In Brief:
- Following the recent entry into force of the Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects, Paul Wynne (Partner, Corporate) and George Anis (Partner, Regulatory and Government Advisory Practice), highlight certain points in the new law that are relevant to investors.
- The article summarises some key provisions of the succinct and consequential law and draws attention to some key considerations for investors.
- By understanding the law’s provisions, assessing associated risks, and seizing the emerging opportunities in sustainable investments, investors can not only ensure compliance but also contribute to a greener, more resilient, and economically vibrant future for the UAE.
The UAE has reinforced its commitment to a sustainable future with the enactment of Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects. This landmark legislation, which entered into force on 30 May 2025, is a significant step in the UAE’s march towards carbon zero, aligning the UAE’s efforts with global climate goals, including those set out in the Paris Agreement. For investors, this legislation signals a major shift in the business landscape, creating new challenges and opportunities.
Overview
Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects (“ROCC Law”), issued on 28 August 2024 and effective as of 30 May 2025, applies broadly to all public and private entities operating within the UAE, including those in free zones, whose operations or activities release greenhouse gases (“GHGs”) into the atmosphere.
The principal objectives of the ROCC Law include:
- Emission management, by mandating the measurement, tracking, and management of GHG emissions across all sectors, contributing to global mitigation efforts;
- Ecosystem resilience, by enhancing the adaptive capacity of ecosystems and communities to withstand climate change impacts;
- Innovation and research, by fostering the development and adoption of climate-smart technologies and solutions, with a strong emphasis on private sector involvement; and
- Global cooperation and transparency, by promoting data sharing and collaboration on climate change solutions, both domestically and internationally.
The ROCC Law also aims to integrate climate goals into national economic development and diversification strategies, ensuring alignment with global standards.
Pivotal provisions of the ROCC Law, coupled with the related UAE Cabinet Resolution No. (67) of 2024 Concerning the National Register for Carbon Credits effective December 28, 2024 (“NRCC Cabinet Resolution”), include the facilitation of the establishment of a National Carbon Registry, enabling organizations to register carbon emission reductions and participate in domestic or international carbon trading. This will encourage market-driven decarbonization and sustainable investment.
Businesses, with annual Scope 1 or Scope 2 emissions exceeding 0.5 MtCO₂e, are required to establish robust GHG Emissions Monitoring and Reporting Systems, maintaining records for at least five years and submitting regular, verified reports and register with the National Carbon Registry. The Ministry of Climate Change and Environment (“MOCCAE”) will be the primary authority overseeing this. Under the NRCC Cabinet Resolution, Scope 1 for GHG emissions is defined as direct emissions generated by the facility or entity of huge carbon emissions or the participating entities, resulting from operations and operating activities, into the atmosphere. Scope 2 for GHG emissions is defined as indirect emissions resulting from consumption of electricity, energy, temperature, steam and cooling that are used in operations and operating activities. Businesses emitting below the 0.5 million metric tons threshold may voluntarily register to generate or trade carbon credits.
Companies are required to contribute to national emissions efforts by implementing concrete strategies to reduce their emissions, aligning with periodically updated national and sectoral targets set by the UAE Cabinet. This includes adopting energy-efficient practices, utilizing clean energy, protecting carbon sinks, and exploring carbon capture technologies.
The ROCC Law requires the development of adaptation plans to enhance resilience against climate risks, particularly for critical sectors such as infrastructure, energy, health, and insurance. Adaptation plans are drafted by each emirate’s competent authority in coordination with MOCCAE, and those authorities as well as the relevant entities must submit climate-impact data and implementation updates to MOCCAE.
Substantial administrative fines, ranging from AED 50,000 to AED 2,000,000, will be imposed for non-compliance, with repeated violations incurring higher penalties.
The NRCC Cabinet Resolution empowers the Securities and Commodities Authority to license, supervise and, where necessary, sanction carbon-credit trading platforms and their “related financial activities,” thereby integrating carbon instruments into the UAE’s regulated securities framework.
Investor Considerations
For investors, the ROCC Law presents a new paradigm, shifting climate-related risks and opportunities from voluntary "best practices" to legally binding obligations. Environmental due diligence will become increasingly important. We set out below climate-related matters on which due diligence should be undertaken by investors' legal and technical advisors:
- Regulatory Compliance Check:
- Scope: Verify whether the target company falls under the mandatory reporting thresholds (e.g., ≥0.5 MtCO₂e for Scope 1 or Scope 2 emissions, under the NRCC Resolution).
- Reporting History: Review past GHG emissions reports, inventories, and any third-party verification statements. Assess the accuracy and completeness of the data.
- Permits and Licenses: Ensure the target company holds all necessary environmental permits and licenses and is compliant with any sector-specific environmental regulations.
- Penalties and Fines: Check for any history of non-compliance, administrative fines, or legal actions related to environmental or climate regulations.
- Emissions Management Systems and Data Integrity:
- Systems in Place: Evaluate the target company's internal systems for measuring, monitoring, and reporting GHG emissions to ensure they are robust and aligned with international standards (e.g., GHG Protocol, ISO 14064).
- Data Collection: Assess the processes for data collection, aggregation, and verification. Identify any gaps or weaknesses that could lead to inaccurate reporting.
- Record Keeping: Confirm that the target company maintains records of measured emissions quantities for the mandated five-year period.
- Decarbonization and Adaptation Plans Assessment:
- Existence and Content: Request and review the target company's decarbonization strategies, emission reduction plans, and climate adaptation plans.
- Feasibility and Funding: Evaluate the feasibility of these plans, the resources allocated for their implementation, and their alignment with national targets.
- Technology Adoption: Assess the target company's investment in clean technologies, energy efficiency upgrades, and renewable energy integration.
- Contractual Review:
- Green Clauses: Assess existing contracts with suppliers, customers, and partners for "green clauses" or sustainability-related obligations that might impact future operations or liabilities.
- Indemnities and Warranties: Identify environmental indemnities or warranties that could transfer climate-related risks or liabilities in an acquisition.
- Litigation and Enforcement Risks:
- Past and Potential Litigation: Investigate any past or pending environmental litigation, regulatory enforcement actions, or complaints from stakeholders related to climate impact.
- Future Liabilities: Assess potential future liabilities arising from non-compliance with the ROCC Law or evolving climate regulations.
- Supply Chain Due Diligence (for Scope 3 Emissions):
- While initial mandatory reporting focuses on Scope 1 and 2 emissions, the intention is to eventually include Scope 3 (value chain) emissions.
- Investor Impact: Investors should begin to assess the climate performance and risks within a target company's supply chain, as this will become increasingly relevant for comprehensive reporting and risk management.
- Governance and Board Oversight:
- Internal Governance: Evaluate the target company's internal governance structures related to climate change, for example, whether the board or senior management have clear oversight of climate risks and opportunities and whether there are dedicated committees or roles for sustainability?
- Employee Awareness: Assess the level of employee education and awareness regarding the ROCC Law and sustainable practices.
Moreover, warranties and indemnities regarding environmental matters (in particular compliance with environmental laws including the ROCC Law and NRCC Cabinet Resolution) in investment contracts will become an area of increased focus and negotiation.
Conclusion
The entry into force of the ROCC Law marks a new chapter in the UAE's journey towards climate neutrality. For investors, it signifies a non-negotiable imperative to integrate climate considerations into their decision-making processes. By understanding the ROCC Law’s provisions, assessing associated risks, and seizing the emerging opportunities in sustainable investments, investors can not only ensure compliance but also contribute to a greener, more resilient, and economically vibrant future for the UAE. For existing investors in, or potential investors into, the UAE, Hadef & Partners is available to provide legal guidance with respect to ensuring compliance with the ROCC Law.