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As Bangladesh prepares to graduate from a Least Developed Country (LDC), aligning business enterprises with Environmental, Social, and Governance (ESG) reporting standard is becoming a mandatory practice to boost their global competitiveness. ESG reporting is a globally recognised tool for assessing a business's environmental, social, and governance (ESG) performance. By disclosing their ESG practices and impacts, companies can enhance their reputation, attract foreign investors and capital, and mitigate risks associated with climate change, social issues, and governance failures.
Broadly, ESG encompasses three key dimensions: environmental, social, and governance. Environmental factors cover a company's energy use, environmental impact, and resource management. Key considerations include in this segment are energy efficiency, climate change mitigation, carbon emissions, biodiversity conservation, air and water quality, and waste management.
Social factors assess a company's impact on its employees, customers, and the broader community. It focuses on gender diversity, employee engagement, customer satisfaction, data privacy, human rights, and labour standards.
Governance factors relate to a company's internal systems, practices, and procedures. These include leadership structure, board composition, executive compensation, audit committee effectiveness, internal controls and shareholder rights. Strong governance practices promote transparency, accountability, and ethical behaviour.
Research underscores the growing importance of ESG. A Morgan Stanley study revealed that 85 per cent of US investors are interested in sustainable investing, highlighting the growing importance of ESG factors. Furthermore, the European Union's Corporate Sustainability Reporting Directive (CSRD) mandates ESG compliance for companies within and outside the EU, including suppliers like Bangladesh. For Bangladeshi businesses, adhering to these standards represents a gateway to sustained trade relations and market access in regions where environmental and social responsibility is now a non-negotiable expectation. This means that complying with sustainability standards is not just a legal obligation but a strategic imperative to maintain their position in the global supply chain.
Yet, it is concerning that only 10 Bangladeshi companies, out of nearly 400 listed companies in Dhaka Stock Exchange, are listed in Bloomberg's ESG club. Whereas Pakistan and Sri Lanka have 60 and 15 ESG-rated listed companies, respectively. Observers figured out that most Bangladeshi companies are yet to embrace the practice of ESG reporting annually mainly because of weak corporate governance, limited awareness, and inadequate data collection.
The cost of neglecting sustainability reporting could be high. Currently, the global ESG investment market is valued at $25 trillion and is projected to grow at an annual rate of over 18 per cent in the next decade. Considering this, countries like India, Malaysia and Thailand made ESG disclosures mandatory for big companies, and as a result they are attracting significant ESG-focused funds. Without similar initiatives, Bangladeshi companies risk lagging behind their regional peers, losing out on ESG-focused funding opportunities, with their competitiveness being diminished globally.
Bangladesh needs to adopt a multi-pronged strategy to overcome these challenges, as experts pointed out. Firstly, developing and enforcing a national ESG framework is essential. By integrating ESG considerations into existing industrial and SME policies, the authorities can embed sustainability into business operations. Secondly, educating stakeholders - employees, management, and regulators - on ESG's importance is also of paramount importance. Public awareness campaigns can further amplify the message of sustainability. Thirdly, regulations mandating ESG disclosures should be introduced, alongside a standardised reporting format aligned with global norms, to ensure transparent reporting.
Moreover, companies must invest in renewable energy, efficient waste management, and other green technologies. Such investments will align them with global sustainability goals and reduce operational risks. Collaborative efforts involving government bodies, industry associations, and international organisations can facilitate this transition to sustainable business practices.