ESG Reporting Alone Is Not Enough: Build Incentives and Consequences- Sherry Rehman
Islamabad – 5 October, 2026 (Adnan Hameed) : Senator Sherry Rehman has called for a transparent and incentive-based Environmental, Social and Governance (ESG) framework in Pakistan, stressing that ESG cannot remain a matter of voluntary reporting or corporate image-building and must translate into measurable improvements in environmental performance, social responsibility and governance.
Addressing the launch of the Pakistan ESG Policy Report 2026 as Chief Guest, Senator Rehman said that ESG required a much broader conversation than one confined to the corporate sector. “We have to talk about ESG not in isolation, but in terms of climate, political and legal frameworks,” she said, stressing that the country needed to bring together the people who understand the technical, regulatory and legislative dimensions of the issue.
Senator Rehman said that the fundamental question was no longer whether Pakistan needed ESG, but what kind of framework it wanted to build and what consequences would follow from it. “Laws are very important when it comes to a regulatory framework, especially when that framework has to interoperate with international stakeholders.”
Referring to Pakistan’s existing corporate practices, she pointed to the significant gap between awareness of ESG and actual implementation. An ESG 2023 survey found that 86 percent of businesses were aware of ESG risks and 81 percent were aware of ESG opportunities, yet only 18 percent had an ESG-certified director on their boards, while just 11 percent were issuing sustainability reports. Even among those reporting, she noted, disclosures were often limited or insufficiently detailed.
“With roughly 537 companies listed on the Pakistan Stock Exchange, we still have a very wide gap between awareness and implementation,” Senator Rehman said. “Very few companies are reporting their actual carbon footprint, their circularity, their resource use or the measurable environmental impact of their operations. This is particularly important for export-oriented companies that are increasingly entering regulatory environments such as the European Union’s Carbon Border Adjustment Mechanism.”
She said the question was not simply how many companies were producing ESG reports, but what those reports actually revealed, who verified the information, who inspected it, and what happened when reported performance did not correspond with conditions on the ground.
“I say this from the perspective of someone who chairs a Senate Standing Committee and regularly deals with companies, regulators and institutions. I do not encounter sustainability disclosures at anything close to the scale one would expect if ESG were already embedded in corporate practice,” she said. “If you don’t really have to, why would anyone want to create responsibility?”
Senator Rehman cautioned against treating ESG reporting as an end in itself, warning that reporting without verification, accountability and measurable outcomes could become another paperwork exercise. “The biggest polluters are often the ones producing the biggest ESG reports. That is the global reality,” she said, noting that major global companies, including those in high-emission sectors, can spend heavily on sustainability messaging and green branding because they have to protect their reputation, attract investment and reduce perceived risk.
“I am not saying that every company producing an ESG report is greenwashing. But I am saying that a report by itself is not proof of responsible corporate behaviour. Reporting alone is nowhere near enough,” she stressed.
At the same time, Senator Rehman said Pakistan’s ESG framework should not simply become another punitive burden on an already heavily taxed private sector. “Without meaning to target companies, the private sector already has a huge taxation burden,” she said, calling for a system that combines reporting requirements with incentives and a clear pathway towards compliance.
She proposed an incentive-based regulatory regime under which companies would have a reason to improve their environmental and social performance rather than simply being required to produce documents. “There should be a regime of incentives which are open to immediate realisation, with transparent boards that not only regulate but provide incentives to regulate,” she said, adding that the regulatory framework should also contain credible penalties where necessary.
Senator Rehman stressed that companies themselves should be brought into the policy-making process. “Companies need to explain the genuine barriers they face, regulators need to clarify what will become mandatory, and Parliament needs to understand where legislative intervention is required.”
She suggested that companies filing sustainability reports could eventually be required to appear before relevant parliamentary committees and explain their ESG disclosures, just as institutions and stakeholders appear before parliamentary committees dealing with finance and other areas of public policy.
“We need to understand what companies need. You will not get real data without incentivisation. The objective should be to create a framework in which companies have a reason to disclose accurately, improve their performance and participate in shaping the policy itself.”
Senator Rehman also underscored the importance of the Pakistan Green Taxonomy, describing it as one of the key structural tools for creating a common understanding of what constitutes sustainable economic activity. The taxonomy, being advanced through collaboration involving the State Bank of Pakistan, Ministry of Climate Change and international partners including the World Bank, can provide what she called a common “language” for businesses, financial institutions and regulators.
“Green taxonomy is going to build a common sustainable language for all of us — for businesses, for corporates and for all sectors that need to comply,” she said. “In reality, what we need is almost a dictionary for sustainability, so that businesses can align their practices, supply chains and financial activities with climate-resilient frameworks.”
She stressed that Pakistan’s ESG architecture must also remain aligned with rapidly evolving international trade and regulatory requirements, particularly the EU’s CBAM, which will increasingly affect exporters based on the carbon intensity of covered products.
Senator Rehman said Pakistan had already begun moving towards mandatory ESG disclosures through the phased framework introduced by the Securities and Exchange Commission of Pakistan (SECP). Under the current schedule, Phase I begins on July 1, 2029, covering companies meeting at least two of the specified thresholds of turnover above Rs25 billion, more than 1,000 employees, or assets above Rs12.5 billion. Phase II begins on July 1, 2030, covering companies meeting at least two of the thresholds of turnover above Rs12.5 billion, more than 500 employees, or assets above Rs6.25 billion. Phase III begins on July 1, 2031, extending the framework to remaining listed companies and non-listed public-interest companies.
However, Senator Rehman noted that disclosure requirements alone were not sufficient. “I do not think the current framework necessarily answers the question of penalties. When I bring a law, there will be penalties, but there will also have to be incentives,” she said. “There is no point in making a law without the consequential framework.”
She recalled her own experience of piloting corporate social responsibility legislation, stressing that CSR and ESG are not the same thing, but that the experience demonstrated how difficult it can be to move from voluntary corporate responsibility towards meaningful legal obligations.
“The foundation is a law. Even the CSR framework, which is very different from ESG and which I piloted, was deeply resisted. Eventually it had to be brought down to a non-mandatory framework,” she said, arguing that Pakistan should learn from that experience while developing a more comprehensive ESG architecture.
Senator Rehman further argued that cleaner production had to be made economically viable, particularly in sectors with significant industrial footprints. “If we want cement manufacturers to invest in cleaner technologies, we need incentives that make that investment viable. If we want companies to reduce emissions, we have to give them a pathway to do so. If we want businesses to improve energy efficiency, waste management and production systems, we have to recognise the economic realities they face,” she said.
“Otherwise, companies will continue treating compliance as a paperwork exercise — producing reports that look good on paper but have limited impact on the ground,” she added.
Senator Rehman said Pakistan’s environmental crisis made this transition particularly urgent. She pointed to the country’s worsening air and water pollution and noted that Pakistani cities, particularly Lahore, repeatedly feature among the world’s most polluted urban centres.
“It is in water and air that companies are making a huge negative impact. We have punched a new sky for ourselves,” she said, arguing that environmental performance could no longer be separated from economic and corporate policy.
She contrasted the lack of a comprehensive national plan in some areas with the rapid transformation taking place in Pakistan’s energy sector. Pakistan’s solar expansion, she noted, has been substantially people-driven. Over the past five years, the country has imported more than 50 GW of solar panels worth nearly US$18 billion, fundamentally reshaping the energy landscape.
“The solar revolution shows us that people do not always wait for governments,” she said. “Net metering and the declining price of photovoltaic panels created the conditions for a transformation that has happened at extraordinary speed.”
For Senator Rehman, this offered a broader lesson for ESG policy: resilience and sustainability cannot be created through government action alone. Communities, businesses, investors and consumers must become stakeholders in defining the policies they ultimately have to implement.
“Communities and businesses do not have to wait for governments to take punitive action. Shape your own policy goals. Become a stakeholder in the policy by asking for what you want,” she said.
She called on businesses and technical experts to engage with Parliament before legislation is finalised rather than waiting until regulations are imposed. “Work with us before we impose a law which you don’t like,” she said. “Sit together, share what you need and work out what is possible. Bring the technical homework done.”
Senator Rehman urged the private sector to present policymakers with a cascade of options, with at least three workable alternatives, rather than simply identifying problems. She also called for clear proposals on how ESG data could be transparently verified and independently scrutinised.
“It is not my job as a legislator to do the technical homework for the sector. Bring us the options. Bring us the will. Bring us public championship. Suggest what the transparent way of checking the data should be.”
She proposed that companies and industry groups should develop their performance indices and measurable benchmarks, identify priority areas for legislation and demonstrate where incentives could accelerate compliance.
“Make a performance index, create a category of laws. Build in some incentives,” she said, adding that Parliament could facilitate the legislative process once the technical groundwork had been developed through meaningful stakeholder engagement.
Senator Rehman concluded by emphasising that ESG should not be treated as a narrow corporate reporting exercise, but as part of Pakistan’s wider transition towards a cleaner, more resilient and internationally competitive economy.
“We are happy to send parliamentarians who are interested in this and to work towards making a law, instead of waiting until we are pushed against the wall to achieve it,” she said.
“Resilience comes from people, not governments. Government can provide the framework, Parliament can provide the law, regulators can provide the standards, and business can provide the innovation and investment. But unless all of these actors become stakeholders in the transition, ESG will remain a report rather than a reality.”
