Financial reporting is evolving – with sustainability no longer merely an add-on but a core aspect of business performance. As the Middle East region strengthens its positioning as a global business hub, it is adhering to internationally recognised financial reporting frameworks to build transparency, ensure compliance, and establish trust with stakeholders.
The UAE has adopted the International Financial Reporting Standards (IFRS), which means that all publicly traded companies and financial institutions in the country are required to comply with IFRS, promoting consistency and transparency.
Recognising that environmental and climate risks directly affect financial stability, the IFRS has introduced the S1 and S2 standards, merging sustainability disclosures with traditional financial reporting. This means, that investors, regulators, and stakeholders expect businesses to report financial results, environmental impact, and climate-related risks.
However, collecting, analysing, and integrating sustainability data is complex. This is where technology becomes essential to efficiently and accurately meet these new demands. In the UAE, technology has been reshaping society, particularly with the rise of automation and the widespread adoption of artificial intelligence.
KPMG’s CEO Outlook Report 2024 found that UAE CEOs are betting big on AI and ESG to navigate complex global environment. 56 per cent of UAE CEOs said that they expected returns on ESG investments within 3 to 5 years, compared to 55 per cent globally, reflecting the UAE CEOs alignment with the country’s sustainability agenda.
The UAE’s Green Agenda 2030 is a long-term plan for sustainable development. It mandates mandatory ESG reporting for public joint stock companies listed on the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX), requiring them to publish annual sustainability reports detailing their long-term strategies and the impact of their activities.
There are several reasons why sustainability reporting trumps traditional financial reporting, and UAE businesses stand to gain from compliance. Traditional financial reporting follows structured rules, but sustainability reporting involves tracking a broader range of factors such as carbon emissions, energy use, climate risks, and more. A technology-driven strategy streamlines sustainability reporting by providing both accuracy and efficiency.
For example, cloud-based platforms give organisations a centralised system that combines financial and sustainability data, minimising errors and ensuring consistency. The adoption of AI and automation helps facilitate the processing of large data, particularly detailed lengthy documents, reducing the need for manual input, meanwhile detecting potential risks or discrepancies.
Even though some businesses in the UAE still rely on manual data entry and spreadsheets, they are aware of the increasing the risk of errors and inconsistencies. There is a growing urgency to set up a robust digital foundation that effectively synchronises sustainability data with financial reporting.
Using the power of technology, UAE businesses can track sustainability performance in a dynamic and interactive way, leading to better informed decision-making. The rise of blockchain technology too, offers a secure and tamper-proof solution to verify sustainability data, strengthening trust and simplifying the auditing process.
Role of Gen AI in sustainability reporting
One of the most transformative innovations is none other than Generative AI (GenAI). By scanning extensive amounts of data (from supplier reports to regulatory frameworks), it automatically detects gaps or inconsistencies within seconds. It also improves scenario analysis, aiding businesses in anticipating climate-related risks and regulatory impacts.
One powerful application of GenAI in sustainability reporting is value chain mapping, specifically in assessing Scope 3 emissions. AI can analyse data related to suppliers, procurement, and operations to identify areas of high carbon emissions intensity. For instance, a global healthcare provider managing a network of hospitals and suppliers can utilise GenAI to streamline its Scope 3 emissions reporting. This will lead to improved data accuracy and more robust disclosures aligned with IFRS S2.
This capability not only ensures compliance but also helps organisations proactively manage climate-related financial risks, enhances transparency for investors and regulators, and builds more sustainable supply chains. Without AI-driven insights, companies may encounter inconsistent and incomplete disclosures, impacting investor confidence and negatively affecting their regulatory standing in an era of heightened scrutiny regarding ESG issues.
Challenges in technology adoption
No doubt the AI and automation offers significant benefits for UAE businesses but they can bring some challenges. AI models require large datasets, often containing sensitive corporate information. Therefore, companies must implement stringent security measures. Given that many organisations operate on outdated IT infrastructure, the transition from legacy to digital reporting systems can be tedious. It is also critical that important that AI-generated data be meticulously reviewed to ensure accuracy and regulatory alignment.
It would be ideal for UAE organisations to kick off their sustainability reporting journey in a phased manner, starting with pilot programmes, assessing system readiness, and gradually scaling digital solutions. As investors and customers increasingly prioritise sustainability, businesses that act now will reinforce trust in their work and future-proof their operations. By leveraging AI and digital tools, UAE companies can transform complex reporting requirements into an efficient, strategic process and gain a competitive edge. .
