emissions. Emissions are divided into three scopes. Scope 1 is related to direct emissions coming from fossil fuels used on site. Scope 2 covers emissions from electricity usage, while scope 3 includes all remaining emissions in the value chain. A net-zero claim cannot be made and verified without this reporting. Moreover, every other ESG framework is dependent on this reporting. For Saudi companies, Scope 3 is often the most complex task and difficult to quantify; therefore, an early head start for companies will really be helpful.

A sensible sequence for most companies is to measure emissions with the GHG Protocol, report with GRI, and align with ISSB over time.

Why Saudi Companies Need ESG Now

Five developments are happening simultaneously, and they make early action an absolute necessity.

The foremost is regulatory momentum. ESG Disclosure is voluntary now, but the CMA and Tadawul are encouraging reporting and recommending international standards. This stage would be followed by mandatory rules. Companies that build reporting systems early on will be at ease when the deadline is set with mounting pressure.

The second development is screening by lenders and investors. Most international funds use ESG ratings as a first filter while planning for any investment. A company with a weak or lack of ESG rating will be out in preliminary screening. This applies to listed companies, private equity deals and joint ventures with foreign partners.

The third one is green financing. Banks and private lenders offer sustainability-related loans and green financing products. The Saudi Central Bank (SAMA) has issued guidance on sustainability-related financing for various sectors. Companies with credible ESG ratings are in a stronger position to negotiate better loan terms. Companies without it will have fewer options.

The fourth is access to the mega projects in Saudi Arabia. NEOM, Qiddiya, Diriyah and other large development projects include extensive sustainability requirements in their procurement and construction. Contractors and suppliers are expected to have environmental plans, green building-related certifications, worker welfare frameworks, and waste targets.

The fifth development is severe competitor pressure. Aramco and SABIC have already published sustainability reports, and they are increasingly expecting the same level of reporting from contractors and suppliers. A mid-sized fabricator or logistics company may never be on list of Tadawul and still be asked for emissions and carbon footprint data for future contracts.

All these developments change the equation for company owners. The question is no longer whether ESG is necessary but how long the company can operate without being able to meet these requirements.

The Cost of Waiting

Many companies consider ESG as a cost that can be delayed. Delay has a cost, and the losses are usually indirect, hence are easy to miss.

A company without an ESG rating and data is unable to access most green financing. The low-cost capital starts moving towards the companies with documented ESG performance. Any project without the required Environmental Impact Assessment (EIA) is guaranteed to face permit delays. And on top of it, this delay can stretch to several months and cost more than the assessment itself. A company without a documented carbon footprint can never make a net-zero claim. The customers and auditors are more aware and can easily pinpoint unsupported statements. ISO certifications are often the first proof of ESG compliance. A company without ISO certifications such as ISO 14001, ISO 45001 and ISO 50001 may be excluded from approved supplier lists altogether.

The losses from lack of ESG assessment cannot be quantified as a single loss. They appear as a tender that was not awarded, a loan with unfavorable terms or an investor who prefers a competitor.

ESG should be considered as risk management rather than as an additional cost. It identifies the weak spots of a company, reduces energy and waste costs, and documents data for customers and lenders.