‘NET ZERO’ refers to “a balance between man-made greenhouse gas emissions and their removal from the atmosphere”. To achieve this balance, GHG emissions must be reduced to near zero. Remaining emissions can be neutralised through long-term carbon-capture solutions such as planting trees or funding carbon-offset projects.

Recently, there has been renewed global commitment to address climate change. Over 70 countries aim to collectively reduce emissions from current levels to net zero by 2050. But national climate action plans fall short of the required emission cuts despite scientific consensus that the global temperature rise should be limited to 1.5 degrees Celsius above early 19th-century levels to avert a climate catastrophe.

While governments have been slow to act, the private sector is driving the climate agenda. Over 2,000 businesses and financial institutions have committed to reducing GHG emissions across their value chains in line with climate science. This momentum is driven by pressure from investors and customers for companies’ to limit emissions, and an understanding of the competitive advantages to be gained.

Some governments have introduced mandatory Environmental, Social & Governance disclosure regulations to force companies to acknowledge their ESG impacts and allow investors and consumers to make informed decisions. The US Securities & Exchange Co­­m­mission has introduced proposals requiring companies to disclose climate risks facing businesses, and plans to address those risks along with mandatory disclosure of the companies’ climate footprint.

The European Union’s Sustainable Finance Disclosure Reg­ulation and Corporate Social Responsibility Directive aim to improve the comparison of funds’ sustainability profiles by end-investors. India and Bangladesh have also passed similar legislation in line with global trends.

Pakistan already has green financial incentives in place.

In Pakistan, the Code of Corporate Governance Guidelines (2017) make the company’s board of directors responsible for the “implementation of ESG and health & safety business practices including a report on corporate social responsibility activities and status of adoption/compliance”. Multinational corporations and those with an international clientele voluntarily publish annual sustainability reports that disclose their current ESG impact and future sustainability targets.

ESG disclosures enable companies to attract investors that are interested in sustainable growth, identify ESG-related business risks and opportunities, optimise resources and future-proof operations and supply chains with respect to ESG risks. Studies by NYU’s Stern Centre for Sustainable Business have found a tangible link between financial performance and a company’s ESG activities.

A review of 59 climate change or low-carbon studies related to financial performance, found on the corporate side that 57 [per cent] arrived at a positive conclusion”. With an established link between ESG disclosure and positive financial performance, more Pakistani companies should voluntarily track and report ESG performance.

A transition towards more sustainable production features a shift to renewable energy, innovative, high-efficiency manufacturing processes and closed production loops. Pakistan already has green financial incentives in place to support such activities. The State Bank of Pakistan’s Financing Scheme for Renewable Energy encourages a shift towards renewables. Askari Bank’s Ujala Finance offers “subsidised financing for sustainable energy projects to reduce consumption of traditional hydrocarbon-based energy sources”.

The Pakistan Business Council’s Centre of Excellence in Responsible Business notes that “in many emerging economies, where capital markets are the main driver for reporting — ESG metrics are increasingly on the stock listing requirements”. The Pa­k­is­tan Stock Exch­ange also recognises the imp­ortance of disclosure on non-financial issues in its Annual Reporting Awards and awards points for “disclosures on gender representation and companies who report on at least [two] Sustainable Development Goals”.

Large Pakistani textile industry players are ahead in the ESG game with robust plans to decarbonise their supply chains, optimise energy, water and carbon footprints and conform to international sustainability best practices in order to remain competitive in the international markets. Meeting science-based emissions-reduction targets is critical from an environmental perspective but doing so also lowers the significant business and reputational risks faced by companies.

Pakistani companies need to act immediately to strengthen ESG reporting and progress towards sustainability commitments both for the climate and for the companies’ future competitiveness as they make the transition to a net-zero business environment.

Maha Qasim is an environmental and sustainability expert. Dania Nasir is a research analyst at Zero-Point.

Published in Dawn, May 3rd, 2022