Navigating ESG in Pakistan: A Practical Guide for Businesses Ready to Lead

Environmental, Social, and Governance (ESG) factors are reshaping business environments globally, and Pakistan is no exception.

As international investors, global supply chains, and local regulators heighten their focus on sustainability, Pakistani businesses must adapt to maintain competitiveness and access to capital.
Simultaneously, Pakistan’s vulnerability to climate change, water stress, and social inequities has made ESG integration a strategic necessity, not a branding exercise.

Businesses that proactively invest in ESG practices will not only achieve regulatory readiness but will also strengthen operational resilience, enhance reputational capital, and unlock growth opportunities in a rapidly evolving economic landscape.

ESG Landscape in Pakistan: Current Status and Challenges

Although ESG adoption in Pakistan is at an early-stage relative to global benchmarks, momentum is building.

Key regulatory milestones include:

• Securities and Exchange Commission of Pakistan (SECP):

Released Voluntary ESG Disclosure Guidelines (2022) encouraging listed companies to align sustainability disclosures with global best practices.

• Pakistan Stock Exchange (PSX):

Issued ESG disclosure guidelines based on GRI and UN SDGs, promoting transparency among listed entities.

• State Bank of Pakistan (SBP):

Introduced Green Banking Guidelines, mandating banks to integrate environmental and social risk assessments into credit evaluation and to promote green financing initiatives.

Challenges to ESG mainstreaming:

• Limited internal expertise on ESG reporting standards (GRI, SASB, TCFD).
• Fragmented data management systems impeding ESG data collection and assurance readiness.
• Cultural resistance to transparent disclosures on sensitive social and governance issues.
• Perception of ESG compliance as cost, not investment, particularly among SMEs.

International buyers, financiers, and multilateral institutions increasingly expect ESG credentials — making delayed action a strategic risk.

Core ESG Risks and Opportunities for Pakistani Businesses

Environmental Risks:

• Extreme climate events (floods, droughts) disrupting operations.
• Increasing regulatory and financial pressure on energy efficiency and water conservation.
• Carbon pricing and trade barriers impacting export competitiveness.

Social Risks:

• Labor rights violations, occupational health and safety non-compliance.
• Diversity and inclusion gaps at leadership and workforce levels.
• Community relations and human rights issues, particularly in extractive and manufacturing sectors.

Governance Risks:

• Weak internal controls on bribery, corruption, and conflicts of interest.
• Board structures lacking ESG expertise and oversight.
• Insufficient integration of ESG into risk management systems.

Opportunities:

• Access to green and sustainable financing instruments.
• Preferential access to ESG-compliant global supply chains (especially textiles and manufacturing).
• Enhanced brand reputation and customer loyalty through sustainability leadership.
• Future-proofing operations against regulatory shocks and physical climate risks.

Businesses that recognize and act on ESG risks and opportunities will strengthen their competitive positioning regionally and internationally.

Step-by-Step Guide to Building ESG Capability in Pakistan

Step 1: Board and Executive ESG Alignment

• Assign formal ESG oversight responsibilities at the Board level (e.g., Risk Committee or Sustainability Committee).
• Establish ESG as a C-suite priority integrated into corporate strategy.
• Build ESG literacy at leadership levels through specialized training aligned to international standards.

Step 2: Conducting ESG Materiality Assessment (Pakistan Context)

• Identify and prioritize sustainability topics specific to Pakistan’s context:
  • Climate adaptation,
  • Water stewardship,
  • Labor rights compliance,
  • Energy transition readiness.
• Engage key stakeholders: investors, regulators, customers, employees, and local communities.

Step 3: Setting ESG KPIs and Targets

• Localize global frameworks:
  • Use GRI Standards for material topic disclosures (e.g., GRI 302: Energy, GRI 305: Emissions).
  • Use SASB sector-specific standards where applicable (e.g., Financials, Textiles, Energy).
• Set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) ESG targets linked to operational strategies.

Step 4: Building ESG Data Collection Systems

• Integrate ESG KPIs into existing ERP, HRIS, and financial reporting systems.
• Develop an internal ESG data governance policy to ensure data accuracy, completeness, and traceability.

Step 5: Preparing Voluntary ESG Disclosures

• Align reporting structure with SECP and PSX guidelines.
• Include core topics such as energy usage, GHG emissions, workforce diversity, health and safety, anti-corruption policies.
• Prepare reports ready for external assurance in anticipation of mandatory ESG disclosure trends.

Practical ESG Reporting Frameworks for Pakistan

Selecting the right ESG reporting frameworks is critical for Pakistani organizations seeking to demonstrate credibility, meet stakeholder expectations, and future-proof against evolving regulatory demands.

Given Pakistan’s unique business environment, companies must strategically align global frameworks to their operational realities while preparing for increasing formalization of ESG disclosure practices.

A technically sound ESG reporting approach typically involves a combination of global standards adapted for local context.

Here’s a detailed breakdown:

1. Global Reporting Initiative (GRI Standards)

Why GRI:

• GRI provides the most widely adopted sustainability reporting framework globally.
• Focuses on impact materiality — how the organization affects the economy, environment, and society — aligning well with stakeholder needs in Pakistan (customers, regulators, investors).

Technical Features:

• Modular structure: Universal Standards, Sector Standards, Topic Standards.
• Comprehensive coverage of environmental, labor, human rights, governance, and supply chain impacts.
• Fully compatible with SECP Voluntary ESG Guidelines and PSX ESG Guidelines for listed companies.

Recommendation for Pakistan:

• GRI is the primary framework Pakistani businesses should adopt for broad stakeholder ESG communication, particularly when engaging with export markets, regulators, and multilateral financiers.

2. Sustainability Accounting Standards Board (SASB Standards)

Why SASB:

• SASB offers sector-specific ESG disclosure standards with a focus on financial materiality — sustainability issues that impact financial performance.

Technical Features:

• 77 industry-specific standards covering sectors such as textiles, agriculture, financials, oil and gas, and construction.
• Clear ESG metrics tailored to sector risks and financial reporting needs.
• Strong alignment with international investor expectations, particularly for businesses seeking capital from ESG-focused funds.

Recommendation for Pakistan:

• SASB is highly recommended for export-oriented firms (e.g., textiles, manufacturing) and financial institutions aligning with global investor ESG mandates.
• Ideal for companies aiming to meet the ESG disclosure expectations of international buyers, lenders, and private equity firms.

3. UN Global Compact (UNGC) and Sustainable Development Goals (SDGs)

Why UNGC and SDGs:

• Provide globally recognized sustainability principles related to human rights, labor, environment, and anti-corruption.
• Serve as strategic frameworks for aligning business practices with international norms, particularly important for companies integrated into multinational supply chains.

Technical Features:

• 10 UNGC Principles offering a simple but effective blueprint for responsible business conduct.
• 17 SDGs offer thematic guidance for setting ESG priorities linked to global development goals.

Recommendation for Pakistan:

• Pakistani companies, especially those engaged in global export chains, should align their ESG programs with UNGC principles and publicly map their contributions to relevant SDGs (e.g., Clean Water and Sanitation, Decent Work and Economic Growth).

4. Task Force on Climate-related Financial Disclosures (TCFD Recommendations)

Why TCFD:

• TCFD provides a globally accepted framework for disclosing climate-related financial risks.
• Increasingly expected by global investors, banks, and regulators.

Technical Features:

• Structured around four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets.
• Encourages climate scenario analysis, resilience assessments, and climate risk integration into enterprise risk management.

Recommendation for Pakistan:

• Companies in sectors with high exposure to climate risks (textiles, agriculture, financial services, energy) should begin aligning with TCFD to demonstrate climate risk preparedness and resilience.
• Financial institutions in Pakistan must prepare for likely TCFD-based disclosure expectations as SBP’s sustainable banking initiatives evolve.

Practical Framework Alignment Strategy for Pakistani Businesses

Sector-Specific ESG Priorities in Pakistan

Sustainability challenges and material ESG risks vary significantly across industries.
Understanding sector-specific ESG priorities is essential for Pakistani organizations to develop disclosures, policies, and operational strategies that are both credible and actionable.

Aligning sectoral ESG responses with global frameworks such as GRI, SASB, UNGC Principles, and TCFD — while localizing to Pakistan’s unique context — is critical to achieving stakeholder trust, regulatory compliance, and market competitiveness.

Below is a sector-specific breakdown:

Remember, sector-specific ESG priorities are not static. They must be reviewed regularly through dynamic materiality assessments, aligned with both international frameworks and Pakistan’s evolving regulatory and socio-environmental landscape.

Companies that tailor their ESG strategies sector-specifically will achieve stronger regulatory compliance, reduce operational risks, attract ESG-conscious capital, and position themselves as leaders in Pakistan’s transition toward a more sustainable economy.

The Future of ESG Regulation in Pakistan: Trends to Watch

• SECP Voluntary Guidelines:

Strong indications that ESG disclosure could evolve from voluntary to mandatory within the next 3–5 years for listed companies.

• Green Finance Expansion:

SBP’s Green Banking Guidelines will increasingly reward banks that incorporate ESG risk management and penalize those that do not.

• Supply Chain Pressures:

International buyers, particularly in Europe and North America, will demand ESG-compliant practices and disclosures from Pakistani exporters.

• Third-Party Assurance:

Investors will require assured ESG data. Companies must prepare for independent ESG verification processes to remain credible.

Forward-looking organizations must view ESG readiness as an evolving compliance requirement and a strategic investment.

Conclusion: Leading the ESG Transformation in Pakistan

The transition toward ESG-centered business practices is no longer aspirational — it is a fundamental operational and strategic necessity.

In Pakistan, where climate vulnerability, social inequities, and governance challenges intersect with growing international regulatory pressures, early adoption of structured ESG frameworks offers clear competitive advantages.

Organizations that invest today in building ESG capabilities — through board-level engagement, materiality assessments, KPI integration, sector-specific risk mapping, and credible reporting aligned to GRI, SASB, TCFD, and UNGC — will future-proof themselves against emerging disclosure mandates, capital allocation pressures, and supply chain realignments.

The ESG evolution in Pakistan is still nascent, offering a critical first-mover advantage.
Businesses that act decisively will not only meet future compliance standards but will lead the reshaping of industries, attract ESG-driven investments, strengthen operational resilience, and secure their position in an increasingly sustainability-driven global economy.

Navigating ESG today is not just about reporting — it is about strategically positioning for sustainable leadership tomorrow.

About ESG Nexus

ESG Nexus is the first and only dedicated sustainability platform in Pakistan — a collaborative cohort of leading ESG and sustainability businesses.

We empower organizations to navigate the evolving ESG landscape through technical advisory, capacity building, reporting solutions, and strategic sustainability integration.

From GRI-aligned disclosures to climate risk strategy development, ESG Nexus offers Pakistan’s businesses a single platform to future-proof operations, build stakeholder trust, and lead the transition to a resilient, sustainable economy.