How ESG Helps UAE Companies Attract Investors
Learn how credible ESG strategy, reporting and assurance can improve investor confidence and access to sustainable finance in the UAE.
August 20, 2026
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Scope 1, Scope 2 and Scope 3 classify a company’s greenhouse gas emissions according to where they arise. Scope 1 covers direct emissions from sources the company owns or controls. Scope 2 covers indirect emissions from purchased electricity, steam, heating and cooling. Scope 3 covers other indirect emissions across the company’s upstream and downstream value chain.
For UAE businesses, these categories may include vehicle fuel, generators, refrigerants, electricity, district cooling, imported materials and outsourced logistics. Correct classification begins with defining the company’s organisational boundary. Without a clear boundary, leased properties, subcontracted transport and group companies can easily be placed in the wrong scope.
Companies intending to publish their emissions should connect the inventory with their wider ESG reporting process, including governance, materiality and disclosure controls.
| Emissions scope | What it includes | Common UAE examples | Typical supporting records |
| Scope 1 | Direct emissions from sources owned or controlled by the company | Owned vehicles, diesel generators, industrial fuel and refrigerant leakage | Fuel invoices, fleet data, generator logs and refrigerant records |
| Scope 2 | Indirect emissions from purchased energy | Grid electricity and purchased district cooling | Electricity bills, utility statements and cooling invoices |
| Scope 3 | Other indirect emissions across the value chain | Imported materials, outsourced transport, employee travel, waste and product use | Procurement data, supplier records, travel reports and waste statements |
The classification does not depend on whether an emission is large or small. It depends on ownership, control and where the source sits within the company’s value chain.
Scope 1 emissions arise directly from sources that the reporting company owns or controls. Common examples include:
A vehicle does not create Scope 1 emissions for a company merely because it transports the company’s products. The company must own or control the vehicle under its selected organisational-boundary approach.
Consider a Dubai logistics company that owns 40 delivery vehicles and hires an external transport company during peak periods.
Fuel consumed by its owned and controlled fleet would normally fall within Scope 1. Emissions from the external transport provider would generally be considered under Scope 3, subject to the contractual and control arrangements.
A UAE property company may generate Scope 1 emissions from:
Refrigerants are especially important in the UAE because cooling and refrigeration equipment is widely used. Leakage should be calculated from records of refrigerant additions, removals, recovery and equipment servicing rather than being ignored because no fuel invoice exists.
Scope 2 covers indirect emissions resulting from the generation of purchased or acquired electricity, steam, heating and cooling consumed by the reporting company. The emissions occur at the energy-generating facility, but they are attributed to the organisation that purchases and consumes the energy.
For UAE companies, Scope 2 commonly includes:
Purchased district cooling will generally fall within Scope 2 where it is consumed within the reporting company’s organisational boundary. Purchased heat, steam and cooling remain part of Scope 2 under the GHG Protocol framework.
The classification may become more complex in a leased building. Electricity or cooling paid directly by tenants may fall outside the property owner’s Scope 2 inventory and require consideration under Scope 3, depending on the selected boundary and lease arrangements.
The location-based method uses the average emissions intensity of the electricity grid where consumption occurs.
The market-based method reflects qualifying contractual instruments or supplier-specific information associated with the electricity purchased by the company.
Energy attribute certificates, including I-RECs, may be used within market-based reporting when the instruments satisfy the applicable Scope 2 Quality Criteria and are appropriately tracked and retired. The company should also disclose the type of instrument used and confirm that the quality criteria have been met.
IFRSLAB’s I-REC Services can support businesses seeking documented renewable electricity attributes for appropriate market-based Scope 2 reporting.
Purchasing certificates does not reduce Scope 1 emissions or eliminate the need to improve energy efficiency. Location-based and market-based emissions should also not be presented as though they are the same measurement.
Scope 3 covers indirect emissions that occur across the company’s value chain but are not included in Scope 2.
The GHG Protocol divides Scope 3 into 15 upstream and downstream categories. These include purchased goods, capital goods, fuel-related activities, outsourced transportation, waste, business travel, employee commuting, leased assets, product use, product disposal, franchises and investments.
Upstream emissions may include:
Downstream emissions may include:
Companies applying IFRS S2 must disclose Scope 1, Scope 2 and Scope 3 emissions. For Scope 3, the company is expected to consider all 15 categories, determine which are relevant to its value chain and disclose which categories have been included in its measurement.
| Scope | Possible emissions sources |
| Scope 1 | Generators, controlled refrigerant systems, gas equipment and company vehicles |
| Scope 2 | Electricity and district cooling purchased for controlled properties |
| Scope 3 | Cement, steel, contractors, construction waste, tenant energy and capital goods |
A developer’s largest emissions may arise from construction materials rather than electricity used in its head office. Tenant-controlled utilities must also be separated from energy consumed in spaces under the landlord’s operational control.
| Scope | Possible emissions sources |
| Scope 1 | Fuel used by owned trucks, vans, forklifts and generators |
| Scope 2 | Electricity and cooling used in warehouses and offices |
| Scope 3 | Subcontracted freight, purchased vehicles, air freight, sea freight and business travel |
A logistics company should separately identify owned-fleet emissions and outsourced transport. Combining them within Scope 1 can misrepresent the operational sources over which management has direct control.
| Scope | Possible emissions sources |
| Scope 1 | Furnaces, boilers, industrial fuel, process emissions, generators and refrigerants |
| Scope 2 | Factory electricity and purchased cooling |
| Scope 3 | Raw materials, packaging, supplier production, freight, capital equipment and product use |
For manufacturers handling methane, hydrocarbons or refrigerant gases, fugitive leakage can create both safety risks and direct emissions. Targeted inspection may help identify leaks that are not apparent during routine visual checks.
Internal link: “targeted inspection” → IFRSLAB Gas Detection Solutions page
Gas-detection information should support source identification and corrective action. It should not be treated as a substitute for a complete greenhouse gas inventory and calculation methodology.
| Scope | Possible emissions sources |
| Scope 1 | Refrigerants, generators and owned delivery vehicles |
| Scope 2 | Electricity and cooling for controlled stores and warehouses |
| Scope 3 | Purchased products, packaging, imported inventory, outsourced delivery and product disposal |
For retailers, purchased goods may represent a significant part of the inventory because the emissions generated during manufacturing occur before products reach the UAE store.
The basic calculation is: Activity data × emission factor = greenhouse gas emissions
Activity data may include:
Results are normally converted into tonnes of carbon dioxide equivalent, or tCO₂e, so that different greenhouse gases can be reported using a common unit.
A credible calculation file should record:
Many of these inputs already exist within fuel invoices, electricity bills, supplier ledgers, fixed-asset registers and other financial records. A structured accounting and bookkeeping system can therefore improve the traceability of carbon data and reduce discrepancies between ESG and financial information.
A company must decide which entities and operations are included before it classifies emissions into Scope 1, Scope 2 and Scope 3.
Under the GHG Protocol Corporate Standard, companies may use approaches based on equity share, financial control or operational control. The selected approach affects how emissions from subsidiaries, joint ventures, leased facilities and outsourced activities are classified.
For example, emissions from equipment in a leased warehouse may be:
The company should document the approach and apply it consistently from one reporting period to the next.
Federal Decree-Law No. 11 of 2024 on the Reduction of Climate Change Effects applies to emissions sources across the UAE, including sources in free zones. It establishes measurement, emissions-inventory, reporting and record-retention responsibilities for sources determined by the Ministry of Climate Change and Environment and relevant competent authorities. It does not impose one identical reporting format on every company regardless of sector or size.
The UAE also launched a national measurement, reporting and verification system in October 2025 to strengthen emissions tracking and support national net-zero objectives.
UAE companies should therefore confirm their requirements with the relevant ministry, regulator, financial market, licensing body or free-zone authority before assuming that a particular reporting method is mandatory.
Once the baseline has been established, the company can use the findings to prioritise operational improvements and develop a structured Climate Risk & Decarbonization Strategy.
“The three-scope model becomes technically difficult when businesses apply it to real operating structures. The main errors usually arise from unclear boundaries, incomplete leased-asset information and incorrect treatment of outsourced activities. A credible inventory should allow every material figure to be traced to an activity record, a selected emission factor and a documented classification decision.” — Omar Al Nasser, Carbon Accounting Consultant at IFRSLAB
IFRSLAB supports UAE organisations in developing technically structured greenhouse gas inventories that can be used for ESG disclosures, stakeholder submissions and management decision-making. The process begins by examining the organisation’s legal entities, ownership arrangements, operational control, facilities and value-chain activities. This establishes a defensible reporting boundary before individual sources are assigned to Scope 1, Scope 2 or Scope 3.
The technical work includes source mapping, data-quality assessment, emission-factor selection, Scope 3 category screening and documentation of calculation assumptions. Utility statements, fuel records, refrigerant logs, fleet information, procurement data and financial records are reviewed to establish an evidence trail for reported emissions.
Where the inventory will support formal ESG reporting, IFRSLAB aligns the calculations with the reporting period, material climate risks and relevant disclosure requirements. The resulting baseline can then support a broader decarbonization programme by helping management identify priority sources, evaluate interventions, assign responsibilities and monitor reductions over time.
Discuss your company’s Scope 1, Scope 2 and Scope 3 emissions requirements with IFRSLAB.
Omar Al Nasser
Carbon Accounting Consultant, IFRSLAB
Omar advises organisations on corporate greenhouse gas inventories, Scope 3 assessment, climate disclosures and emissions-data controls. His work focuses on applying internationally recognised accounting principles to the operational structures and data environments of UAE businesses.
Purchased electricity is normally Scope 2. Electricity generated through a company-owned or controlled diesel generator creates Scope 1 emissions from the fuel used.
Purchased district cooling is generally included in Scope 2 where it is consumed within the reporting company’s organisational boundary. Tenant-controlled cooling or cooling associated with assets outside that boundary may require different treatment.
Yes. Flights taken for business purposes are normally included within the Scope 3 business-travel category, unless the company owns or controls the aircraft under its organisational boundary.
A company should screen all 15 categories to identify which ones are relevant. This does not mean every category must produce an emissions figure. Categories that do not apply should be documented, while relevant and material categories should be assessed using appropriate data and assumptions.
Qualifying I-REC certificates can support market-based Scope 2 accounting when the relevant quality, allocation and retirement requirements are met. They do not alter location-based Scope 2 emissions or reduce Scope 1 and Scope 3 emissions.
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