In June 2022, the Securities and Exchange Commission of Pakistan (SECP) released its first “position paper” on its ESG Regulatory Roadmap. The contents of the roadmap highlight Pakistan’s recent efforts to encourage better Environmental, Social, and Governance (ESG) practices and facilitate more sustainable investment.
In recent years, ESG considerations in Pakistan have become a central theme and increased in traction among investors and companies seeking alignment with sustainability goals. As a nation exposed to several dangers of climate change, ranking the 5th most vulnerable country to climate change according to the most recent Global Climate Risk Index from 2022, it is reasonable to understand the high stakes for organizations across the Central Asian nation to adopt ESG practices. 
The adoption of ESG practices is key for Pakistan to attract long-term domestic and international investment. However, one of the challenges include limited small and medium-sized enterprises (SME) awareness, resource constraints for disclosure reporting, and misconceptions surrounding ESG’s relevance primarily to large corporations with significant environmental impacts. 
To deal with these challenges, increased internal awareness, customer demand, and supportive regulations is required to help motivate SMEs to embrace ESG practices and make better-informed decision making on their sustainability pathways. ESG benefits include enhanced reputation, investor attraction, risk reduction, and new business opportunities.
Considering these observations, the SECP recognizes the need for a concerted effort to establish a sustainable ecosystem. The proposed ESG roadmap serves as an initial step towards understanding, gaining momentum, and adopting best practices for sustainable capital markets through inclusive efforts. 
Now, with more jurisdictions adopting some form of requirements for ESG disclosures for listed companies, the SECP as part of its ESG Regulatory Roadmap has issued draft guidelines on ESG disclosures for consultation. The guidelines have been prepared to encourage listed companies of all sizes to enhance their ESG disclosures in a fair and transparent manner on a voluntary basis.
The draft guidelines are expected to cover a broad array of subjects within the realms of ESG considerations. These encompass recommended metrics pertaining to climate change, greenhouse gas emissions, energy consumption, gender diversity, executive compensation, non-discrimination, health and safety, board diversity, incentivized pay, and internal controls.
Within the framework of these draft guidelines, companies enjoy flexibility in disclosing their ESG performance. They will have the flexibility upon the guidelines’ release to issue a standalone sustainability report, integrating it into their annual report, or making it available for public access on their official website. 
In support of the SECP’s ongoing journey towards establishing robust corporate governance and sustainable business practices, Sadia Khan, commissioner of the SECP emphasized recently the exchange’s commitment to promoting better ESG initiatives. Indeed, the transformative ESG and sustainability path Pakistan is currently undergoing began in 2002 with the issuance of Pakistan’s inaugural “Code of Corporate Governance” and was further reinforced by the introduction of Corporate Social Responsibility Guidelines in 2013.
Having said that, the increasing global focus on sustainable business practices has certainly shown the increasing importance of adopting sound corporate governance frameworks to access long-term sustainable finance. Notably, Pakistan’s regulatory landscape has recently witnessed a heightened dedication to socially responsible business practices in alignment with Sustainable Development Goals (SDGs). This has led to the development of various circulars and guidelines aimed at fostering gender diversity, promoting environmentally friendly green financing, and encouraging stewardship practices. 
In its preparation of these new ESG guidelines, the SECP also identified several present challenges surrounding the conversation of ESG disclosures in Pakistan. Most notably, the gaps left by companies who adopt global ESG standards on a voluntary basis. The result is often inconsistent and incomparable sustainability-related disclosures which creates a problem on compliance accuracy for the company in question and for its stakeholders.
The knock-on effect of the absence of standardized ESG disclosures and independent assurance can lead to uncertainty regarding the authenticity of sustainable investment strategies, potentially exposing investors to greenwashing. To address these issues the SECP aims to phase in, clear and concise ESG governance mechanisms, and implement industry specific standardized ESG metrics to assess company ESG performance. 
The SECP has also announced its intention to further develop its governance framework to improve diversity issues particularly relating to female inclusivity in the workplace, a present issue with stark contrasts between male to female ratios. Nonetheless, the SECP hopes that the mandatory requirements to have female representation on companies’ boards will help significantly reduce such inequalities.
In response to many of these ESG-related challenges, global standard-setting bodies have joined forces to create the International Sustainability Standards Board (ISSB), which recently launched in June its first IFRS S1 for Sustainability-related Financial Information and S2 for Climate-related disclosures. It is now important for all the relevant stakeholders in Pakistan such as its regulators, Pakistan Stock Exchange (PSX), Overseas Chamber of Commerce Building (OICCI), and entities both SMEs and large corporations to focus on the mode and extent of adopting these sustainability standards as good preparation to enhance their ESG reporting strategies and build more capacity will serve as good practice to mitigate several notable challenges identified by the SECP with entities who lack awareness and resource constraints for disclosure reporting. 
Finally, alongside the latest release of the guidelines for ESG disclosures consultation, the SECP has also announced the arrangement for an online dashboard called ‘ESG Sustain’ which will act as a virtual guide covering areas such as sustainability-related laws, regulations, capacity building, reports, and data covering all regulated sectors. The present lack of a centralized platform that effectively standardizes ESG-related information means, such a robust and well-rounded platform that provides insight on climate change-related information and sustainability-based products should be provide additional value for stakeholders and foreign investors. 
Certainly, the increased collaboration and consolidation in efforts by the SECP to foster an environment of accountability and enable stakeholders to make better-informed decision-making, support sustainable initiatives actively and attract investments is very likely to have a positive impact. The improved transparency in company operations from the introduction of these guidelines will reduce the impacts on the environment and open new pathways and opportunities for green investments to flow into Pakistan.
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