KARACHI: The policies of Pakistani commercial banks regarding the environment, social and governance (ESG) risk mitigation lack transparency and lack a tangible action plan, according to Fair Finance Pakistan.

In a press release, the Pakistan chapter of Fair Finance International (FFI) — a civil society coalition campaigning for responsible banking practice — said financial institutions “are evolving” to meet ESG challenges, but their policies “remain silent on the scope and measures” to limit related risks based on the standards defined by the Fair Finance Guide International (FFGI) methodology.

“Pakistani commercial banks have gaps in content and scope of policy commitments in their internal operations and the companies they invest in or finance,” the press release added.

It is said that financial institutions must make their policies and due diligence protocols public for the sake of transparency.

“The information will build understanding of the depositors to know how their money is contributing to environmental and economic growth in Pakistan.”

The statement was issued following a meeting attended by chief risk officers and other officials from 26 commercial banks, the State Bank of Pakistan and the Pakistan Banking Association.

The meeting was held to develop an understanding of the FFGI Methodology, which assesses financial institutions’ approach to sustainability on the basis of several metrics.

The methodology assesses whether financial institutions have systems in place to evaluate companies they are investing in regarding fair tax practices, minimum labour wage compliance, etc.

It also outlines criteria to measure the company’s environmental policies and sustainable practices.

SBP Director Javaid Ismail reiterated the central bank’s commitment towards ESG and sustainable finance and outlined various measures, like the 2017 Green Banking Guidelines and the 2023 Environmental Social Risk Management manual, to integrate ESG risks into overall credit assessment.

The commercial bank officials claimed that their institutions are evolving to integrate ESG criteria, making non-financial information available to the public.

Published in Dawn, March 26th, 2024