Unconventional approaches to ESG compliance in Pakistan

Monday 31 July 2023

Sahar Iqbal
Akhund Forbes, Karachi

How the SECP’s stewardship guidelines for institutional investors can significantly improve ESG ratings for asset management companies

Institutional investors play a significant role in the economy and possess the ability to influence their investee companies. By acting as stewards of capital, they can promote good governance and appropriate behaviour. Institutional investors' deep understanding of companies and their business environments enables them to deliver sustainable long-term value. Compliance with stewardship responsibilities contributes to the development of the capital market, improving capital allocation, transparency and reporting. The dilemma, however, is whether institutional investors should be subservient to their own interests, to the interests of the company or to the interests of shareholders.

With the emergence of ESG, the accountability requirements for assets and fund managers have risen exponentially. Investors now must consider the environmental impact of their voting decisions, which is unavoidable as this is coupled with high transparency requirements.

In May 2022, the Securities and Exchange Commission of Pakistan (SECP) issued guidelines for institutional investors to promote transparency in voting decisions. These guidelines are applicable to asset management companies, pension fund managers, private fund management companies, life insurers and employees’ contributory funds that are managed by the investment advisors with equity holding in companies listed on Pakistan Stock Exchange.

Besides delineating stewardship responsibilities, institutional investors are mandated to produce a one-page report on compliance with these guidelines and these reports are to be published on their websites annually. Investment managers are required to develop robust stewardship policies that should be regularly updated and adhered to. Furthermore, the guidelines mandate stewards to monitor and engage with investee companies. The monitoring should be in terms of compliance with the Code of Corporate Governance, audit quality, risk assessment and financial activities such as the remuneration of directors and capital structures. As an extension of monitoring activities, stewards are required to engage with investee companies further, especially in terms of exercising their rights to discuss matters and vote in meetings. Monitoring and engagement activities are to be included in the annual report.

Furthermore, the guidelines recognise that conflicts of interest may arise for institutional investors, especially if they have a detached business relationship with the investee company. Institutional investors are mandated to be completely transparent about any conflicts of interest and are advised to mitigate the risks of such conflicts to the best of their abilities.

Significantly, the guidelines address the issue of public disclosure in terms of voting on matters of importance in investee companies. Either personally or through a proxy, institutional investors have the right to vote on behalf of the original owners of the fund. They are required by the SECP to be entirely transparent on their voting decisions and to publicly disclose those decisions, along with the rationale which generally includes an extensive explanation of the various factors they consider while voting on matters of importance.

These guidelines, if followed not just by AMCs but by general companies on a voluntary basis, can ensure that companies adhere to ESG compliance and significantly improve their ratings.

Promoting a circular economy through effective waste management: an ESG perspective

ESG factors play a significant role in effective solid waste management and the promotion of a circular economy. Waste management is a fundamental aspect of sustainable development, and ESG factors provide a framework for addressing the environmental and social issues associated with waste. The environmental aspect of ESG emphasises the importance of minimising waste generation, promoting recycling and reuse, as well as reducing the overarching environmental impact of waste management practices. Adopting sustainable waste management strategies, such as implementing efficient recycling systems, investing in waste-to-energy technologies and minimising the use of non-recyclable materials aligns with ESG principles.

In Pakistan, the Government of Sindh has made significant progress in solid waste management. The Sindh Solid Waste Management Act, 2021, empowers the Sindh Solid Waste Management Board (SSWMB) to undertake the functions of local bodies and ensure sustainable solid waste management. By diverting materials from landfills and incineration, solid waste management encourages the recovery of valuable resources and their reintroduction into the production cycle. This approach reduces the demand for brand new raw materials, conserves natural resources and minimises the environmental impact associated with extraction and processing. Moreover, solid waste management promotes the concept of extended producer responsibility, urging manufacturers to design products with recyclability, durability and ease of repair in mind. Effective solid waste management promotes a circular economy, where materials remain in circulation and resources are utilised more efficiently, resulting in economic, social and environmental benefits.

The existing legal framework for efficient solid waste management in Sindh is expected to be further enhanced with specific rules and regulations governing the management of different types of waste. This will ensure better overall compliance with the environmental aspect of ESG.


Unconventional methods, such as effective solid waste management and promoting corporate transparency, play a significant role in ensuring ESG compliance. The SECP's Stewardship Guidelines for Institutional Investors in Pakistan hold the potential to drastically improve ESG ratings for asset management companies by promoting transparency, monitoring and engagement with investee companies and addressing conflicts of interest. Additionally, promoting a circular economy through sustainable waste management practices aligns with ESG principles and offers economic, social and environmental benefits.