The Securities and Exchange Commission of Pakistan (SECP) on Friday issued guidelines on ESG Disclosures, 2023 for listed companies.
The “ESG” refers to environmental, social, and governance factors that can impact company value and investor decision-making.
Firstly, the E&S factors include financial material risks and opportunities such as climate change, water use, human capital management, and health and safety. Secondly, the governance factors include board quality, independence, and accountability; board oversight of executive performance and compensation and the board’s oversight of company strategy, risk management, performance, and disclosure, including disclosure of E&S factors.
ESG reporting can help companies attain a competitive advantage by attracting and retaining investors, customers, and employees who are increasingly interested in doing business with companies that are committed to sustainability.
The listed companies are encouraged to disclose their ESG performance using the specified metrics, in addition to the existing mandatory disclosure requirements as stipulated under various laws.
Details revealed that the SECP is aware of the expanding significance of Environmental, Social, and Governance aspects on businesses and, therefore, places a significant emphasis on integrating ESG principles into its regulatory framework.
Owing to the significant impact of ESG factors on investor confidence, financial stability, and overall business viability, the SECP has been actively trying to include ESG considerations into the prevalent regulatory framework to create synergies, guidelines said.
The SECP issued an ESG Regulatory Roadmap in June 2022 outlining actions ranging from creating awareness, discussing disclosure needs, and developing ESG-focused products leading to an overall impact assessment in a phased manner.
As part of the SECP’s ESG Roadmap, these Guidelines on ESG Disclosures, 2023 (Guidelines), voluntary in nature, as guidance for listed companies. Other companies are encouraged to adopt the same voluntarily.
The ESG disclosure guidelines for listed companies are voluntary in nature serving as a recommendary baseline disclosure framework. In view of the evolving ESG considerations, these guidelines shall be periodically updated in consultation with relevant stakeholders to ensure their relevance and effectiveness.
ESG reporting can assist in improving the transparency of a company’s operations and performance to build trust with stakeholders and make it easier for investors to make informed decisions about whether or not to invest in the company.
The ESG reporting can help companies to identify new opportunities for innovation and growth by developing new products and services that meet the needs of a growing sustainable market, or by improving the efficiency of operations in order to reduce costs and the company’s impact on the environment.
Lastly, companies can use ESG reporting to identify and mitigate risks related to environmental, social, and governance issues to protect the company’s reputation, financial performance, and long-term sustainability, SECP added.
