Capital market listing as a window for ESG disclosure requirements for public companies: Corporate governance lessons for Saudi Arabia

As environmental, social, and governance (ESG) disclosure are dynamic in response to economic and regulatory conditions, “dynamic materiality” plays a crucial role in determining the nature of information that companies need to disclose. Therefore, this study argues that the rule-based corporate governance model of Saudi capital market regulations is incompatible with the dynamic nature of ESG disclosures, where regulations impose rigid obligations in some respects, while leaving ESG disclosures voluntary, resulting in significant differences in application between listed companies. In contrast, the UK governance model has principle-based approach, with ‘comply or explain’ disclosures principle, which gives companies greater flexibility to disclose their sustainability according to economic and regulatory variables. Thus, the absence of a flexible regulatory framework in the Saudi market may hamper companies' ability to adapt to global developments, limiting the effectiveness of ESG disclosure compared to more adapted models. This study answers questions about the extent to which Saudi Arabia's rule-based governance model can support ESG disclosures given the dynamic materiality of ESG matters, and the potential to leverage the UK model in developing the Saudi regulatory framework in line with changing sustainability requirements. The study also proposes to address the current gap in the definition of materiality in Saudi capital market laws by exploring the possibility of adopting the concept of dynamic materiality to enhance the flexibility of disclosures and ensure their responsiveness to economic and regulatory developments. The study also tries to answer to the most important legal, social and economic challenges that the Saudi Capital Market Authority (CMA) may face when determined to impose mandatory ESG disclosures on companies listed in the Saudi Capital Market (Tadawul), in order to achieve the objectives of Saudi Vision 2030 in developing the financial sector and promoting overall ESG rank.