Banks asked to adhere to ESG standards

ISLAMABAD:

State Bank of Pakistan (SBP) Deputy Governor Sima Kamil has said that the central bank issued green financing guidelines for banks in 2017 as a footprint of their potential role in green business facilitation and impact reduction, however, these guidelines were still far from being followed in letter and spirit

Speaking at a seminar titled “Environmental, Social and Governance (ESG) practices in Pakistan: Progress, Challenges and Way Forward”, organised by the Sustainable Development Policy Institute (SDPI), Sima Khan said that ESG practices are a major concern as the financial stability of the financial sector is paramount since banks use public funds to conduct lending operations.

“It is crucial for banks to be able to measure and mitigate environmental risks,” Sima Kamal said adding that along with financial stability, financial inclusion was a crucial concern for SBP for sustainability.

The seminar was held to brainstorm ideas to improve the ESG index and frameworks to meet the expectations of the stakeholders and improve corporate governance in Pakistan.

The SPB deputy governor said that there was an increased realisation in Pakistan’s financial sector that meeting the ESG standards was pertinent to attracting large foreign investors. She urged the need for developing green taxonomy to prevent greenwashing by the corporate sector and ensure practices in letter and spirit.

SDPI Executive Director Dr Abid Qaiyum Suleri said that there was a need for strict compliance with environmental laws and ESG practices for a win-win solution by involving the private sector and multi-national corporations as part of the solution rather than blaming them entirely as the root cause of the environmental degradation. He said that Pakistan needs a customised version of indexing and marking to facilitate and mainstream ESG initiatives in the country.

Securities and Exchange Commission of Pakistan (SECP) Commissioner Sadia Khan said that the ESG initiatives were gaining greater significance worldwide and the SECP has been at the forefront in addressing these sustainability issues for the corporate sector in Pakistan.

“As the pace and impact of societal and environmental disruption intensify, a robust ESG strategy will be critical for businesses to drive reliable performance and resilience. To combat the ESG reporting challenges, strong advocacy, policy dialogues, proactive preparedness and capacity building would be key success factors. The focus of the corporate sector has transitioned from protecting the interest of the shareholders to protecting interests of all stakeholders including employees, creditors, community and government institutions,” she said

She stressed the need for standardised reporting, measurement and matrices to determine the compliance of corporates with ESG principles. She said that the SECP has issued the ESG roadmap for the corporate sector and ESG reporting guidelines are being deliberated and will be issued next year. She urged the need for sensitising the corporate sector on the significance of ESG, developing guidelines and regulations to create ownership to instil ESG principles in practice.

Environmental lawyer Rafay Alam said that the world was going through extreme climate events and according to the UN, there was enough carbon in the atmosphere to cause a 1.5 degrees C increase in temperature compared to pre-industrial levels. He stressed the need for changes in economic and social behaviour and strict implementation of environmental laws to reduce the impact of human activities on the environment. He stressed that corporates should not be allowed to get away with unaccountable exploitation of natural resources which was possible through stringent implementation of environmental and labour safety laws.

National Security Division economic adviser Faheem Sardar said that corporate governance enables better and long-term governance of the corporate sector and ESG principles were integral to protecting the environment from degradation, improving the security of employees and people.

Associate research fellow Kashif Salik said that the ESG approach provides a unique way to ensure environmental sustainability and safeguards social equity, diversity and product management for the public.

Published in The Express Tribune, August 6^th, 2022.