To keep climate change in control through ESG (Environmental, Social, and Governance) reporting, companies and banks are increasingly expected to disclose their sustainability practices and integrating climate risks into their financial planning and business decisions. You! takes a look…
The most challenging issue the world is facing today is of climate change. In simple words climate change is the long-term shift in the Earth’s average temperatures and weather conditions.
Climate change affects the environment in many different ways, including rising temperatures, sea level rise, drought, flooding, and more.
According to a UN report from 2010–2019, weather-related events displaced an estimated 23.1 million people on average each year, leaving many more vulnerable to poverty. Between 2010 and 2020, highly vulnerable regions, home to approximately 3.3–3.6 billion people, experienced 15 x higher human mortality rates from floods, droughts and storms compared to regions with very low vulnerability. The year 2024 was the world’s hottest on record, with climate change mainly responsible for the high temperatures.
Pakistan is the eighth most climate vulnerable country in the world. Pakistan, despite its contribution of only 0.9 percent to global greenhouse gas (GHG) emissions, is highly vulnerable to the impacts of climate change. Over the past years, the intensity of climate-induced disasters in Pakistan has significantly increased. With over 1700 deaths and 12000 injuries, World Bank reported the economic losses and reconstruction in flood-hit areas of Pakistan in 2022 to be over USD 40 billion.
In December 2015, the world took a significant first step by adopting the Paris Agreement, in which all countries committed to take action to address climate change. To reduce climate impact, individuals and governments should focus on transitioning to renewable energy sources, reducing energy consumption, and adopting sustainable practices in transportation, food, and waste management. Since 2015 a lot has been happening around the world - investments in renewable energy have soared. But more needs to be done.
The International Sustainability Standards Board (ISSB) was formed in 2021, during the UN Climate Change Conference (COP26) in Glasgow. It was established by the International Financial Reporting Standards (IFRS) Foundation. The Board was formed to develop - in the public interest - a comprehensive global baseline of high-quality sustainability disclosures to meet investors’ information needs. Financial markets need this information to assess the risks and opportunities facing individual companies which arise from sustainability-related factors. The ISSB is responsible for developing IFRS Sustainability Disclosure Standards, to provide a truly global baseline of sustainability disclosures to further help in making informed economic and investment decisions.
In COP 28 held on December 1, 2023, close to 400 organisations from 64 jurisdictions committed to advance the ISSB climate global baseline. The declaration of support demonstrated the strong support to advance action-oriented responses to the risk of climate change.
Responsible reporting
It is not all about profits now. As the world becomes more aware of the environmental, social and governance (ESG) impacts of business activities, companies are increasingly expected to disclose their sustainability practices and report on their impact.
To keep climate change in control through ESG (Environmental, Social, and Governance) reporting, companies should focus on measuring and reducing their carbon footprint, adopting sustainable practices, and integrating climate risks into their financial planning and business decisions. This includes establishing clear targets for emissions reduction, investing in renewable energy, and disclosing their climate-related risks and opportunities.
The role of ESG reporting goes beyond just meeting regulatory requirements, it’s a means of fostering transparency, ensuring accountability, and driving long-term value creation. Companies and banks are now leveraging ESG reporting to integrate sustainability into every facet of their operations, from product development to corporate structure.
“ESG is indeed a diff¬erent concept from Corporate Social Responsibility (CSR), which is more focused on philanthropy and charitable giving. ESG encompasses a broader range of considerations, such as environmental, social, and governance factors and aims to integrate them into business operations. By identifying ESG risks and opportunities, companies can potentially reap economic benefits as well. ESG has gained immense global importance as countries and businesses strive towards sustainability and sustainable development. This focus on sustainability is crucial in ensuring a viable future for generations to come,” mentions Dr Shamshad Akhtar, Chairperson, Board of Directors, and Pakistan Stock Exchange (PSX).
The launch of ISSB’s first two standards - IFRS S1 and IFRS S2
The International Sustainability Standards Board (ISSB) launched its first two sustainability-related standards - IFRS S1 and IFRS S2 - in June 2023, effective for annual reporting periods on or after Jan. 1, 2024. The standards could form the basis of a consistent sustainability disclosure framework for companies and investors around the world.
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information: Companies are required to disclose sustainability-related risks and opportunities.
IFRS S2 Climate-related Disclosures: Companies are required to disclose specific metrics such as greenhouse gas (GHG) emissions, climate-related physical and transition risks and scenario analysis.
In short, IFRS S1 and IFRS S2 require companies to disclose all material information about climate - and other sustainability-related risks and opportunities that could reasonably be expected to affect these companies’ prospects.
However, disclosing sustainability information is still a relatively new area for many and there is a big need to develop the new skills required to ensure the ISSB Standards are applied in a high quality and consistent manner. To this end, there is ongoing work with partners around the world on capacity building, including the creation of a dedicated website of free resources to support application, particularly in the global south.
In Pakistan, the importance of ESG (Environmental, Social, and Governance) reporting is becoming increasingly recognised. ESG reporting provides transparency, helps investors make informed decisions, enhances brand loyalty, ensures regulatory compliance, and helps companies manage risks. Good ESG reporting is crucial for companies to establish transparency, trust, and accountability about their ESG related endeavours.
In today’s competitive business and investment environment, it is imperative for companies to learn about, apply, and incorporate the standards governing ESG in their corporate structure. In this regard, a one-day workshop was held recently in Karachi titled ‘Navigating ESG Reporting: Aligning with IFRS S1 & S2 Standards’, organised by Indus Consortium, an NGO based in Islamabad. Under the aegis of Indus Consortium, the event brought together banking and financial industry players to explore the integration of ESG frameworks, most notably the recently published IFRS S1 and S2 guidelines developed by the International Sustainability Standards Board (ISSB).
Mr Ayhan Mustafa Bhutto, Special Secretary for Climate Change and Coastal Development, Government of Sindh, underlined the growing need to match ESG practices with international norms to guarantee sustainable economic development and reduce financial risks connected to climate change. “Our institutions are missing out on financial possibilities now being used by foreign companies. I urge Pakistan’s banking sector and local businesses to improve their capability for (ESG) reporting to gain more business,” elucidated Mr Bhutto.
“The transition to sustainability should not be seen simply as a regulatory obligation but as a strategic economic imperative. Using IFRS S1 and S2 will increase openness and draw investment matched with climate goals,” he added.
While highlighting the important role ESG reporting plays in improving corporate responsibility and drawing sustainable investment to Pakistan, Ms Zohra Sarwar Khan, Joint Director of the Securities Exchange Commission of Pakistan (SECP), said, “SECP is aggressively advocating for further alignment of corporate sustainability reporting with international frameworks as part of its larger initiatives to promote openness, climate resilience, and responsible investment across the nation’s financial markets.”
“ESG reporting has become necessary for companies worldwide. Investors, authorities, and other stakeholders are increasingly demanding transparency on sustainable practices and their financial consequences,” she noted.
“Financing is not neutral, either it has positive impacts or it produces harmful impacts to the environment and community. Banks should adhere to and improve the disclosures of the environmental and social frameworks to ensure sustainability,” stressed Mr Hussain Jarwar, CEO Indus Consortium.
“In recent years, there has been a global shift toward credible, consistent, and comparable sustainability-related financial disclosures. Investors, regulators, and stakeholders want clear information on how sustainability risks and opportunities affect business value and economic health. To address this need, the IFRS Foundation established the ISSB, which issued IFRS S1 and IFRS S2, setting a global foundation for sustainability reporting. These standards help companies align with growing expectations for transparency and long-term value creation,” explained Mr Rashid Azeem, Head of ESG and Chief Green Banking Manager of UBL.
“In today’s world, ESG considerations are no longer just buzzwords. They are central to how businesses operate, how investors make decisions, and how regulators assess performance and risk. These standards are quickly becoming the global baseline for ESG reporting. SECP mandated IFRS 1 and 2 for all listed companies in a phased manner. IFRS S2 enhances organisational accountability for climate-related risks and ensures investors have access to reliable, comparable, and decision-useful information,” he elaborated.
Mr Azeem also gave an example of one of his bank’s initiatives. “To promote green banking products under Environmental, Social and Governance (ESG) principles, we have incorporated the SBP financing scheme for renewable energy within our existing SME products such as Karobar loan and Sahulat loan, to support both new and existing SME (Small and Medium Enterprise) clients.”
Professor Dr Raza Ali Khan talked about the importance of sustainability reporting, institutional capacity building and collaboration among industry, regulators and academia whereas Syed Bulent Sohail, another speaker shared the future opportunities in the market and the businesses available to banks. In the end, Ms Sadia Bukhari, Head of ERM, Sindh Bank Limited, talked about the importance of data and collaboration of all stakeholders to work on IFRS reporting.
Many companies in Pakistan are still not reporting on their sustainability practices, and there is a need for greater awareness and understanding of the importance of sustainability reporting and disclosures. Enhancing work on ESG and reporting may also help the domestic equity markets attract long-term investments.
Pictures courtesy: United Nations Climate Action & Indus Consortium
Erum Noor Muzaffar is the editor of You! Magazine. She can be reached at iram29@hotmail.com
