Turning risk into opportunity: Why ESG matters for Bangladesh's capital market

Infographics: TBS

Over the past decade, ESG (Environmental, Social, and Governance) reporting has gradually moved from a voluntary practice to a mandatory legal framework worldwide.

Alongside European markets such as the London Stock Exchange, Euronext, and the Frankfurt Stock Exchange, ESG reporting has now become mandatory in Asian markets like Singapore and India.

Despite its global importance, ESG reporting remains largely absent in Bangladesh. While some multinational and fundamentally strong companies follow ESG practices partially, there is still no effective or mandatory initiative at the regulatory level.

According to sector insiders, ESG has become a pressing necessity for Bangladesh's capital market in order to restore investor confidence and attract foreign investment. Confidence has not fully returned since the market crash of 2010, nor has foreign investment increased significantly. Frequent policy changes, lack of transparency, and lagging ESG standards are cited as the main reasons behind this reluctance.

However, recently, a total of 16 companies listed on Bangladesh's stock market have been included in the Bloomberg ESG universe.

Notable among them are Grameenphone, BAT Bangladesh, Marico Bangladesh, BRAC Bank, IDLC Finance, Square Pharmaceuticals, Walton Hi-Tech, LafargeHolcim, MJL Bangladesh, BSRM, Linde Bangladesh, Reckitt Benckiser Bangladesh, Singer Bangladesh, Heidelberg Materials Bangladesh, Robi Axiata, and City Bank.

To address post-LDC challenges and achieve the SDGs, business organisations in the country have begun working on ESG issues. The Metropolitan Chamber of Commerce and Industry (MCCI) has already formed a 10-member committee to work on ESG development.

Although ESG is not mandatory in Bangladesh, the Dhaka Stock Exchange is working with GRI, which enables listed companies to prepare sustainability reports.

However, it has been observed that Bangladeshi companies prepared ESG reports partially in previous years. Due to the lack of mandatory requirements, most of these companies did not continue the practice.

When asked, Abul Kalam, Director and Spokesperson of the Bangladesh Securities and Exchange Commission (BSEC), said that BSEC has taken active initiatives to bring ESG reporting under a legal framework to enhance transparency and accountability in the capital market. Given the growing importance of ESG reporting, the commission is treating the matter with utmost seriousness.

He noted that under the current Corporate Governance Code, ESG standards are only partially complied with, which is insufficient to ensure full transparency. To address this limitation, work is underway to revise the Corporate Governance Code, where ESG reporting will be incorporated as a strong and effective provision.

Bangladesh Bank's 2022 Environmental and Social Risk Management (ESRM) guidelines and the 2020 Sustainable Finance Policy require banks to consider environmental and social risks. As a result, rapid growth has been observed in green and sustainable finance. In the first quarter of 2025, green finance reached approximately Tk8,763 crore and sustainable finance reached around Tk1.49 lakh crore, representing growth of 21% and 69% respectively, demonstrating that the policies are effective and that financial institutions are increasingly inclined toward environmentally friendly investments.

Arif Hossain Khan, Executive Director of Bangladesh Bank, told The Business Standard that banks are being encouraged to provide greater credit facilities to companies investing in environmentally friendly projects in Bangladesh. At the same time, Bangladesh Bank is closely evaluating ESG issues. However, considering the current market conditions, the country is not yet ready to make ESG mandatory.

Tarek Refat Ullah Khan, Managing Director of BRAC Bank, said that ESG reporting is now essential for a climate-vulnerable country like Bangladesh. "Bangladesh faces climate risks such as floods, cyclones, and water scarcity, which directly affect businesses and investments financially. ESG reporting helps identify risks that are not captured in conventional financial reporting. Foreign investors now expect disclosures in line with international standards such as ISSB or GRI." 

He added that as more than 35% of BRAC Bank's shares are held by foreign investors, the bank has been regularly disclosing such information for the past three years.

Md Mostafizur Rahman Razu, Head of EHS & Sustainability at Walton Hi-Tech Industries, said that sustainability at Walton is fully integrated into everyday operations and decision-making.

From reducing carbon and water footprints to recycling wastewater and generating renewable energy, Walton's initiatives demonstrate a strong commitment to environmental protection, workplace safety, and social responsibility. The company's strategic approach sets a benchmark for responsible industrial growth.

He said that in FY 2024–25, Walton achieved significant progress: reducing its carbon footprint by 11.4%, reducing its water footprint by 10.7%, recycling 52% of process wastewater, and generating 13 MW of renewable solar energy, with a target of 50 MW by 2026.

Square Pharmaceuticals' Chief Financial Officer, Muhammad Zahangir Alam, said, "We report ESG from an ethical standpoint. Square Pharma places importance on every aspect of ESG and publishes this report every December. We believe that for companies aiming to play a significant role in the global pharmaceutical industry, publishing such reports is extremely necessary."

Akramul Alam, Head of Research at Royal Capital, identified four major challenges to ESG implementation in Bangladesh. According to him, "First, many investors prioritise short-term profits over long-term sustainability and are unwilling to bear the additional costs of ESG compliance. Second, no globally aligned ESG roadmap suitable for Bangladesh's context has yet been developed. Third, companies are unable to allocate sufficient resources to achieve targets for reducing carbon emissions or improving energy efficiency. Fourth, regulatory oversight remains limited."

Nabil J Ahmed, Executive Director (Standard Setting) of the Financial Reporting Council (FRC), said that ESG is no longer an option. He stated, "It is essential for a stable economy. Especially for the export-oriented ready-made garment sector, ESG is the key to maintaining international trade relationships. ESG reporting will reduce information asymmetry and make the capital market more attractive to foreign investors."

He further said that the FRC is currently working toward adopting the International Sustainability Standards Board frameworks, specifically the General Requirements and Climate-related Disclosures. In addition, Bangladesh Bank's Sustainable Finance Policy has already laid the groundwork by encouraging banks to prioritise green investments.

Professor Abu Ahmed, capital market analyst and Chairman of ICB, said, "Bangladesh should begin practising ESG because it enhances companies' long-term sustainability. Over the past 30 years, many Bangladeshi investors have been deceived after investing in various companies – companies went bankrupt or management engaged in fraud. If ESG had been in place, investors would at least have been able to understand when to invest and when to exit a company."

Dr Fazle Rabbi Sadeq Ahmed, a prominent expert in agriculture, climate change, and the environment in Bangladesh and Deputy Managing Director of the Palli Karma-Sahayak Foundation, told The Business Standard that ESG practices in Bangladesh are currently voluntary. Some garment companies, particularly exporters, are following these practices.