Corporate Sustainability Reporting:  The new 'black' in Bangladesh's private sector

Sustainability reporting discloses an organisation's environmental, social, and governance (ESG) performance to stakeholders, demonstrating its commitment to sustainable practices and responsible business behaviour. 

It is crucial for setting targets, managing change, and identifying risks that may jeopardise sustainability. Significantly, it fosters transparency, accountability, and credibility, attracting an increasing base of sustainability-conscious customers and employees who value offerings from responsible organisations.

Where does Bangladesh stand globally?

Worryingly, Bangladesh needs to catch up in sustainability reporting on the global stage. According to the Global Reporting Initiative (GRI), 96.0 per cent of the world's largest 250 companies produced sustainability reports in 2020, with 73.0 per cent following the GRI Standards. 

However, the Dhaka Stock Exchange has one of the lowest rates of environmental sustainability disclosure in South Asia. Of 320 companies listed on the DSE in 2019, only 49 submitted sustainability reports to the GRI database, and only 11 conformed to GRI guidelines. 

In comparison, India's Bombay Stock Exchange had one of the highest reporting rates in South Asia, with 498 publicly listed companies reporting and 74 complying with the GRI standards that year.

Transition from LDC status and achievement of the SDGs?

Climate-related vulnerabilities: The Climate Risk Fund, introduced in 2015, requires financial institutions to commit 10.0 per cent of their CSR budget. According to the Bangladesh Bank, it has raised more than Tk 1.85 billion in the fiscal year 2021. 

As Bangladesh stands to lose its assistance from the UNFCCC upon LDC graduation, such sustainable initiatives, such as 'Green Bonds' to finance low-carbon and climate-friendly projects, may lead to a future watershed in this area. Furthermore, sustainability reporting can support Bangladesh in meeting climate resilience commitments made at COP27, including 113 actions for 8 vulnerable sectors and estimated spending of USD 230 billion between 2023 and 2050.

Access to international markets: As Bangladesh stands to lose Duty Free-Quota Free access to the European Union under the 'Everything But Arms' preferences, its exports could face an average duty of 8.7 per cent. It may especially open Pandora's box for the RMG sector, which would lose preferential access while the tariff structure of other major exporters remains unchanged. 

Therefore, Bangladesh should look towards attaining the GSP+, a special incentive to encourage human and labour rights, environmental and good governance advancements. Hence, sustainable business practices and reporting may be key to remaining competitive.

Current challenges in Bangladesh's context

The current challenges facing sustainability reporting in Bangladesh include the following:

• Inadequate awareness and understanding of the concept in general.
• A shortage of capacity and expertise in non-financial reporting.
• A lack of a culture of sustainability reporting in the private sector.
• Weak corporate governance, especially in highly polluting industries.
• A lack of clear regulatory guidance.
• A lack of clear incentives for companies to engage in sustainability reporting.

These challenges have led to concerns about the long-term costs and feasibility of sustainable products and services, the reporting quality, and the reliability of reported data. 

It is worth mentioning in 2022, GRI and the International Sustainability Standards Board (ISSB), whose frameworks are considered the two pillars of sustainability reporting, reached an understanding to coordinate to harmonise reporting at the international level. As the two Global North-based institutes paint the future trajectory of sustainability reporting, it risks the loss of Southern colours on the canvas of the practice. This points to the need for an interruption in the global order of sustainability reporting.

Hence, it is also worth mentioning that Bangladesh's regulatory bodies should vigilantly capture its local context and form meticulous guidelines, engaging all local stakeholders while balancing between global frameworks and best practices. It is necessary to bring the SMEs, start-ups and the informal sector into the conversation, largely neglected by the GRI, for whom tracking ESG metrics may be too exorbitant.

Agendas to be prioritised

Harmonising and contextualising reporting: Provide clear guidelines to ensure the quality and coherence of sustainability reports. Companies should contextualise their performance within their specific industry and disclose relevant information. Reports must be complete, timely, and incorporate input from all internal and external stakeholders.

Keeping pace with global changes: Stay updated with changes in the global landscape of sustainability reporting, particularly regarding the coordination and harmonisation efforts between the GRI and the ISSB.

Encouraging market-driven motives: Foster financial incentives for sustainability reporting by offering tax rebates and other benefits to companies implementing sustainable business practices.

Comply or Explain approach: Gradually introduce a reporting approach that demands compliance with reporting regulations or valid explanations for being unable to report. This approach would avoid the sudden enforcement of mandatory reporting regulations, allowing companies to provide comprehensive, high-quality reports without rushing the process.

Exploring equity financing instruments: Alternative to debt financing, explore equity financing instruments, such as stocks and shares, to fund sustainable business practices and reporting, especially for unlisted companies. According to a WEF (2022) report, 68.0 per cent of start-ups globally integrated ESG reporting into their business strategy from day one, while only 2.0 per cent indulged in reporting after being listed publicly.

Enhancing reporting through policy interface: Establish a centralised mechanism to compare and analyse sustainability reports at both sectoral and national levels. This mechanism would provide policymakers with valuable and comprehensive insights into sector-specific conditions, informing the development of effective sectoral and national policies.

While still nascent, Bangladesh's private sector is beginning to recognise the significance of sustainability reporting, which can be transformed with clear regulations, guidelines, and adherence to international standards. 

It is paramount that the private sector collaborates with the government and other stakeholders, emphasising capturing the local context as a matter of policy.