Page 23 - CMA Journal (May-June 2025)

Focus Section

Table 3: Impact of ESG Non-Compliance on Export Performance in Key Sectors
Sector Indicators Before ESG Scrutiny After ESG Change
(2018-2019) Non-Compliance (%)
(2022-2023)
Textile Export Orders (Million Units) 450 360 -20%
Retained Global Buyers (%) 82 65 -21%
Leather Annual Export Value (USD billion) 1.05 0.86 -18%
C e i f i t r e a T d n n ( s e i r e % ) 2 8 1 9 3 - 2 %
Agriculture EU/GCC Market Share (%) 42 33 -21%
Rejection of Export Consignments 9 21 -133%

Source: UNIDO (2022); ICCI and IFC (2023); FAO (2023); Khan and Awan (2023)
However, small and medium-sized enterprises (SMEs) are Another study by the International Finance Corporation
generally not in a position to adopt ESG standards like and the Indian Chamber of Commerce and Industry
those set by the Sustainability Accounting Standards revealed that Pakistan's leather product exports
Board (SASB) and the Global Reporting Initiative (GRI). declined by 18% between 2018 and 2022, primarily due
This gap is largely attributed to a lack of awareness, to non-compliance with proper disposal methods for
understanding, technical know-how, and the absence of chemically contaminated water. In contrast, countries
a national ESG policy (ICAP, 2023). like Bangladesh and Vietnam have allocated resources
to ensure strong compliance with ESG reporting
Another study revealed that compliance with
standards. Saudi Arabia has also emphasized
environmental standards—especially in water disposal
transparency and robust reporting requirements; as a
management—is notably low in the textile and leather
result, it temporarily banned the import of Pakistani
industries. A similar situation exists in terms of social
mangoes in 2023 (FAO, 2023).
compliance, where workers' rights related to financial
compensation and workplace safety are often not fully It is obvious in above schedule that there is clear
upheld. These practices are even more ambiguous in relationship between ESG reporting deficiencies and
family-owned businesses (UNDP, 2023). decrease in level of exports. So, Pakistani context, it is dire
3) Link Between ESG Non-Compliance need to make realistic and practical arrangement into the
business policies.
and Export Losses
4. Policy Suggestions and Strategic Plan
In today’s international business environment, ESG
implementation is considered both a strategic business In order to bring in line with challenging requirements of
practice and a tool for enhancing goodwill. Conversely, international business and inactivity of exports, there is
economies that fail to comply with ESG standards face need to make arrangement for proper implementation of
the risk of losing major customers and markets, as well as ESG framework in letter in spirit. Following
incurring additional costs due to non-tariff barriers. recommendations must be incorporated into strategic
Pakistan, for instance, is experiencing a decline in new plan of Pakistan.
export orders in the agriculture, leather, and textile
industries due to shortcomings in ESG compliance (Khan
and Awan, 2023).
Under the Corporate Sustainability Reporting Directive
(CSRD), European importers are now well-informed
about disclosure requirements. They are increasingly
demanding that suppliers disclose their carbon emission
scores and report on social and governance practices in
their sustainability reports. A report published by the
United Nations Industrial Development Organization
(UNIDO) on Pakistan's corporate sustainability reporting
highlighted a 27% reduction or cancellation of orders
due to non-compliance with environmental and labor
reporting requirements.
ICMA’s Chartered Management Accountant, May-June 2025 21