By: Babar Akhtar
babarmemon30@gmail.com
Published By:ANI News Agency
A bank can put up solar panels, plant trees and produce a pretty sustainability report, and then continue to do pretty much the same thing when it comes to lending. Its offices may become greener even as its financing supports businesses with unmanaged environmental and social risks. The question that must be answered by all financial institutions in Pakistan is: what does environmental, social and governance (ESG) integration do: it changes where money goes, or it is largely about how the financial institution looks? It is legitimate to attract investors with improved sustainability performance. Luring them with something more than evidence is another.
Pakistan has surpassed the stage of non-regulatory guidance. In 2017, the State Bank released its Green Banking Guidelines and in 2022, its Environmental and Social Risk Management Implementation Manual. In December 2025, the SECP updated the ESG disclosure guidelines for listed companies, in line with Pakistan Green Taxonomy. These developments lay the groundwork for more reliable assessments and reporting. By themselves, they do not form an answer to what extent institutions have changed their behavior. Similarly, to disregard the entire sector's efforts as window-dressing, without analyzing the individual institutions' portfolios, processes and results, would be wrong.
The strongest test sits inside the credit committee. Imagine a potential loan to a textile company facing water scarcity, flooding-related disruption, and workplace safety issues. Such risks would need to be part of the analysis of repayment capacity, financing conditions and subsequent monitoring for true integration to occur. The lender may require measures to conserve water, or a safer working environment or a funded improvement plan. If necessary, it may reject the proposal. If ESG assessment is done after the commercial decision has been made, there is a risk that this assessment becomes "paperwork. A policy has significance if it alters a decision.
The environmental aspect is not limited to electricity that is used in branches. Investors should be aware of risks and emissions of the activities financed by the institution in addition to those of its own operations. But the social aspect must not be neglected: fair treatment for consumers, responsible lending practices, safeguarding of the employees and providing opportunities to those who have been excluded from credit. Governance will condition whether or not these commitments hold against the pressures of commerce. Do risk officers have the power to oppose a lucrative deal. Does the board get unpleasant results? Are grievances addressed and conflicts of interest addressed? Donations and community programmes are good, but they are no substitute for poor lending standards or accountability.
Implementation may not match ambit for practical reasons. In smaller borrowers, this could be due to a lack of emissions records, climate exposure data or specialist staff. Financial institutions must also have the appropriate expertise and systems. Otherwise viable businesses should not be automatically ruled out for credit due to lack of information. Banks can apply proportionate assessments, provide estimates and assist borrowers to enhance their records. But the same can't be the case with limited capacity and indefinite counts on vague commitments. Investors should enquire about definitions of what is considered sustainable and how they are verified and what is the plan if targets are not met. Progress should be reported as setbacks as well as a series of good examples. It's important to acknowledge when performance is not up to scratch for credibility.
The next step is to ensure that ESG becomes part of financial decision-making. Boards should define clear roles and tie in management incentives with measurable results. Monitoring of the environmental and social conditions should be done by risk teams during the financing period. Internal audit may be used to demonstrate that procedures approved have been put in practice and independent assurance may provide a greater level of assurance for significant disclosures. Regulator should look at implementation as well as the quality of reporting. Institutions should share what adjustments have been made in lending, investments or engagements with their clients as a result of sustainability assessments, while preserving the confidentiality of information. Pakistan requires funding to build business resilience and competitiveness. ESG can help fulfil that purpose but only where links are made between pledges and actions and consequences. The credibility of ESG in Pakistan’s financial sector will depend on whether it shapes lending decisions, strengthens accountability and delivers measurable results. Investors should look for evidence that sustainability commitments influence how institutions assess risk, allocate capital and respond when targets are missed. Until those commitments are reflected in everyday financial decisions, the gap between sustainability on paper and performance in practice will remain.
