Page 52 - CMA Journal (May-June 2025)

Focus Section

These deficiencies are particularly perilous in the context Further, this counterintuitive policy regime - marked by
of the EU’s CBAM—a trade policy instrument applying high EG tariffs, negligible NTM enforcement, and absent
carbon tariffs on high-emission imports like cement, carbon traceability - restricts access to sustainability-linked
steel, aluminum, and textiles. capital, sidelines Pakistan from green trade regimes, and
Pakistan’s existing trade and fiscal architecture is undermines its competitiveness in ESG-compliant
fundamentally misaligned with its environmental procurement platforms. Collectively, these structural
ambitions and export diversification agenda, placing it at a deficiencies pose a strategic threat to Pakistan’s export
growing disadvantage in an increasingly ESG-regulated resilience and its ability to transition toward a climate -
global economy. A study by the Consortium for compatible, market - integrated economic model.
Development Policy Research (CDPR) highlights that the
average tariff on environmental goods (EGs)—such as Moreover, Pakistan is effectively locking itself out of a
renewable energy components, air pollution control $5.7 trillion global ESG investment pool—not because it
equipment, energy-efficient appliances, and electric lacks need, but because it lacks credibility. While capital
vehicles—is between 11% and 15.7%, with an additional allocators worldwide are tightening ESG filters across
5% in para-tariffs. This makes the importation of green sovereign debt, equity portfolios, and sustainability-
technologies economically unviable (Iqbal, 2025). These are linked loans (Durrani et al., 2025), Pakistan’s ESG
the very technologies critical for decarbonizing Pakistan’s disclosure regime remains weak, voluntary, and largely
supply chains and meeting its Nationally Determined performative. As a result, the corporate sector continues
Contributions (NDCs) under the Paris Agreement. to miss the green capital bus, unable to meet even the
minimum transparency thresholds set by global asset
In comparison, regional peers like India (7.4%) and Vietnam
(6.2%) have undertaken aggressive tariff rationalization on managers and ESG-screened funds.
EGs and are actively employing non-tariff measures (NTMs) Institutional investors managing pensions, insurance,
— such as mandatory certifications, emissions labeling, and sovereign wealth are no longer dabbling in
and lifecycle assessments — to promote ESG-aligned trade ESG—they're demanding it. And Pakistan’s opacity, both
and facilitate compliance with international standards. regulatory and operational, has placed it squarely on the
Pakistan, by contrast, has the lowest NTM coverage and no-go list. Despite being a party to global climate
frequency index in South Asia. CDPR’s analysis shows agreements and sustainability pledges, the country has
near-zero application of NTMs in critical categories like captured only a negligible share of climate-linked capital.
Air Pollution Control (APC), Renewable Energy Plants Its exclusion from green bond indices, ESG equity
(REP), and Environmental Monitoring Equipment (MON), trackers, and blended finance deals is not about
indicating an institutional void in certifying, verifying, or politics—it’s about poor data, lack of standardization,
monitoring green goods and services (Iqbal, 2025). and the absence of enforceable ESG architecture.
This regulatory shortfall becomes particularly damaging Even where frameworks exist—such as the SECP’s
in light of the CBAM, which applies carbon tariffs on alignment with the Global Reporting Initiative (GRI),
emissions-intensive imports—core sectors in Pakistan’s International Sustainability Standards Board (ISSB), and
export portfolio. The EU alone accounts for nearly 30% of Women Empowerment Principles (WEPs)—their
Pakistan’s total export market (Durrani, 2024; PBC, 2023), voluntary nature and lack of enforcement mechanisms
yet Pakistan lacks the foundational infrastructure to severely limit their effectiveness in driving consistent,
comply with its documentation requirements. With high-quality ESG disclosure.
55.7% of its energy mix still dependent on fossil fuels
(Economic Survey, 2024–25) and no national emissions This is not just a missed opportunity; it’s an escalating risk
registry or mandated Scope 1, 2, and 3 carbon premium. According to McKinsey & Company (Henisz et
accounting measures at the corporate level, exporters are al., 2019), ESG integration reduces capital costs, shields
unable to produce the verified carbon data required to firms from regulatory shocks, and attracts both
avoid punitive levies (Iqbal, 2025). customers and top-tier talent. Pakistan, by contrast, is
stuck in a vicious cycle: weak ESG = low investor
This institutional incapacity and policy inertia effectively
confidence = high cost of capital = limited growth.
impose a hidden cost on exporters. Without verifiable
ESG credentials, Pakistani firms risk trade exclusion, price In today’s market, ESG is not window dressing—it’s a
markups, and supplier disqualification from global value proxy for stability, risk governance, and long-term value
chains increasingly governed by environmental creation. By failing to internalize ESG as a core economic
compliance standards. Simultaneously, high tariffs on strategy, Pakistan is not merely struggling to attract
green imports deter technological upgrading, slowing capital—it is, in many cases, actively discouraging it due
the very decarbonization efforts needed to maintain to gaps in ESG alignment and disclosure practices. Unless
trade relevance. Regional competitors, in contrast, are ESG compliance is made mandatory, disclosures
not only aligning with ESG standards but leveraging that digitized, and financial incentives aligned, the country
alignment to capture preferential trade access, green will remain on the sidelines of sustainable
investment, and supply chain relocation opportunities. finance—watching trillions flow elsewhere.

50 ICMA’s Chartered Management Accountant, May-June 2025