ESG gaining greater significance globally, says SECP commissioner

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) Commissioner, Sadia Khan said on Friday that the Environmental Social Governance (ESG) initiatives are gaining greater significance worldwide and the SECP has been at the forefront in addressing these sustainability issues for the corporate sector in Pakistan.

She was speaking at a seminar here on Friday, organised by SDPI and Nestle Pakistan about ESG and sustainability initiatives in terms of its progress and performance on the one hand, and gaps in terms of understanding, integration, risks and opportunities for businesses on the other.

While highlighting SECP’s initiatives on ESG, Sadia stated that SECP’s evolutionary journey to establish sound corporate governance and sustainable business practices started in 2002 with the issuance of the first ever “Code of Corporate Governance” in Pakistan and Corporate Social Responsibility Guidelines in 2013. Increased focus of international investors on sustainable business practices, reinforced the business case for adopting sound corporate governance frameworks for access to long term sustainable finance. Over the past few years, a more conscious drive for socially responsible business practices synced with SDG goals was witnessed in the regulatory regime of Pakistan, whereby, various circulars and guidelines to foster gender diversity, environment friendly green financing and stewardship guidelines were formulated. Recently, SECP has issued an ESG Roadmap for capital markets in order to streamline its efforts towards promoting the measures taken by SECP in the area of ESG and the way forward.

Highlighting the challenges associated with ESG initiatives, Sadia elucidated that worldwide, there are more than a dozen ESG frameworks available that companies have adopted on voluntary basis making sustainability-related disclosures incomparable and inconsistent across companies for stakeholders. In absence of standardised ESG disclosures and independent assurance, investors may be unable to verify that they are pursuing genuinely sustainable investment strategies and may become prey to green washing. There is a dire need for harmonisation of ESG frameworks defining the ESG governance mechanism along with industry specific standardised ESG metrics to gauge ESG performance of the companies.

Global standard setting bodies have joined hands to address these challenges which resulted in formation of International Sustainability Standard Board (ISSB) with an objective to deliver comprehensive global baseline sustainability disclosure standards just like international financial reporting standards. In March 2021, ISSB has published exposure drafts of two sustainability standards S1 - Sustainability-related Financial Information and S2 - IFRS S2 Climate-related Disclosures for consultation.

Talking about the way forward, Sadia remarked that ESG and sustainability reporting may become a mandatory legal/ regulatory requirement sooner than later. To meet the increasing demand from investors to have reliable and consistent sustainability related information, well-organised advocacy programmes, capacity building and proactive preparedness is expected from all stakeholders (policy makers, regulators and businesses). Companies would need to strive toward more reliable data, better technology, and additional resources to meet the growing need for high-quality ESG performance information.

Copyright Business Recorder, 2022