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Climate exigencies make embracing ESG imperative for sustainable Bangladesh

Melita Mehjabeen | December 08, 2024 00:00:00


As the world geared up for the COP29 summit, conversations about environmental sustainability and climate change had not been more pressing. For Bangladesh, a country marked by its resilience against climate challenges, this global conference is not just another international event, it is a call to action. For years, Bangladeshi companies have navigated the tightrope of economic growth and environmental responsibility. However, as global expectations around Environmental, Social, and Governance (ESG) principles continue to rise, the question for Bangladesh's industries is clear: if they can move beyond mere compliance to a true commitment to ESG.

The answer to this question is multi-faceted and complex. While there is growing interest in ESG practices among Bangladeshi businesses, the path forward involves a significant shift from viewing ESG as a regulatory checkbox to embracing it as a core component of long-term corporate strategy.

Beyond compliance: the need for genuine commitment: For many Bangladeshi companies, ESG reporting has largely been about compliance, primarily meeting regulatory or international buyer requirements without a deeper engagement with sustainability or ethical business practices. However, compliance alone is not enough. To create a lasting impact, companies need to adopt a mindset that goes beyond just "doing good" or "following the crowd". Embracing ESG is about understanding the unique environmental and social challenges facing businesses and the country and integrating ESG into every facet of the business.

Take, for instance, the ready-made garment (RMG) sector, which has put Bangladesh on the global economic map. While Bangladesh has achieved the highest number (226) of LEED certifications, indicating a step towards sustainable practices, these efforts need to be scaled across other industries and sectors. Similarly, ESG should be more than an isolated effort or a public relations tool. It should become foundation upon which businesses build resilience, adapt to climate challenges, and contribute to the broader wellbeing of society.

Integrating ESG into business model and value chain: The journey from compliance to commitment begins at the top. Board members and senior executives must lead the charge by embedding ESG principles into the company's core strategy. This involves setting specific, measurable ESG goals that are aligned with the organisation's mission and values. It's not just about creating an ESG department or issuing a periodic sustainability report. Rather, ESG needs to be woven into the company's entire value chain-from sourcing raw materials to production, distribution, and waste management.

For example, a manufacturing company that adopts sustainable and responsible sourcing practices and implements energy-efficient production methods can reduce its environmental footprint while enhancing operational efficiency. By investing in green technologies and sustainable processes or recycling, Bangladeshi companies can position themselves as responsible players on the global stage. In doing so, they can attract environmentally conscious consumers, investors, and partners who are increasingly prioritising sustainability in their decision-making. Employee training and engagement are also crucial. Companies should provide regular training on ESG topics to make sure that employees at all levels understand their role in achieving the company's sustainability goals.

Additionally, incentivising ESG-related achievements through recognition and rewards can motivate employees to take ownership of these initiatives, making ESG a shared responsibility across the organisation.

Prioritising risk assessment and materiality: A key challenge for Bangladeshi companies is understanding which ESG factors are most relevant to their business. This is where materiality assessment comes in. Unlike generic compliance measures, a materiality assessment helps companies identify the specific ESG risks and opportunities that are most critical to their operations, stakeholders, and long-term sustainability. This process allows companies to prioritise their ESG efforts in a way that aligns with their strategic goals and the unique risks they face.

In Bangladesh, companies face diverse risks-from climate-related threats like flooding and cyclones to social issues such as labour rights, working conditions, safety and income inequality. By assessing these risks, companies can develop targeted strategies that address the issues most likely to impact their business and reputation. For example, a manufacturing firm may prioritise water conservation and waste reduction along with the working conditions and safety of the workers, while a financial institution might focus on governance, transparency and responsible lending practices.

Promoting transparency and consistent reporting through localised ESG index: Transparency is at the heart of any credible ESG strategy. Currently, ESG reporting in Bangladesh is fragmented, with companies using a variety of standards and frameworks. To build trust and accountability, Bangladeshi companies should adopt consistent and transparent reporting practices, ideally aligned with international standards like the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). This allows stakeholders to evaluate and compare ESG performance accurately, creating a level playing field. At the same time, high-quality disclosure from companies in a comparable format not only builds transparency but also enables investors, regulators, and other stakeholders to accurately assess the materiality of ESG risks and make informed decisions.

Currently, a mere 25 listed companies are following the GRI index, the banks have to mandatorily report to Bangladesh Bank through sustainability reporting, BSEC has a mandatory CG code to comply with, and RMG and textiles have an exhaustive list of international reporting standards to comply to which are coming as legislations in 2026.

A promising and sustainable approach could be the development of a localised ESG scorecard or index, which would provide a standardised framework for Bangladeshi companies. This scorecard would track key ESG indicators, offering a clear, comprehensive picture of a company's environmental, social, and governance performance. This can be the single source of information that makes the performance of the companies transparent to all stakeholders.

While global reporting standards are presumably the best practices, however, the framework and indicators must be modified keeping the local context into consideration. To ensure the quality and reliability of the reporting, independent assurance should also be in place. Global audit companies like KPMG and PWC are mandated to audit non-financial disclosures globally and should develop resources in Bangladeshi to do so.

Developing a national ESG strategy:

While individual companies play a key role, a coordinated national ESG strategy is essential for creating a cohesive and impactful approach. Currently, ESG efforts are largely ad hoc, with different regulators and industry bodies promoting varied standards. To address this, the government, regulatory bodies, and industry associations need to collaborate on a unified ESG framework. Additionally, the government could incentivise ESG compliance through tax breaks or other financial benefits for companies that demonstrate strong sustainability practices. A holistic national ESG approach can also help attract international investment. Global investors are increasingly seeking opportunities in countries with strong ESG frameworks.

While achieving a unified ESG strategy may not happen in the short term, the commitment to such a framework will lay the foundation for long-lasting, sustainable growth. By prioritising accountability, innovation, and collaboration, Bangladesh can ensure that its businesses not only meet global expectations but also contribute meaningfully to societal and environmental progress.

Dr Melita Mehjabeen is a professor at IBA, Dhaka University. The author can be reached at [email protected]


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