Positioning SMEs in the UAE’s Net-Zero Agenda

Spotlight

• Small- and medium-sized enterprises (SMEs) remain key components of the UAE’s future economic growth plans, with the potential to play a more prominent role in the country’s net-zero transition.
• The UAE has well-established entities, measures, and programmes, including the SME Climate Hub and certain financial institutions, that can be further leveraged to strengthen SME participation in achieving net-zero goals.
• Given the unique challenges faced by SMEs, greater focus should be placed on sector-specific peer-to-peer training, simplifying and streamlining monitoring and reporting regulations, incentivising participation in training programmes, and increasing investment support.

Alongside the United Arab Emirates’s (UAE) well-established large-scale players, such as Masdar, the Abu Dhabi National Oil Company (ADNOC), and the Al-Futtaim conglomerate, small and medium-sized enterprises (SMEs) play a vital role in the national economy. SMEs account for approximately 94–95 percent of businesses and contribute more than 60 percent of non-oil gross domestic product (GDP). Their growth remains a national priority, with the UAE aiming to increase the number of SMEs to one million by the end of 2030, supported by initiatives such as the National Agenda for Entrepreneurship and SMEs, apart from broader efforts to strengthen local content.

Concurrently, the UAE has committed to achieving net-zero emissions by 2050, with the UAE Net-Zero by 2050 Strategy targeting emissions reduction across prominent sectors such as power, industry, transport, buildings, waste, and agriculture. SMEs represent an important component of the shift to a low-carbon economy.

The aggregate emissions footprint of SMEs can be substantial, despite individual firms having a relatively small footprint. They account for up to 60 percent of global business emissions. However, compared to larger companies, SMEs face several barriers to decarbonisation, including limited awareness, lack of technical expertise, lower access to finance, and reduced internal capacity. These make it difficult for firms to identify suitable low-carbon measures and assess their benefits, or understand available government assistance. At a time when SMEs are expected to measure and report emissions in response to evolving regulations and supply-chain requirements, these challenges are significant.

The aggregate emissions footprint of SMEs can be substantial, despite individual firms having a relatively small footprint.

The issues faced by SMEs may vary across sectors, given differences in operational activities, emissions sources, and investment needs. The UAE classifies SMEs across trade, services, and industry, where they account for 73 percent, 16 percent, and 11 percent of businesses respectively. While SMEs in industry represent a smaller share, they warrant attention, given the UAE’s efforts to expand domestic industry through Operation 300bn and the AED 1 billion National Industrial Resilience Fund, which support localisation in sectors including primary metals, construction materials, and electrical and chemical industries.

In this context, the article assesses the extent to which SME-focused low-carbon strategies are currently being implemented and supported in the UAE. It also examines existing gaps and identifies opportunities to expand SMEs’ role within the broader decarbonisation ecosystem and net-zero agenda.

Assessing UAE Support for SME Decarbonisation

The Organisation for Economic Co-operation and Development (OECD) conducted an analysis across seven member countries to assess national approaches and policy measures addressing SME decarbonisation challenges. It covered five main policy areas: awareness-raising and training, investment support, emissions monitoring and compliance with sustainability reporting requirements, green public procurement, and the role of non-governmental stakeholders in delivering SME programmes targeting low-carbon transition. Drawing on this framework, Table 1 examines the extent to which UAE policies, strategies, and programmes align with each of these areas, while considering how support may need to differ across SME sectors.

Table 1: Key UAE-Based Initiatives and Measures Supporting Business Decarbonisation

Source: Author’s own.

As the table demonstrates, the UAE has made marked progress in building an enabling ecosystem for SME transition to low carbon, but measures can be further enhanced.

Awareness-Raising and Training Programmes

Accredited micro-qualifications in sustainability and decarbonisation can be introduced for SMEs. Ireland’s SOLAS Green Skills for Business programme is one example; it offers targeted micro-qualifications for SMEs in areas including resource efficiency, sustainable supply-chain procurement, and the circular economy. In the UAE, initiatives such as Majra Academy already provide lessons covering corporate social responsibility (CSR); environmental, social and governance (ESG) principles; and sustainable development. Introducing micro qualifications through training providers formally accredited by the National Qualification Center could help SMEs demonstrate in-house sustainability capabilities to banks, investors, and larger companies. These programmes should align with the National Qualifications Framework to ensure consistent standards.

Emissions Monitoring and Sustainability Reporting

The primary national framework for emissions monitoring and sustainability reporting requirement compliance is Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects. This law requires entities, including those operating in free zones, to measure and report their GHG emissions and plan to reduce them, strengthening environmental accountability across the private sector. Current reporting requirements focus primarily on Scope 1 and Scope 2 emissions. However, there are plans to include Scope 3 emissions, which could be particularly important for decarbonising SMEs in sectors such as construction, agricultural commodities, and real estate, where value-chain emissions can account for more than 90 percent of the overall carbon footprint.

Therefore, a simplified framework accounting for them could enable SMEs to gradually adopt emissions measurement and reporting practices, while reducing the administrative and financial burden of compliance.

To build on this law, one potential intervention would be to develop an emissions measurement and reporting framework tailored to SMEs. The constraints SMEs face when complying with emissions reporting and sustainability standards are different from larger companies. Therefore, a simplified framework accounting for them could enable SMEs to gradually adopt emissions measurement and reporting practices, while reducing the administrative and financial burden of compliance. The framework should also reflect the sector in which the SME operates. This could entail combining a common set of core disclosures for all SMEs with additional sector-specific requirements for businesses with higher-impact activities.

Green Public Procurement

The UAE Government Procurement Law includes provisions under Article 7 to create opportunities for SMEs, local suppliers, green businesses, and sustainable commercial activities while supporting national procurement and localisation efforts and promoting emission-reducing products. Steps have already been taken to strengthen SME participation in procurement through initiatives such as the Emirati Supplier Programme and the Homegrown Supply Chain Programme. The former specifically targets SMEs and the latter provides incentives for them within a broader group of suppliers.

This could create a positive feedback loop by encouraging SMEs to adopt more sustainable practices while increasing demand for sustainability training and certification.

An initiative that could strengthen efforts is giving preferential treatment to low-carbon SMEs or businesses with recognised sustainability credentials. This could create a positive feedback loop by encouraging SMEs to adopt more sustainable practices while increasing demand for sustainability training and certification. Future strategies could consider extending provisions to non-national SMEs, as existing initiatives largely focus on Emirati entrepreneurs. However, piloting such incentives through ongoing Emirati-focused programmes could provide a useful basis to assess whether procurement preferences effectively encourage greener business practices.

The Role of Non-Governmental Stakeholders

Non-governmental stakeholders can play an important role in advancing the UAE’s low-carbon transition through capacity-building, technical assistance, and providing access to finance. For instance, the UAE Alliance for Climate Action (UACA), led by Emirates Nature – WWF, gathers non-state actors to accelerate decarbonisation. However, its current members mostly larger organisations, while many of the SME participants are already active in areas such as clean technology and the circular economy. There is, consequently, scope to broaden engagement with SMEs in more conventional sectors, such as industry, services, and construction – where decarbonisation interventions may be equally important. As SME participation expands, UACA could build on its peer-to-peer capacity-building sessions by establishing sector-specific networks focused on common decarbonisation challenges, practical solutions, and best practices. These networks could host manufacturing SMEs tackling process-heat efficiency, or hospitality and retail businesses focusing on efficiency measures for buildings.. Collaboration with UAE-based organisations such as International Renewable Energy Agency (IRENA), the Global Green Growth Institute, and the Global Climate Finance Centre, which offer extensive technical and training expertise across different stages of the decarbonisation process, could result in valuable knowledge partnerships.

There is also potential for financial institutions to expand SME-focused programmes for conventional businesses seeking to reduce the emissions intensity of their operations.

Financial institutions can have a similar function. First Abu Dhabi Bank (FAB) runs a Sustainability SME Programme that supports sustainability-oriented SMEs, including those operating in clean energy, the circular economy, and water and food security. It aims to help grow and scale their business by providing access to offerings such as preferential financing, investors, and ESG specialists. There is also potential for financial institutions to expand SME-focused programmes for conventional businesses seeking to reduce the emissions intensity of their operations. This could greatly broaden sustainable finance’s impact.

Investment Support

Direct government-led investment and financial support provisions for SME decarbonisation are mostly centred on financing provided by the Emirates Development Bank (EDB) for clean-energy transition and energy-efficiency measures. EDB’s Renewable Energy Finance programme provides capital expenditure financing for renewable energy projects, including solar installations, while its Solar Energy Finance Programme allocated AED 100 million to support greater adoption of clean energy solutions. While these initiatives help reduce the upfront cost of renewable energy investment, financial incentives can be expanded through preferential conditions for SMEs, such as lower interest rates, or more favourable repayment terms for energy-saving investments within production processes. This is especially relevant for SMEs in manufacturing and other energy-intensive sectors, where production-related efficiency upgrades are often more complex and expensive, take longer to implement, and have longer payback periods than investments in areas such as lighting or solar installations.

Conclusion

Integrating SMEs into the UAE’s net-zero pathway will require making decarbonisation practical, proportionate, and commercially relevant. Policies should move beyond broad sustainability support towards measures that lower costs, build technical capacity, simplify emissions reporting, improve access to transition finance, and strengthen incentives through procurement and supply-chain demand. Apart from reducing their emissions, supporting SMEs through this transition would help decarbonise domestic supply chains, as larger companies will increasingly address Scope 3 emissions and seek lower-carbon suppliers.

Reem Sagahyroon is Research Assistant, Climate and Energy, ORF Middle East.

The author acknowledges the use of ChatGPT 5.5 for minor language refinements.