Page 51 - CMA Journal (May-June 2025)

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Focus Section
F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F
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ESG or Exit: Pakistan’s Trade
Future at a Crossroads
Author: Co-Author
Arfa Ijaz Furqan Ali
Environmental Engineer Researcher & Advisory
and Researcher at SDPI Associate
at Zahid Jamil & Co.
In the rapidly evolving landscape of international trade underscores systemic weaknesses in transparency,
and investment, Environmental, Social, and Governance governance, and regulatory enforcement. According to
(ESG) standards have become the de facto currency of the TRAC Report 2024, which assessed 69 publicly listed
credibility. No longer confined to boardroom ethics or companies, only 14.5% of firms demonstrated “significant
public relations, ESG compliance now functions as a transparency” across core ESG dimensions, with the
fundamental axis along which capital flows, trade average overall ESG disclosure score standing at 72.3%,
preferences, and regulatory access are aligned. Global classifying firms as “moderately transparent.”
institutional investors, supply chain regulators, and However, disaggregated metrics reveal deep structural
sovereign partners are increasingly filtering engagement deficiencies: anti-corruption programs, a cornerstone of
through the ESG lens.
the governance pillar, recorded the lowest average score
For import-reliant economies like Pakistan—where at 47.28%; human rights and corporate responsibility
exports account for approximately 10% of GDP and fiscal averaged 60.43%, with only 16 firms achieving full
space is perennially constrained—faced with a persistent transparency; and gender and non-discrimination
trade deficit and limited access to concessional financing, policies scored 68.84%, with only 22 companies fully
the cost of ESG non-compliance is material, mounting, transparent. In contrast, organizational transparency and
and macroeconomically consequential. domestic financial reporting scored higher, at 90.54%
Despite the growing prominence of ESG, Pakistan’s and 94.35%, respectively—highlighting a pronounced
institutional and corporate response remains imbalance wherein financial disclosure is prioritized over
fragmented, under-regulated, and grossly underutilized. sustainability governance.
Pakistan’s exports, concentrated in textiles, cement, These patterns reflect a broader systemic inertia: over
chemicals, and low-value agriculture, are especially 36% of assessed firms were rated “partially transparent”
vulnerable to ESG-based exclusion due to a lack of or worse, with persistent gaps in emissions transparency,
verifiable disclosure systems, absence of standardized anti-harassment policies, beneficial ownership
reporting protocols, and minimal regulatory disclosure, and supply chain due diligence—all of which
enforcement (SECP, 2023; Transparency International are increasingly mandated under international buyer and
Pakistan, 2024). investor ESG standards (SECP, 2023; Transparency
The lack of mandatory ESG disclosures, limited International Pakistan, 2024).
enforcement, and inconsistent corporate transparency Further, the TRAC Report 2024 adds fuel to the fire by
are not only reducing access to sustainable capital but showing a strong correlation between poor ESG
also diminishing Pakistan’s eligibility for performance and deeper organizational weaknesses, such
ESG-conditioned trade regimes, such as the European as weak governance, low innovation, and minimal investor
Union’s Carbon Border Adjustment Mechanism (CBAM) interest (Transparency International Pakistan, 2024).
and evolving international procurement norms. ESG is The Securities and Exchange Commission of Pakistan
now embedded in trade conditionality, and (SECP) introduced ESG Disclosure Guidelines in 2023,
non-compliance is resulting in an effective “invisible covering metrics such as GHG emissions, sustainable
tariff” on Pakistani exports, undermining competi- sourcing, board diversity, and corruption risk.
tiveness and long-term trade viability.
However, these remain voluntary, with minimal
ESG readiness in Pakistan remains critically deficient, as adoption, impeding convergence with global ESG
evidenced by comprehensive empirical data that norms (SECP, 2023).
ICMA’s Chartered Management Accountant, May-June 2025 49