How a global ESG movement became relevant for Pakistan?

How a global ESG movement became relevant for Pakistan?

Written exclusively for PICG
by Memosh Khawaja (President and CEO, PICG)

Over the past months when we have engaged with corporate leaders in Pakistan on bringing ESG on to their board and business agenda, we are confronted with many forms of pushback and one of the most frequent pushbacks we get is ‘it’s not our problem’ or that ‘we didn’t create this problem so why should we solve it.” It is true and not a surprise that climate and ESG risks are primarily driven by the developed Western countries and the large developing countries. Most corporate directors also recognize that Pakistan stands amongst the top affected countries by climate change and ESG risks, hence the frustration.

What local corporate leaders miss out on is salience of ESG issues to their own business’s survival. When local businesses face business crises, they continue to scratch the surface and attribute traditional issues as root causes of their business dilemma i.e., rising costs, supply shortages, labor issues etc. They are, however, not able to dig deeper and understand that ESG issues have started to augment the surface-level traditional issues and will increasingly do so in the future. The fact that climate change is leading to physical risks to factories, inventories, transport, energy systems etc. The fact that biodiversity loss (directly or via climate change) is leading to shortage of food materials, lower yields, input cost increases etc. The fact that inequitable labor and living conditions are leading to lower productivity, higher healthcare costs, and lower availability of talent.

When we encourage local businesses to start making disclosures on ESG issues the discussion is regarded as creating an over-burdening regulatory and governance environment. Corporate leaders fail to recognize that the objective of asking for ESG disclosures is not reporting for the sake of it but to understand whether businesses have thought about and are taking required measures to protect and survive and thrive in the long run in the face of emerging ESG risks and opportunities.

Then comes the broader issue that most businesses in Pakistan are privately and closely held, so the shareholders give pushback by asking ‘who wants to know and why? It is my business and I know best how to run it!’ Well, here then we conclude our argument; ‘It is your business, and you should care for it before anyone else, however, you should take a moment to understand the underlying issues faced by your business.’ That is all we are asking for, at least as a starting point.

Now if local businesses were to take the ESG issues and disclosures seriously, we are unfortunately likely to read about high risks, pessimistic outlooks, and helplessness. What we want to hear about instead is opportunities, action, and hope. Once businesses recognize the risks and put their heads to the matter there will be several opportunities on the horizon. These range from new revenue lines, increase in exports, cost reductions, higher margins to brand loyalty and long-term sustainability. We can think of two levers to ride the opportunity wave. Firstly, companies will have to innovate their way in and out of the ESG dynamics i.e., innovate in ESG and triumph over the ESG risks! Secondly, it will require collective action to turn the tide collective action by councils, trade associations, business groups, investor groups etc. Every individual/company is waiting for someone else to come and show the way, therefore, the influencing business bodies will have to shepherd everyone else in the right direction.

The problem with underlying problems is that they require long-term measures to address them, and therefore, to embark on the ESG journey it requires a long-term, sustainable enterprise vision. The solutions to underlying ESG issues do not rest in traditional or short-term methods. The road to ESG based transformation, therefore, is not an easy scenario to envision and work towards. Business models will need to change; new assets will need to be developed; new investments will be required. Businesses will have to make that call: carry on with the traditional approach and perish or adopt a new way of working to survive and thrive in the long run. It is that time in the history of time that comes once in decades or in a century. You are in that moment to make the call!