ESG and country’s textile industry

Pakistan’s textile sector is experiencing a rising requirement from the global community of buyers to enhance environmentally and socially sustainable practices. To fulfill this, Pakistan’s textile industry requires to adopt, widely, ESG (Environmental, Social and Governance) practices and solutions.

ESG has emerged as a more proactive movement that ensures a holistic approach to sustainability in the industry. It is a framework that supports the industry to manage the environmental, social and ethical and governance related risks and opportunities.

Unlike the previous sustainability-focused regulatory frameworks such as EHS (Environmental, Health and Safety), Corporate Sustainability and CSR (Corporate Social Responsibility), ESG focusses widely on the key environmental and social elements as well as governance structures.

It ensures representation of all the stakeholders who are interested to learn about the industry’s approaches to ensure sustainability. These stakeholders include not just the investment community but customers, suppliers and employees too (Peterdy 2022).

Overview of the ESG pillars

Environmental

This pillar includes the industry’s considerations of the environmental impacts of its business and practices to manage the associated risks (Mathis 2022; Peterdy 2022). Some examples include direct and indirect GHG emissions, climate change, hazardous chemical discharge and water pollution, waste pollution and natural resource depletion. The management practices include natural resource management, decarbonization and energy management, effluent treatment and hazardous waste management, to name a few.

Social

The social pillar addresses the industry’s relationship with its stakeholders (Peterdy 2022). It endorses the ethically and socially conscious themes in the industry. This includes the employee wellbeing such as health and safety and fair wages as well as the industry’s impacts on the communities where it operates. Other major examples stated by Mathis (2022) include data privacy, robust labor standards, compliance to human rights, employee equity and inclusion and customer satisfaction.

Governance

ESG’s third pillar deals with the accuracy and accountability of the industry’s leadership. It focusses on the best compliance practices and transparency of the companies. Examples of governance may include company leadership, corruption and bribery, political lobbying, audit committee structure and internal control and regulatory policies (Mathis 2022).

ESG and Pakistan’s textile industry

The global community’s demand for sustainability in the textile industry has reached a stage of critical importance. Compliance to the international conventions on human rights, labor rights, environment and good governance has become non-optional for the industry to maintain its competitive position.

This compliance via ESG principles is a ‘win-win’ situation for the industry. The industry will not only boost its business in the international market, it will also ensure stakeholders’ rights and fulfill its responsibility towards mitigating risks to the natural environment.

Pakistan’s textile industry has shown significant progress in terms of fulfilling its social and environmental responsibilities. Despite the fact that the country’s major policy interventions such as the National Climate Change Policy (NCCP), Nationally Determined Contributions (NDCs) and the Textile Policy 2020-2025 do not clearly emphasize on social and environmental sustainability in the industry, sustainability has been a bottom-up approach, led by the industry itself.

From acquiring international compliance certifications such as GOTS, Oeko Tex and BCI to promoting internationally recognized initiatives to achieve net zero targets as well as employee wellbeing, the industry has aligned its current and future strategies with the principles of the UN-SDGs.

The efforts, however, need coherence under the umbrella of the ESG framework. The industry needs to come together to find aggregate solutions and impose coherent policies to ensure sustainability in the sector.

Although, international rules, norms and markets have been the major pathways of influence for the industry to go sustainable, the motivation to compete in the global market should also come from the intrinsic values. These may include collective approaches for capacity building and coalition building to make the country’s textile sector socially and environmentally sustainable.

High impact priority areas

The following are some of the high impact priority areas which require the industry to scale-up its ESG solutions: Raw materials, climate, chemicals, sustainability measurement, fair labour, engaging consumers and innovation and circularity (Accenture 2022).

The priority ESG solutions associated with the raw materials include reduction of GHG emissions associated with the raw material production, enhanced traceability and use of internationally certified raw materials. Regarding climate, the industry needs to set targets to achieve net zero emissions, adopt energy efficiency measures and set emissions reduction pathway plans.

Hazardous chemical management is another high impact priority area which requires compliance with the ZDHC requirements, transparent reporting on chemical use and hazardous chemical discharge, strong commitment to ensure wastewater management and eliminate hazardous chemicals, regular testing of wet processing facilities and transparent auditing.

Best practice benchmarking; development of comprehensive sustainability strategies, governance and goals; quantifying progress tracking on ESG goals and publicly reporting sustainability progress and transformation efforts are some of the significant ESG solutions for sustainability measurement. Further, fair labor to protect workers’ rights is another crucial priority area that demands ESG solutions from the textile industry.

These include fair compensation programs, responsible recruitment, empowerment and education programs and respect for human rights and health and safety standards. Consumer engagement includes communicating progress on ESG goals to the consumers, formulating standards for communicating ESG impacts of products to the consumers, engaging consumers in developing sustainability solutions, providing traceability data to the consumers and educating consumers about industry’s ESG commitments.

Innovation and circularity, under the ESG framework, requires the industry to develop and execute circular economy strategies and action plans and invest in innovative circular business models.

Conclusion and further work

Pakistan has already shown promising progress in aligning its development with the UN-SDGs and international requirements. The current efforts on social and environmental sustainability, however, need to be accelerated by adopting ESG solutions in the textile sector.

The relevant stakeholders need to come together and find aggregate solutions to support the sector flourish in the increasingly competitive global markets. ESG practices, that ensure a holistic approach to safeguard the natural environment, human wellbeing and strengthen governance structures, need to be adopted widely, in a coherent and effective manner possible. This is possible, only, when the sector develops a long-term ESG vision.

Significantly further, All Pakistan Textiles Mills Association (APTMA) suggests that, strengthening of the governance structure, is a crucial element of ESG, that helps enhance sustainability measurement. One part of this is to regulate the sustainability assessments and inspections conducted by the national and international compliance bodies, through development of the standards based on the mandates of the UN conventions on human rights, labor rights, environment and good governance.

Pakistan needs to legislate a central authority, at the federal level, to compile and standardize all compliance requirements and to regulate the functioning of all the compliance bodies. This central authority will be responsible to issue guidelines for the compliance bodies to perform sustainability assessments, based on the requirements by the international treaties on human and labor rights as well as environment and good governance.

The statutory body will also issue guidelines, with minimum requirements, for the legal enrollment and registrations of the compliance bodies and follow tripartite consultations, as mandatory procedures during their assessments. The statutory body will provide an appeal forum to address concerns petitioned by the tripartite partners and resolve any disputes among them.

Pakistan is currently experiencing a plethora of the compliance bodies. The functioning of these bodies is crucial for the industries, as they are mandated to acquire certifications to maintain their export markets. These certifications have also motivated the industries to enhance their compliance and fulfill their social and environmental responsibilities.

However, the compliance bodies are functioning in the absence of a central statutory body responsible to monitor their operations in the industry. This absence of the legal monitoring of the compliance bodies is a threat, that not only projects a biased picture of the sustainability progress of the country, but also functions without a tripartite consultation, crucial to understand the local nuances.

Significantly further, the global community’s demand for sustainability in Pakistan’s industries has reached a stage of critical importance. Compliance to the international conventions on human rights, labor rights, environment and good governance has become non-optional for the country to maintain its competitive position. In these critical times, when Pakistan needs to project its sustainability and compliance progress in a vigilant manner, these unlawful inspections by the compliance bodies might cause grievance in the industry.

It is of critical importance for Pakistan to formulate a statutory body, that is responsible to regulate and monitor all the compliance bodies, via issuance of the national compliance standards for them.

The major responsibility of this statutory body will be, to issue guidelines for industrial compliance based on the mandatory requirements by the UN conventions on human rights, labor rights, environment and good governance, standardized for Pakistan to fulfill. The statutory body will also issue guidelines, with minimum requirements, for all the compliance bodies for their legal enrollment and registrations.

Importantly, the statutory body will make tripartite consultations mandatory for the certification bodies to consider during their inspections. The tripartite partners, being generally the government, employers and workers, will have the authority to appeal against the unlawful inspections, that are undisciplined and unfair. This will take place through an appeal forum provided by the statutory body, that will address concerns petitioned by the tripartite partners and resolve any disputes among them.

The statutory body will legally bind all the national and international compliance bodies, to align their inspections with its guidelines and standard procedures for the assessment of the industries, in a regulated and an acceptable manner.

The formation of this statutory body will be a milestone achieved by Pakistan to project its sustainability progress in a real and a disciplined manner.

Copyright Business Recorder, 2022