Walking the talk on ESG compliance

Bangladesh's securities regulator has taken a step that many observers regard as overdue. The Bangladesh Securities and Exchange Commission recently put out the Corporate Governance Rules 2026 for public consultation, and the centrepiece of this new framework is a mandatory requirement for all listed companies to disclose Environmental, Social and Governance (ESG) information. Where such reporting was once loosely encouraged, it will now be a firm obligation, embedded in annual reports, the Management Discussion and Analysis section, and risk disclosures ranked by materiality. The reforms accompanying this disclosure mandate also shake up how companies organise their leadership and oversight to stay compliant. Boards will now need to maintain a specific composition, including anywhere between five and twenty directors, at least one female director, and a higher share of independent directors making up at least one third of the board. To prevent any single person from accumulating too much power, the new rules make it clear that the chairman and the chief executive officer must be two different people. Beyond that, sponsors and directors are required to jointly hold a minimum percentage of company shares, meaning leadership will have real skin in the game when it comes to the outcomes of their decisions. For a capital market that has long struggled with a weak disclosure culture, these moves by the BSEC represent a real shift in regulatory thinking, one where transparency and accountable leadership finally arrive together as a package.

The ESG disclosure move brings the local market in line with global investor expectations where such metrics are increasingly used to assess long-term corporate value and ethical conduct. Stronger disclosure is expected to build confidence among institutional and foreign investors who actively seek out compliant companies for sustainable investments. That said, the corporate world has also taught observers to treat ESG commitments with measured scepticism. Google famously built its identity around the informal motto "don't be evil," only to quietly retire that principle as the business scaled and commercial pressures intensified. The lesson is not that ESG is meaningless, but that principles without enforcement mechanisms tend to erode under the weight of targets and short-term incentives.

One of the most important aspects of the proposed rules is the decision to place responsibility for ESG disclosures under the audit committee. This is a logical institutional choice. The audit committee already oversees financial reporting and corporate audits; so extending its role to ESG oversight indicates that sustainability reporting is being with the same seriousness as financial reporting. Still, experience with financial audits in Bangladesh raises a concern that the regulator would be hard pressed to ignore. When auditing financial statements, external audit firms frequently encounter situations where companies simply do not hand over the documents needed to verify key data in draft reports. The firms note the limitation in their audit opinion and move on, with no substantive consequence for the company. If verification is already a hurdle for financial data, it will undoubtedly be a monumental challenge for qualitative environmental and social metrics that ESG reporting demands.

This leads to the most critical question regarding the new regulatory framework which is what happens when audit findings reveal that these disclosures fall short of the mandated standards. An accountability mechanism for failure to comply is absolutely essential if the rules are to have any meaningful teeth. The requirement for a corporate governance compliance audit by chartered secretaries is a step in the right direction, but it must be coupled with strict enforcement actions. Only when the cost of noncompliance exceeds the cost of genuine adherence can the companies be expected to internalise these values.