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‘Finance should not be neutral’

Asim Jaffry has over 16 years of experience at the national and international level in the fields of human rights, environment, and advocacy for sustainable development goals. Asim has authored two Fair Tax Monitor Pakistan reports in 2018 and 2019, assessing the fiscal regime in Pakistan with a focus on economic and fiscal policies i.e. taxation with fair lens, economic inequality, and budget monitoring. He has also written policy evidence reports which provide alternative narrative on CPI basket tax incidence in Pakistan.

Asim has been part of Tax Reforms Commission of Pakistan. He pioneered development of the Business and Human Rights national action plan and worked closely with Professor John Ruggie to adopt the UN Guiding Principles on Business and Human (UNGPs) and lobbied for the Plan in the parliament. As a result of his efforts, the National Action Plan on Business and Human Rights was approved by the Government of Pakistan in 2021.

Asim also authored a report Gone Missing? - an analysis of voluntary environmental commitments for energy projects in Pakistan to build a case for responsible banking. Currently, Asim Jaffry is the Country Program Lead for Fair Finance Pakistan. In his current role, Asim is engaged in advocacy for Clean Air Act in Pakistan, which is aim towards recognition of clean air as a fundamental human right as a solution for industries, cities and major urban centers facing smog. He is also engaged with several international think tanks on legislativeand programmatic fronts to meet Pakistan’s goal for clean air to leverage learning at national level for financial institutions to adopt the ESG criteria in line with the UN Guiding Principles for Responsible Banking.

BR Research: What are the objectives of Fair Finance Pakistan Coalition?

Asim Jaffry (AJ): The Fair Finance Pakistan Coalition builds on the legacy work of Oxfam’s Finance 4 Development (F4D) project, to further the country level agenda by contributing to reducing extreme inequalities (SDG 10), forge new alliances and partnerships to influence financial sector policy and practices, promote transparency, and advocate for human rights.

The FFP Coalition in Pakistan consists of 16 member CSOs with expertise in finance, advocacy, and research, mostly based in urban areas for ease of approaching financial institutions. Fair Finance Pakistan aims to mobilize urban citizens, predominantly through digital spaces, and to advocate for positive change for marginalized communities, particularly those which have been affected by the financing of projects within the country that have incurred environmental degradation, such as coal mines.

Fair Finance Pakistan (FFP) is committed to ensure that financial institutions in Pakistan respect the social and environmental well-being of local communities, and integrate ESG (environmental, social, and governance) criteria in their business strategies. At Fair Finance Pakistan, we believe that finance should not be neutral. It must take a wider role for the society. The role of finance role should be repurposed to ensure protection of human rights, the right to health,and in today’s environment, the right to clean ai, that we and our future generations share.

BRR: Is Fair Finance part of an international network of developmental organizations?

AJ: Fair Finance Inter-national (FFI) is an international civil society (CS) network of over hundred partners and allies, coordinated by Oxfam Novib (Netherlands), that seeks to strengthen the commitment of banks and other financial institutions to social, environmental, and human rights standards.

As a global network, FFI uses a rigorous methodology to assess, report on, and campaign for more responsible investment policies and practices. By benchmarking the investment policies and practices of financial institutions in critical areas such as human rights and climate impact, Fair Finance enable consumers, policy holders and citizens to demand more socially responsible, fair, and sustainable investments.

BRR: Take us through the evolution of Fair Finance International since inception?

AJ: In mid 2007s, civil society activism in Netherlands led to the termination of ABN Amro’s financing of offshore drilling for oil, a project that could have meant severe degradation for the environment. But the success against fossil fuel giants and a global financial behemoth laid bare the need for a more formalized and robust network of bodies that could assess the social and environmental impact of global finance.

Over the years, Fair Finance International has evolved its methodology to bring it in line with international best practices and guiding principles. At the same time, corporate sector across the world has also developed Environmental, Social, and Governance (ESG) standards, which are now applied as diagnostic tools to measure the compliance of firms with the guiding principles of corporate social responsibility.

For the first time in 2013, Fair Finance International used its methodology to assess compliance of over 30 commercial banks in Latin America. In 2017, around 70 banks were assessed in the ASEAN region using the same methodology.

BRR: Has the Pakistan chapter undertaken any review of the local financial industry.

AJ: In 2020, Fair Finance Pakistan began a scoping study in collaboration with Dr. Burki at LUMS, which mapped the landscape of the financial sector regulation in the country, a first-of-its-kind research study in the country.

The study period spanned over a year. Using the methodology of Fair Finance International, we assessed five large commercial banks in the country, including one state-owned bank. Earlier this year, Fair Finance Pakistan released the findings of its first “Policy Assessment of Pakistani banks on ESG and human rights criteria”. The study found that on average, Pakistani commercial banks have an abysmal record on human right policies and score very poorly on anti-corruption practices.

BRR: Considering the wide-ranging efforts for FATF and AML compliance, an average rating of 3 out of 10 on anti-corruption policies sounds terribly low. Can you highlight bank-wise performance in detail?

AJ: Pakistani banks scored an average rating of 3 out of 10 on Anti-Corruption policies and 0.4 out of 10 on human rights policies.HBL scored the highest average of 4.2 out of 10, followed by MCB at 3.3. Meezan, ABL and NBP scored an average of 2.5 out of 10.

Results show all five banks have well-defined policies on disclosing bribery and implementing anti-money laundering measures. All banks, except Allied Bank, have set up mechanisms to verify the ultimate beneficial owner(s) of the companies they finance. HBL stands out among the assessed banks for implementing specific safeguards while dealing with Politically Exposed Persons whether through direct or indirect business relations. However, none of the banks provided any disclosure concerning questions related to the companies they invest in or finance which can expose them to various environmental, social and governance risks.

BRR: How did Pakistani banks score on human rights record?

AJ: Under human rights policies, HBL scored an average of 0.7 out of 10, followed by MCB while ABL, NBP and Meezan scored almost nil. Banks do not fully comply with the United Nations Guiding Principles on Business and Human Rights, however, four out of the five banks, excluding Meezan, have declared a zero-tolerance policy towards discrimination in employment and occupation. However, HBL, MCB, Meezan Bank, Allied Bank and National Bank of Pakistan do not disclose information on human rights policies concerning the companies they invest in or finance. While non-disclosure of these policies may provide some benefits in terms of confidentiality, it also involves significant risks related to investor and stakeholder concerns, reputation, ethical and social responsibility, and trust.

In addition, the policies of Allied Bank and National Bank were found to be lacking in addressing all aspects of gender, race, ethnicity, and physical ability.

BRR: What are your primary recommendations for the banking sector?

AJ: We believe that the improvement of social and environmental well-being of local communities must be a core objective of the financial industry. To this end, the regulator of the financial industry, the State Bank, must integrate ESG criteria in its business operations.

The findings of our report set clear benchmarks for Pakistani banks and can enable them to recalibrate their policies on climate, corruption, gender, human rights, transparency and just energy transition to accommodate more sustainable finance principles.

Although SBP’s ESRM manual is a step in the right direction to develop risk management frameworks and address environmental, social, and human rights concerns, more work needs to be done. In our conservative view, despite its push for autonomy, SBP’s team is not innovative, and the central bank has failed to hire good quality talent.

At the strategic level, Pakistani banks show the willingness to improve green banking policies and are keen to adapt best practices at the product level. Banks need to change their social perception of green banking at the transaction level. Collective action between regulatory bodies and the financial institutions is essential to address ESG-related risks and opportunities in all financial sector activities. Banks should adopt clear policies on human rights, including adherence to international standards. Banks should encourage the disclosure of human rights practices related to investments and financing.

BRR: How do you assess Pakistan’s readiness to unlock climate finance?

AJ: The development of Climate Finance was debated comprehensively in the COP-27. The global push for Climate Finance is real and Pakistan runs the real risk of missing the bus. SECP has been sitting pretty with its guidelines from 2017 and has failed to complete the journey towards compliance.

We must remember that it took Norway two decades to transition from fossil fuels to meeting 100 percent of its energy needs from renewable resources.If the work on developing regulation and framework for Climate Finance is started today, it might take Pakistan must longer to complete its transition to hundred percent renewable resources. Pakistan’s commercial banks must begin to develop and introduce a host of new Climate Finance products in their portfolio, which can assist the transition of banking customers, especially the large-scale corporate borrowers in the private sector, to achieve net zero impact. Just as an example, this can include enabling borrowers that seek finance for reducing carbon footprint to claim carbon credits and enabling access to subsidized finance available in the international financial markets against those credits.

Concluded.

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