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Environmental, Social, and Governance (ESG) values act as the guiding principle for a corporate sector’s obligation to the environment and community. For the responsible investors, ESG criteria is a litmus test for their potential investments.

Environmental scrutiny delves into energy efficiency, waste reduction, conservation efforts, and ethical treatment of wildlife.

Social considerations extend to employees’ well-being, community support, and ethical business relationships. Governance, as the cornerstone, outlines the rules steering organizational management. These criteria not only evaluate environmental risks but also emphasize transparency, fair shareholder treatment, and unwavering adherence to legal and ethical norms. Investors seek a commitment to integrity, steering clear of conflicts of interest in board appointments.

Ranking as the fifth populous country globally, Pakistan undergoes scrutiny on ESG indicators through the World Bank’s sovereign ESG data portal. Unfortunately, our performance on these indicators is dismally unsatisfactory. The data, sourced from 23 globally recognized entities comprising 65 selected datasets, contribute to the evaluation of global risk profile for 183 countries. This comprehensive assessment encompasses three crucial sub-indexes: environment, human rights, and health and safety. The ESG score, derived from this analysis, provides insights into a country’s standing in terms of responsible governance, environmental stewardship, and safeguarding human rights.

According to the Global Risk Profile rating, Finland stands out as the leading country globally in implementing ESG principles, securing top position with an impressive overall score of 15.4. Following closely is Iceland, earning the second spot with a solid overall score of 17.35. Norway claims the third position, boasting an overall score of 18.04, with Sweden and Portugal securing the fourth and fifth spots, respectively, with overall scores of 18.86 and 21.06. Conversely, the index also sheds light on the bottom-performing countries, with Somalia ranking at 183rd place and a comparatively higher overall score of 73.59.

The Democratic Republic of the Congo follows closely in 182nd place scoring 71.57. Chad takes the 181st spot scoring 71.47, while the Central African Republic comes at 180th position with a score of 70.7. Sudan rounds off the bottom five, standing at 179th place, scoring 69.49. This comprehensive ranking provides valuable insights into the global landscape of ESG implementation, emphasizing the stark contrast between the top-performing and bottom-performing countries in terms of sustainable and responsible governance practices.

These rankings provide an insightful perspective on the global implementation of ESG principles, displaying Europe as the leading region with an impressive overall score of 29.45. South America follows closely with a score of 40.33, while North America secures the third position with a commendable score of 41.16. Oceania, Asia, and Africa, as distinct regions, attain scores of 41.77, 48.17, and 57.55, respectively, reflecting the varied performance levels across continents.

Delving into the regional performances, specific countries stand out for their ESG implementation. In Asia, Maldives emerges as a frontrunner, while Eritrea takes the lead in Africa. Europe sees Finland as its top-performing country, and in North America, St. Kitts and Nevis lead the way. South America’s top performer is Argentina, and Samoa takes the spotlight in Oceania. These distinctions highlight the diverse regional landscapes and the noteworthy efforts of individual countries in championing sustainable and responsible governance practices within their respective regions.

The index ranked Pakistan at 161 with overall score of 63 suggesting the need for enhanced efforts in aligning with ESG principles to improve its overall risk profile.

The Securities and Exchange Commission of Pakistan (SECP) has issued stewardship guidelines for institutional investors’ guidelines to enhance transparency in voting decisions, whereby they are urged to adhere to newly established guidelines. These contain voting policy and its disclosure, monitoring investee companies, policy on engagement with the investee companies, managing conflicts of interests, incorporating sustainability consideration, surveillance to be focused on evaluating adherence to the Corporate Governance Code, the quality of audits, risk assessment, and financial aspects, including director remuneration and capital structures.

Pakistan has been trying to focus on solid waste management and fostering a circular economy. In Punjab and especially in Lahore, waste management authority was effectively working. Even in the south, Sindh Solid Waste Management Act, 2021 was introduced, to ensure effective waste management by emphasizing on recycling, reducing environmental impact, and encouraging extended producer responsibility.

Fostering a culture of ESG implementation within the corporate sector is imperative. This involves minimizing climate change effects through the adoption of advanced emission-reducing technologies by transitioning to renewable energy sources.

Measures to protect against air pollution, including setting emission limits and compliance conditions, are essential. Sustainable land use requires addressing environmental burdens through risk analysis, remediation efforts, and information system development. Promotion of environmental impact evaluation, environmental impact assessment, and strategic environmental assessment is crucial. Recognising the undeniable significance of ESG factors in the contemporary business landscape, responsible institutions in Pakistan should ensure that the corporate sector is opting ESG Due Diligence which has become instrumental in environmental assessment.

It guides the formulation of strategies for emission reduction, evaluates initiatives for minimizing carbon footprints, assesses resource usage efficiency, and explores opportunities for sustainable energy sources.

Furthermore, ESG Due Diligence aids stakeholders in assessing social impact, analyzing relationships with communities, employees, and other stakeholders. It facilitates the evaluation of diversity and inclusivity policies, ensuring organizational adherence to fair labor standards and ethical practices.

Overall, a comprehensive approach to ESG implementation is essential for corporations to align with environmental, social and governance principles, and contribute meaningfully to a sustainable future. Thus, introducing a culture within our corporate sector is imperative, urging organizations to enhance their environmental and social performance. This elevation should be achieved through diligent monitoring, transparent reporting, and comprehensive Environmental and Social Impact Assessments (ESIA). The effectiveness of ESG hinges on robust monitoring and reporting, which, in turn, necessitates data-driven insights, transparent communication, adherence to regulatory requirements, and the use of visual dashboards.

ESG’s foundational elements play a pivotal role in guiding corporate behavior towards sustainability. Organizations should embrace a proactive approach, integrating these elements into their operational frameworks to foster positive environmental and social impacts. Transparent reporting not only ensures accountability but also facilitates informed decision-making. Through rigorous ESIA, companies can assess and mitigate their environmental and social footprints, contributing to a more sustainable and responsible business landscape.

The importance of ESG for both the country and corporate sector cannot be overstated. Its impact extends beyond financial considerations, influencing communities, the environment, and governance structures. By embracing ESG principles, organizations not only enhance their own resilience but also contribute positively to societal well-being and environmental conservation. A commitment to ESG principles is therefore, an investment in a more sustainable and ethical future for all.

Copyright Business Recorder, 2024

Huzaima Bukhari

The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]

Dr Ikramul Haq

The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]

Abdul Rauf Shakoori

The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]

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