Insurance can make ESG standards inescapable, helping close green investment gaps

The Gulf states have set ambitious climate and sustainability goals. Between 2020 and 2024, Saudi Arabia, the United Arab Emirates, and Oman invested roughly USD 132 billion in green projects abroad. Yet in the same period they attracted only about USD 24 billion in green foreign direct investment, or just 2% of global green FDI, despite offering some of the cheapest solar power in the world. 

The problem is not a lack of ambition or natural advantage. It is a trust gap. A recent Strategy& Middle East report identifies policy uncertainty, weak or inconsistently enforced standards, and the absence of reliable mechanisms to de-risk projects as the core obstacles holding back green capital inflows (GCC captures $24bn of  $1tn global green FDI: Strategy&). Investors hesitate not because they doubt the GCC’s potential, but because they cannot yet price the policy, regulatory, and delivery risks with confidence. Insurance has the potential to close that gap. 

Putting a price on risk

Insurance turns risk into cost that cannot be ignored. If insurers demand stronger climate adaptation, better labour welfare, or tighter governance standards, then deficiencies translate directly into higher premiums or loss of coverage. That pricing discipline forces lenders, contractors, and sovereign entities to account for Environmental, Social and Governance (ESG) risks in financial terms. Where regulation falters or drags its feet, insurance makes ESG standards inescapable (The impact of the Omnibus on corporations and insurers)

There are signs countries in the Gulf are building the scaffolding for such an approach. Oman has committed to adopt IFRS S1 and S2 sustainability reporting standards (the International Financial Reporting Standards for sustainability and climate-related disclosures issued by the IFRS Foundation, which set global baseline requirements for companies to report on sustainability and climate risks in a consistent, investor-focused way), and the Muscat Stock Exchange, made ESG disclosure a requirement for all listed companies since the beginning of 2025. The Qatar Financial Centre has introduced corporate sustainability reporting rules. Saudi Arabia’s Capital Market Authority has published guidance for labelled debt, including green bonds and sustainability-linked instruments (The Guidelines for Issuing Green, Social, Sustainability, and Sustainability-Linked Debt Instruments). These steps suggest ESG is moving from optional to mandatory in the region’s financial markets.

Insurance offers a sturdy alternative to regulation

Global developments reinforce the urgency. On 14 April 2025, the EU adopted the “Stop-the-Clock” Directive, delaying many Corporate Sustainability Reporting Directive (CSRD) obligations by two years (Simplification: Council gives final green light on the ‘Stop-the-clock’ mechanism to boost EU competitiveness and provide legal certainty to businesses). Critics warn that such pauses and changes to scope risk turning ESG rules into “empty shells.” (Europe plans to ease sustainability reporting rules to compete globally)

For Gulf markets, this shows the danger of relying solely on regulation for legitimacy. Insurance offers a sturdier alternative: it cannot be watered down through political compromise. Premiums rise or fall with risk, creating real-time enforcement that regulation may struggle to match. If Gulf insurers use this moment to embed ESG criteria into underwriting, they can deliver the accountability investors expect (The Uncertain State of EU ESG Legislation (CSRD & CSDDD) in 2025).

The CSRD reporting deferral in the EU gives Gulf businesses with EU exposure time to build credible systems, but those that delay will be outpaced once enforcement begins. For insurers and reinsurers, the delay is a chance to fill the void, pricing ESG risks in real time rather than waiting for regulatory compliance.

The regional insurance market is already adapting to changing conditions. According to Swiss Re Institute’s Middle East Outlook, total insurance premiums in the region grew by around 8.7 percent in 2024, driven mainly by demand for commercial and property coverage. Growth is expected to moderate to 5.4%  in 2025, with property and motor insurance      under particular strain. Flooding and extreme weather in the UAE triggered steep rate increases and highlighted the exposure of Gulf markets to climate risk. Rising reinsurance costs are feeding into local premiums, pushing insurers to tighten standards.

Underwriting ‘worker welfare’

The social dimension of ESG remains one of the weakest points in Gulf projects despite its importance. Worker housing, recruitment fees, and health and safety in construction, servicing, and supply chains remain uneven. Some progress is visible. In 2024, Oman-based energy company OQ reported improving conditions in contractor worker camps, a recognition of the reputational and operational risks of poor welfare (OQ Sustainability Report 2024). Yet in many cases social risks remain an afterthought in both reporting and underwriting. If insurers make welfare a core underwriting criterion, companies with safe housing, fair recruitment, grievance mechanisms, and adequate healthcare will secure cheaper coverage. Those that do not will face rising premiums or denial of cover.

Because insurance feeds directly into borrowing costs, ESG compliance becomes a financial differentiator rather than just a reputational one. This is the mechanism that could help the region shift from being an exporter of green capital to a credible destination for it.

Independent organisations provide the credibility insurers need by setting benchmarks, monitoring compliance, and supplying risk data. RepRisk’s Modern Slavery briefing shows how forced labour, trafficking, and supply-chain abuses are turning into material financial risks as regulators tighten laws worldwide. For projects in Gulf countries that rely heavily on migrant labour, recruitment practices, housing standards, and worker protections now  directly affect insurability. Companies that comply gain cheaper coverage and easier access to affordable capital, while those that fall short face higher costs or even exclusion. Verified monitoring platforms such as Sedex, which track and audit supply chain labour, safety, and ethical standards, offer a practical way to operationalize this. By providing transparent, verifiable ESG data to insurers and lenders, such systems turn social and governance risks into quantifiable metrics rather than vague commitments.

This verification ensures that sustainability pressures are credible and consistent, transforming ESG disclosure from a box-ticking exercise into measurable performance improvement. It also elevates social and labour risks to the same financial plane as climate risks, embedding them directly into the cost of capital and the price of risk coverage.

If insurance enforces ESG, climate risk and labour abuse become financial liabilities. That discipline could turn the Gulf from a net exporter of green capital into a genuine hub, closing the gap between the USD 132 billion invested abroad and the USD 24 billion attracted at home. More importantly, it would weave all three elements of ESG into the region’s financial fabric, turning sustainable investment from an exception into the norm.

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