Shahid Sattar and Noreen Akhtar

The World Bank Group’s Country Climate and Development Report 2022 for Pakistan presents an in-depth analysis of Pakistan’s mounting vulnerability to climate change, its rising GHG emissions, the financial implications of climate risks for Pakistan and the country’s current climate change policies and regulatory frameworks to enhance its adaptation and mitigation efforts to climate change. The report also sheds light on the major sectoral transitions Pakistan requires to pivot its economy to an inclusive, resilient and green development pathway. Finally, the macro-fiscal, financial and distributional implications of climate and development policy actions are evaluated.

APTMA has thoroughly reviewed the report and believes that, the comprehensive discussion aligns with APTMA’s analysis of the climate and development scenario in Pakistan. Therefore, Pakistan must adopt the report’s policy packages and key recommendations to ensure an inclusive and resilient socio-economic and environmental progress in all the sectors including the industry.

The report argues that Pakistan continues to face considerable macro-fiscal fragility, that could significantly hinder its ability to sustain growth and enhance equity. The investment rates and the tax to GDP ratio remains low, and there are unproductive subsidy regimes in the energy, agriculture and irrigation sectors, which indicate the lingering fiscal stress faced by the country. The high inflation rate prompted the government to implement the energy price relief plan, that ballooned the already high fiscal expenditures and fiscal space has been shrinking rapidly. These plus the country’s low investment rate and low export volume have severely hindered the country’s ability to grow sustainably and reduce poverty. Moreover, the country is experiencing a youth bulge, with 2.1 million young people entering the labour pool every year, but many are poorly skilled and inexperienced. All these issues are compounded by extremely high levels of environmental pollution due to lack of waste management infrastructure and unregulated and unmonitored pollution from the industrial processes.

Regarding climate change vulnerability, the report evaluates that Pakistan’s current GHG emissions account for less than 1% of the global GHG emissions. However, the country will experience more climatic variability and extreme events in the form of severe and more frequent droughts and floods, thus causing economic losses of billions from damage to crops and property. Agriculture will be severely impacted, that will result into significant damages to crops and food insecurity.  These climate threats from heat, floods and drought suggest a loss of up to 9% of GDP by 2050, relative to the Business as Usual (BAU). The scenarios of sectoral GDP decline indicate that industry and agriculture will experience much larger impacts. A GDP decline of 8% by 2030 and 17% by 2050 for these sectors is predicted.

Damage from water insecurity is likely to increase significantly, with climate change. Water demand is projected to increase by almost 60%, with the highest demand rates coming from the industrial and domestic sectors. Pakistan will experience inter-sectoral tradeoffs for water and about 10% of irrigation water will need to be repurposed to meet non-agricultural demands.

Pakistan has adopted several sectoral policies to support decarbonization. The legislative and policy reforms clearly indicate a new momentum to enhance climate resilience. However, with blurred lines of responsibility and weak accountability, the commitment to climate mitigation and adaptation has not shown significant results. Thus, Pakistan needs to tie the environment and climate actions closely into the green-growth agenda to ensure sustainable growth in all its sectors.

Pakistan’s development challenges and high exposure to climate change highlight the need of major sectoral transitions. Transformation of agri-food system is one of them, which requires major changes in the way crops are grown, harvested, stored and marketed. Transformation of irrigation and both surface and ground water management is the second, that highlights the need to overcome the current inefficient and wasteful use of water in major sectors and manage it sustainably.

The report also rightly elucidates the fact that fertilizer subsidies are a problematic practice which not only promote inefficient use of chemical fertilizers but also impose heavy fiscal burden on the government. In this regard, the report suggests that freed-up fiscal resources need to be utilized to remove barriers to climate-smart, on-farm investments and value chain improvements. Moreover, research and technological advancements are required to grow climate resilient crops.

Transitioning to sustainable energy sources is another critical enabler of sustainable economic development in Pakistan. The report states that power shortages in the country cause an economic loss of more than US$8 billion a year. Also, there is a significant use of imported coal, especially in the industry, and the country suffers relatively high energy intensity of GDP. These challenges are compounded by growing financial deficits due to energy prices and poor performance of electricity and gas distribution companies, that place heavy fiscal burden on the government and disincentivize private investment in the sector, as well as electricity and gas supply interruptions causing loss of productivity and heat stress. Additionally, poor planning and substantial subsidies have caused huge inefficiencies across energy sector that causes circular debt. The circular debt continued to accumulate and by the end of June 2022, it was estimated to be around US$11.3 billion in the electricity sector and US$7.5 billion in the gas sector, creating barriers to the future investments.

Pakistan, therefore, urgently needs to transition away from the fossil fuels and accelerate the commissioning of its renewable energy (RE) capacity, as the country has a huge RE potential. This will reduce the overall energy generation cost and improve energy security in the major sectors such as industry. Moreover, Pakistan must see through politically difficult supply-side efficiency improvements, including tariff and subsidy reforms, introduction of private sector participation in the DISCO (electricity distribution company) sector and start a competitive wholesale power market. Moreover, as the industrial sector is the largest consumer of the fossil fuels with only partial scope for electrification or fuel switching, the government needs to give specific attention to this sector and incentivize decarbonization and efficiency improvements through regulations, fiscal incentives and improved access to financing. Lastly, there is a need to adopt, widely, the programs such as Partnership for Cleaner Textiles, which is being implemented in partnership with the International Finance Corporation (IFC). Such programs can support the global brands and their local suppliers to achieve long-term competitiveness and the corporate sustainability targets by employing cleaner production technologies. This requires a close collaboration between the government and the industry. The industries and their associations need to get involved from the beginning in articulating energy efficiency plans and in investment financing negotiations and arrangements. The adoption of circular economy practices in the industry require such collaborative efforts through continuous stakeholder engagement.

One of the policy packages presented in the report is of carbon taxes, revenue recycling and feebates. It states that introduction of carbon taxes would provide a clear signal for the country to adopt energy efficiency measures and shift to renewable energy sources. It would also broaden tax base by bringing into the tax net the currently untaxed producers who operate in the informal economy (estimated to be 35 – 50%).

Finally, the report puts a major emphasis on the role of private sector engagement in addressing climate challenges and in transitioning to sustainable practices. It targets the SME sub sector and the informal sector with the undocumented economic activity, which not only need to be brought to the tax net, but also, to the network of compliance requirements imposed by the global community of buyers on Pakistan’s industrial sector. Lastly, the need to focus on green investment and access the international climate finance in all sectors of Pakistan is also highlighted in the report.

The report’s comprehensive discussion and analysis matches APTMA’s analysis of the current and future climate and development scenarios in Pakistan. Therefore, Pakistan must adopt the policy packages and key recommendations presented in the report, to ensure a resilient and sustainable socio-economic and environmental progress, the absence of which will retard the industrial development in the country.

Note: Full report can be retrieved from:

https://aptma.org.pk/world-bank-group-country-climate-and-development-report/

Download Report: P17671804998b80030ac4f0233dc0b995ba

by Mr. Asif Inam (Chairman All Pakistan Textile Mills Association)

Bangladesh is a large contributor to the global textile industry, with the RMG sector accounting for 84 percent of Bangladesh’s exports. This comes on the back of the sector’s rapid growth and modernization over the past decade—as well as the strides it has made in improving conditions for the country’s approximately four million garment workers. Bangladesh has surprised the market by consistently showing profits.

1257.6 miles away, Pakistan’s industrial sector is fighting to live another day. Pakistan’s export during Apr-Jun, 2022 amounted to $ 8,432.09 million showing an increase of 2.52% over Jan-Mar, 2022 and by 27.43% over Apr-Jun, 2021. The textile export data for the last five years showed that volumetric textile exports are the primary driver with a double-digit increase in value-added items. Exports during July-Jun, 2022 stood at $ 31,782.09 million. Pakistan while showing potential for increased export till June- July 2022, later took a nose dive for the worse.

The country’s exports of merchandise entered a negative growth in July

The export proceeds fell 5.17 percent to $2.21 billion in the first month of the current fiscal year from $2.34bn in the corresponding month last year according to data from the Pakistan Bureau of Statistics. On a month-on-month basis, the export proceeds tumbled by 23.95pc indicating a downward trend in the export sector and just as the increase before the current drop in exports is entirely volumetric.

The textile sector last year exported goods worth $19.3 billion and has further expanded capacity through an investment of $5 billion to increase exports to $25 billion. The expectation and goal were to increase textile exports to at least $24 billion this year however this could not materialize. Pakistan’s exports have started declining and will clock in at below $1 billion per month for the rest of the year.

The textile and clothing industry has grown to be the single largest manufacturing sector of Pakistan, employing almost over 385 of the manufacturing labor force. The textile and clothing industry is the backbone of Pakistan’s economy however the sector is confronted with numerous challenges. Worsening international economic situation primarily caused by the Ukraine crisis combined with floods in Pakistan has negatively impacted the already inefficient supply chains of the country. Flooding in dozens of districts of Pakistan has destroyed a wide swath of agricultural land. While the industry requires 14 million bales, the country could only produce 5 million bales of cotton domestically. To meet this gap cotton needs to be imported however the forex issues in the economy have curtailed imports of cotton and other essential inputs for exports. The issue of raw material clearance from the ports remains unresolved owing to unavailability of forex and therefore mills are currently unable to obtain cash against documentation and are closing down owing to the shortage of raw materials.

The cost of importing cotton has also increased by 20% due to demurrage/detention and delays while the importers face the loss and failure to book orders due to uncertain and delayed turnaround time for export orders. Manufacturers continuously find their hands tied due to liquidity constraints owing to 60 % devaluation of currency with no corresponding increase in working capital facilities. Funds bound as a consequence of 17% sales tax and devaluation on all inputs. Lags in the system committed to pay refunds and accumulation of “Deferred Sales Tax” which has not been refunded for the last 3 years have completely restricted the cash flows for new projects and expansions. As a result, the export oriented units are under immense pressure as they cannot generate funds to service debt. This may lead to massive defaults further curtailment of capacity and possibly a banking crises.

The huge differential in the rate of Gas/RLNG being supplied in different provinces in Pakistan means that Punjab based industries are no longer viable and have no option but to close down as they are no longer competitive and available orders are shifting or are in process of shifting to the cheaper alternatives internationally and within Pakistan.  To add insult to the injury new connections for RLNG/ Gas are not being extended the competitive tariffs effectively rendering the new projects /expansion uncompetitive. Electric supply to mills is erratic and sub-standard including maintenance shutdowns of 5-6 days/months reducing effective capacity by 25% of the mills running on electricity. Punjab based mills run on expensive rate of electricity as compared to Sindh or KPK. LIEDA, FIEDMC and Sundar Industrial Estates based industries are being denied the concessional power tariffs over the last 3 years despite multitudes of meetings and letters of commitments.

Over the past 2 years the textile sector has invested $5 billion in setting up new factories, some of these are now complete and others are in process however some of the machinery of new plants/ expansions is still stuck at ports, L/Cs are delayed for spare parts, and electricity and gas not being provided to these new units, instead of increasing exports by $5 billion per annum is likely to lead to massive banking defaults, complete loss of investor confidence in future  for nay investment in Pakistan with many other negative consequences.

However, all is not lost. There is still hope. The textile sector of Pakistan has already exhibited its potential for growth. Strategic collaboration between different levels of government (sub national and national) as well as the private sector which is widely considered the most significant element for policy success in order to minimize resource waste and reduce danger of fostering powerful domestic interest groups and rent seeking activities is the desperate need of the hour.

Clearing all imports of export oriented sectors which have arrived at ports whether against L/Cs or cash against documents can be the first step towards recovery. Prioritizing or exempting export oriented sectors from import controls allowing L/c for raw material, machinery, spare parts and other items to restore industry supply line would be a big help for the sector. In addition, refunding all Demurrage and Detention Charges incurred by EOU sector to maintain competitive costs of exports. Maintaining a 24 hour help desk to monitor and resolve exporters issues. Restoring SRO 1125, zero rating for the textile value chain while collecting sales tax on domestic sales at point of sale. Immediate refund of all deferred sales tax, tuff and other dues and Extension in submission date of duty drawback claims for FY21 are all steps in the right direction. A new export sector working capital lending facility may be established catering to EOU sectors at subsidized rates to tide over the current crises and LTFF be provided where L/C’s already opened and loans approved by banks.

Being an energy insecure country and keeping up with ever rising demand Pakistan’s only solution to energy crises is efficient allocation of scarce resource we have. It is necessary to accord first priority to export industry on Gas/RLNG and electricity supply and allow competitive tariffs to all new projects and expansions as well as industrial estates. To implement weighted average cost of gas while extending RCET across the country to enable new industrial units, expansions and Punjab based industry to compete. A task force with industry representatives may be made with the purpose of improving supply of grid electricity and all discos should schedule maintenance shutdowns after consultation with impacted industry.

There is a lot to learn from Bangladesh, a country with lowest minimum wages in the world with cheap gas energy. A country where power outages are almost nonexistent, allowing for consistent work and cheaper outlay. Bangladesh’s key strategy for the sector’s growth over the past decade has been to diversify customer countries and move to more complex products and value-added services. Bangladesh’s RMG sector has made progress in broadening its customer portfolio to manage risk and adapt to changing demand patterns in the global fashion market.

Pakistan also needs to diversify and upgrade its product offerings. However, the most important lesson that we can learn from Bangladesh is to learn from experiences and mistakes and make policies and mitigating strategies to overcome the challenges and flaws of the system. For instance, Bangladesh’s largest challenges were disasters, deaths, and safety issues in the textile industry. Tragedies have received worldwide coverage. Notably the Dhaka fire and collapse of Rana Plaza (2013). Bangladesh learned from its mistakes and started taking responsibility for its workers and the reforms which were once promised came into actual practice. Today, Bangladesh’s RMG sector is a frontrunner in transparency concerning factory safety and value-chain responsibility, thanks to initiatives launched in the aftermath of disasters (including the Accord on Fire and Building Safety in Bangladesh, the Alliance for Bangladesh Worker Safety, and the RMG Sustainability Council). These measures led to the closure of hundreds of unsafe, bottom-tier plants and the scaling up of remediation activities in many others.

            We need to develop an action plan not only to solve our immediate problems but also to ensure long-term solutions to such problems. Policies should be in place like a “24-hour helpline” for manufacturers who are importers and require immediate assistance in case of any supply chain disruption. We need solutions but not just temporary ones, we need solutions that are sustainable and beneficial for us in long run. With the right policy tools and support from the government, the textile sector will be once again on the right track as the sector has proved its worth time and time again.

by Mr. Shahid Sattar & Ms. Noreen Akhtar

Pakistan’s exports-based economy is heavily reliant upon its textile sector. More than 60% of the country’s exports are comprised of textiles and the industry employs 40% of the country’s labour force (International Finance Corporation n.d.). The industry is currently experiencing two crucial scenarios: High production costs due to country’s poor economic performance and extrinsic pressure from the top export destinations in the form of mounting stringent compliance policies. While smooth economic performance is critical for the industry’s even functioning, the latter is the matter of survival.

The European Union (EU) is Pakistan’s top textile export destination, as 80% of the country’s exports to the EU are textiles (European Commission n.d.a) (figure 1). Therefore, any policies implemented by the EU regarding its industrial imports, are also majorly associated with Pakistan’s textile exports.

Figure 1. Pakistan’s exports to the EU.

Source: APTMA

EU has displayed serious commitment towards tackling climate change and therefore, has taken promising initiatives and legislative reforms to enhance environmental compliance via decarbonization in the industries. In case of Pakistan, EU has mandated the textile industry to comply with the mandatory international conventions on environment and climate change, compulsory for the GSP+ continuation. Further, a recent agreement on the Carbon Border Adjustment Mechanism (CBAM) is another milestone achieved to limit the carbon emissions and prevent carbon leakage. CBAM is a climate measure, that aims to reduce carbon footprint of the dirty products via a system of CBAM certificates. It also makes it obligatory for the EU importers to pay same carbon price as domestic producers under EU Emissions Trading System (ETS). This “will ensure equal treatment for products made in the EU and imports from elsewhere and avoid carbon leakage” (European Commission 2021b).

CBAM is a more stringent climate policy, that aims to enhance global efforts to combat climate change. The recent agreements on CBAM indicate that, with the passage of time, the global efforts to decarbonize manufacturing processes will rise, that will be gradually multiplied to the textile sector. Additionally, the global export market will become highly competitive for the exporters, such as Pakistan, with less stringent climate policies and carbon-intensive products. EU will gradually phase out less compliant and less competitive countries and Pakistan, based on its current industrial decarbonization policies, is not far from experiencing this shock.

The textile sector’s environmental compliance in the increasingly competitive and demanding export markets is crucial, as failure to decarbonization will severely hinder the socioeconomic development and environmental sustainability in Pakistan. This is majorly because, the EU’s preferential status (GSP+) to the textile exports has supported Pakistan to enhance its capabilities to grow in a sustainable manner, diversify its economy and create employment opportunities. It has accelerated the country’s efforts in improving compliance to major human and labor rights and environment and good governance related international conventions.

The industry’s current progress on decarbonization indicates that, it has shown promising commitment to achieve net zero by adopting a green supply chain philosophy. The Net Zero Pakistan initiative, for instance, is Pakistan’s largest net zero coalition and is the only second country-wide program, under Global Race to Zero, after Japan. It is a collaborative effort between non-government organizations, leading textile companies, public institutions and sector experts. The textile companies, in this coalition, commit to set science-based net zero targets, measure and disclose their GHG emissions, decarbonize their value chains and advocate for climate action (Pakistan Environment Trust n.d.). The rising coalition building under this initiative has become instrumental in catalyzing the net zero ambition and is increasingly recognized globally as one of the first net zero initiatives from the global south. The progress, however, indicates a slow pace.

The industry needs to take serious consideration of the fact that the mandate from the global community of buyers to decarbonize the textile value chain is rising. Transitioning away from the traditional energy sources to renewable energy sources has become obligatory. It is, therefore, essential for Pakistan’s textile industry to reduce its carbon footprint by transitioning to clean energy sources by adopting long-term and sustainable pathways to decarbonization. The current efforts to meet the increasing energy demand from the renewables must expand and the existing technical capacity must be strengthened to further utilize solar, wind, thermal and geo-thermal energy sources. This must take place in a very stringent time frame and requires both the industry and the government to come together to ensure policy coherence by devising rigorous decarbonization frameworks for the industry, that include both financial and technical considerations.

Climate change had severe repercussions on Pakistan’s socioeconomic and environmental sustainability, thus exhausting the already deteriorating national economy. Failure to comply with the increasingly stringent environmental policies of the global buyers and decarbonize the manufacturing processes will worsen the failing economy. Thus, the textile industry must expedite its current progress and devise more rigorous and long-term climate policies to stay in line with other regional export competitors. As decarbonization has become non optional, the industry must develop a comprehensive plan and strategy for meeting the global net zero targets in order to protect and expand Pakistan’s exports as well as the profitability of its companies.

REFERENCES

European Commission. n.d.a URL: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/pakistan_en

European Commission. 2021b. URL: https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661

International Finance Corporation. n.d. URL: https://invest.gov.pk/sites/default/files/inline-files/Profile%20-%20Textile%20Sector_new.pdf?gtranslate=en

Pakistan Environment Trust. n.d. URL: https://pakenvironment.org/net-zero-pakistan/

Shahid Sattar & Ureeda Majeed

In 2020 textiles were the world’s 7th most traded product, with a total trade of $774B. Trade in Textiles represent 4.62% of total world trade. Even in the age of slow world economic growth export market has always been area of opportunities and textile is one of the well-established industries in the competitive market place. Textile and apparel exports are crucial to boost market competitiveness and diversification, to strengthen local and national economy and to gain global market dominance.

As the rest of the world is moving steadily towards more systematic, innovative, inclusive and sustainable growth we as a country have decided to continue to ignore world bank’s advice altogether and somehow managed to make our economic environment more hostile for businesses than ever before. We have pushed our exporters in the deep waters with their hands tied and without a lifeboat or life jacket in sight.

Understanding the matter better

The textile and clothing industry is the backbone of Pakistan’s economy and Pakistan’s role as one of the world’s leading cotton producers has provided the basis for the textile and clothing industry’s development. The textiles and clothing industry has grown to be the single largest manufacturing sector in Pakistan. The sector employs over 38% of the manufacturing labor force. More than US$5 billion of textile and garment machinery has been imported in Pakistan in the last few years. The textile industry is today based almost entirely in the private sector.

Pakistan has exported textile products worth $19.33 billion during the fiscal year 2021 making a record high on annual basis. The country exported textile products worth $19.33 billion during fiscal year 2021 showing an increase of 25.53 per cent when compared with $15.4 billion in the preceding fiscal year, according to data released by Pakistan Bureau of Statistics (PBS). Rebound in exports of textile since last year was the outcome of a series of incentives to support exporters to meet the challenges in the wake of COVID-19 and disruption in supplies. Moreover, the government’s decision to keep businesses open during lockdown provided an opportunity to secure orders diverted from economies under strict lockdown. The textile export data for the last five years showed that volumetric textile exports are the primary driver with a double digit increase value added items.

However, the country’s exports of merchandise entered a negative growth in July 2022 after 22 months when the economy recovered from the impact of Covid-19. The export proceeds fell 5.17 per cent to $2.21 billion in the first month of the current fiscal year from $2.34bn in the corresponding month last year according to data by Pakistan Bureau of Statistics. On a month-on-month basis, the export proceeds tumbled by 23.95pc indicating a downward trend in the export sector and just as the increase before the current drop in exports is entirely volumetric.

World Bank’s Pakistan development update 2021 suggests that in order to sustain strong economic growth, Pakistan needs to increase private investment and export more as a key factor driving the trade imbalance is the declining export competitiveness. The share of

exports in GDP has been declining since the turn of the century, from 16 per cent in 1999 to 10pc in 2020.

According to Derek Chen Senior Economist, World Bank. The long-term decline in exports as a share of GDP has implications for the country’s foreign exchange, jobs, and productivity growth. Therefore, confronting core challenges that are necessary for Pakistan to compete in global markets is an imperative for sustainable growth.

In examining the country’s persistent trade imbalance, the report identifies key factors that are hindering exports: high effective import tariff rates, limited availability of long-term financing for firms to expand export capacity, inadequate provision of market intelligence services for exporters, and low productivity of Pakistani firms. This falling export share has implications for foreign exchange, jobs, and productivity growth. At the firm-level, the decline is consistent with low entry rates into exporting, and exporters that struggle to expand over their life cycle. At the economy level, the lack of a sustained robust growth in exports has resulted in little diversification or sophistication gains for the export bundle.

Pakistan is already ranked 108 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. With the increase in working capital levels and interest rate the cost of business has increased to unsustainable levels while the withdrawal of zero- rating sales tax (SRO1125) and the implementation of 17 percent general sales tax on export oriented sector add to the injury. Inefficient tax policies inflate inventory and capital cost as well as encourage the trade volume to increase outside the tax system resulting in an increase in fraud, smuggling and import of clothing.

For a country like Pakistan, going through energy crises, with high costs and scare resources in only makes sense that in order to increase productivity and ensure sustainable supply, the resource allocation should be such that the priority of gas supplied to different sectors of the economy should be such that productive sectors of the economy that add more value to GDP should be given preferential priority as such policy measures enhance exports, boost competitiveness,  encourage job creation and have multiplier effect on value chains. However, Pakistan’s favoring of domestic over industrial consumption is a classic case of prioritizing short term consumer satisfaction over long term economic stability. There is a dire need of pricing policy reforms for the inputs such as fertilizer, gas electricity. The export sector in Punjab is being provided gas at 9$/MMBtu even under Regionally Competitive Energy Tariff (RCET) in late 2018 while household basic tariff is $1 and about $2 on average per MMBtu. Similarly, gas prices for fertilizer start from 1$/ MMBtu, signaling a non – transparent and in efficient subsidy to agriculture sector. In addition, some mills who are eligible for EOU power rates since 2019 are still are being denied concessional power tariffs even after cabinet and ECC approval despite a multitudes of meetings, letters and commitments.

Due to the high price of inputs the industry has already purchased raw materials at higher rates, at the same time banks are not clearing import documents due to lack of dollars in the country many mills have imports pending at various stages. As the consequence of delay the businesses are not only incurring exorbitant demurrage and detention charges which the collector customs is refusing to waive but are also rendering textile exports uncompetitive in the process. A significant number of textile mills have also started to shut down due to non-maintenance; a consequence of lack of spare parts.

The way forward

The issue of raw material clearance from the ports remains unresolved owing to unavailability of forex and therefore mills are currently unable to obtain cash against documentation and are closing down owing to the shortage of raw materials. Many mills are waiting for Technology up gradation funds refunds for almost a decade as result their bank guarantees and liquidity are tied up as a result.

Though textile industry maintains its ranking of the single largest manufacturing sector in Pakistan, unfortunately indigenous manufacturing of its machinery could not develop along with the growth of textile industry. Resultantly, demand for textile machinery still is almost entirely met through global imports. The state bank of Pakistan announced Long Term Finance Facility (LTFF) in 2016 to promote export led industrial growth in the country by providing subsidized financing for setting up of export oriented projects and modernizing plant & machinery. However, SBP has not yet approved the limit for Long term financing facilities forcing the customers to retire their L/C for machineries at prohibitively expensive rates as the mark up allowed may render the projects unfeasible. Textile machinery imports in Pakistan increased from around US$435 Million from 2020 to US$792 Million in 2021 which reflects around 82% increase from the previous year. It was reported at 5,615.000 PKR mn in Oct 2018. This indicates capacity expansion as well as technology upgradation in the Pakistan Textile Industry.

With an investment of such sheer volume Pakistan cannot afford to lose its principal industry, contributing more than 67% to the country’s total export earnings, and accounting for about 46% of total manufacturing, with the capacity for export if fully utilized has the potential to produce export of 26 to 30 billion $ per anum.

by Mr. Shahid Sattar & Ms. Noreen Akhtar

Pakistan’s textile sector is experiencing a rising requirement from the global community of buyers to enhance environmentally and socially sustainable practices. To fulfill this, Pakistan’s textile industry requires to adopt, widely, ESG (Environmental, Social and Governance) practices and solutions.

ESG has emerged as a more proactive movement, that ensures a holistic approach to sustainability in the industry. It is a framework that supports the industry to manage the environmental, social and ethical and governance related risks and opportunities. Unlike the previous sustainability-focused regulatory frameworks such as EHS (Environmental, Health and Safety), Corporate Sustainability and CSR (Corporate Social Responsibility), ESG focusses widely on the key environmental and social elements as well as governance structures. It ensures representation of all the stakeholders who are interested to learn about the industry’s approaches to ensure sustainability. These stakeholders include not just the investment community but customers, suppliers and employees too (Peterdy 2022).

OVERVIEW OF THE ESG PILLARS

Environmental

This pillar includes the industry’s considerations of the environmental impacts of its business and practices to manage the associated risks (Mathis 2022; Peterdy 2022). Some examples include direct and indirect GHG emissions, climate change, hazardous chemical discharge and water pollution, waste pollution and natural resource depletion. The management practices include natural resource management, decarbonization and energy management, effluent treatment and hazardous waste management, to name a few.

Social

The social pillar addresses the industry’s relationship with its stakeholders (Peterdy 2022). It endorses the ethically and socially conscious themes in the industry. This includes the employee wellbeing such as health and safety and fair wages as well as the industry’s impacts on the communities where it operates. Other major examples stated by Mathis (2022) include data privacy, robust labor standards, compliance to human rights, employee equity and inclusion and customer satisfaction.

Governance

ESG’s third pillar deals with the accuracy and accountability of the industry’s leadership. It focusses on the best compliance practices and transparency of the companies. Examples of governance may include company leadership, corruption and bribery, political lobbying, audit committee structure and internal control and regulatory policies (Mathis 2022).

ESG areas of concern (Farnsworth et al. 2022).

ESG AND PAKISTAN’S TEXTILE INDUSTRY

The global community’s demand for sustainability in the textile industry has reached a stage of critical importance. Compliance to the international conventions on human rights, labor rights, environment and good governance has become non-optional for the industry to maintain its competitive position. This compliance via ESG principles is a ‘win-win’ situation for the industry. The industry will not only boost its business in the international market, it will also ensure stakeholders’ rights and fulfill its responsibility towards mitigating risks to the natural environment.

Pakistan’s textile industry has shown significant progress in terms of fulfilling its social and environmental responsibilities. Despite the fact that the country’s major policy interventions such as the National Climate Change Policy (NCCP), Nationally Determined Contributions (NDCs) and the Textile Policy 2020-2025 do not clearly emphasize on social and environmental sustainability in the industry, sustainability has been a bottom-up approach, led by the industry itself. From acquiring international compliance certifications such as GOTS, Oeko Tex and BCI to promoting internationally recognized initiatives to achieve net zero targets as well as employee wellbeing, the industry has aligned its current and future strategies with the principles of the UN-SDGs.

The efforts, however, need coherence under the umbrella of the ESG framework. The industry needs to come together to find aggregate solutions and impose coherent policies to ensure sustainability in the sector. Although, international rules, norms and markets have been the major pathways of influence for the industry to go sustainable, the motivation to compete in the global market should also come from the intrinsic values. These may include collective approaches for capacity building and coalition building to make the country’s textile sector socially and environmentally sustainable.

High Impact Priority Areas

The following are some of the high impact priority areas which require the industry to scale-up its ESG solutions: Raw materials, climate, chemicals, sustainability measurement, fair labor, engaging consumers and innovation and circularity (Accenture 2022).

The priority ESG solutions associated with the raw materials include reduction of GHG emissions associated with the raw material production, enhanced traceability and use of internationally certified raw materials. Regarding climate, the industry needs to set targets to achieve net zero emissions, adopt energy efficiency measures and set emissions reduction pathway plans. Hazardous chemical management is another high impact priority area which requires compliance with the ZDHC requirements, transparent reporting on chemical use and hazardous chemical discharge, strong commitment to ensure wastewater management and eliminate hazardous chemicals, regular testing of wet processing facilities and transparent auditing.

Best practice benchmarking; development of comprehensive sustainability strategies, governance and goals; quantifying progress tracking on ESG goals and publicly reporting sustainability progress and transformation efforts are some of the significant ESG solutions for sustainability measurement. Further, fair labor to protect workers’ rights is another crucial priority area that demands ESG solutions from the textile industry. These include fair compensation programs, responsible recruitment, empowerment and education programs and respect for human rights and health and safety standards. Consumer engagement includes communicating progress on ESG goals to the consumers, formulating standards for communicating ESG impacts of products to the consumers, engaging consumers in developing sustainability solutions, providing traceability data to the consumers and educating consumers about industry’s ESG commitments. Innovation and circularity, under the ESG framework, requires the industry to develop and execute circular economy strategies and action plans and invest in innovative circular business models.

CONCLUSION AND FURTHER WORK

Pakistan has already shown promising progress in aligning its development with the UN-SDGs and international requirements. The current efforts on social and environmental sustainability, however, need to be accelerated by adopting ESG solutions in the textile sector. The relevant stakeholders need to come together and find aggregate solutions to support the sector flourish in the increasingly competitive global markets. ESG practices, that ensure a holistic approach to safeguard the natural environment, human wellbeing and strengthen governance structures, need to be adopted widely, in a coherent and effective manner possible. This is possible, only, when the sector develops a long-term ESG vision.

Significantly further, All Pakistan Textiles Mills Association (APTMA) suggests that, strengthening of the governance structure, is a crucial element of ESG, that helps enhance sustainability measurement. One part of this is to regulate the sustainability assessments and inspections conducted by the national and international compliance bodies, through development of the standards based on the mandates of the UN conventions on human rights, labor rights, environment and good governance.

Pakistan needs to legislate a central authority, at the federal level, to compile and standardize all compliance requirements and to regulate the functioning of all the compliance bodies. This central authority will be responsible to issue guidelines for the compliance bodies to perform sustainability assessments, based on the requirements by the international treaties on human and labor rights as well as environment and good governance. The statutory body will also issue guidelines, with minimum requirements, for the legal enrollment and registrations of the compliance bodies and follow tripartite consultations, as mandatory procedures during their assessments. The statutory body will provide an appeal forum to address concerns petitioned by the tripartite partners and resolve any disputes among them.

Pakistan is currently experiencing a plethora of the compliance bodies. The functioning of these bodies is crucial for the industries, as they are mandated to acquire certifications to maintain their export markets. These certifications have also motivated the industries to enhance their compliance and fulfill their social and environmental responsibilities. However, the compliance bodies are functioning in the absence of a central statutory body responsible to monitor their operations in the industry. This absence of the legal monitoring of the compliance bodies is a threat, that not only projects a biased picture of the sustainability progress of the country, but also functions without a tripartite consultation, crucial to understand the local nuances. Significantly further, the global community’s demand for sustainability in Pakistan’s industries has reached a stage of critical importance. Compliance to the international conventions on human rights, labor rights, environment and good governance has become non-optional for the country to maintain its competitive position. In these critical times, when Pakistan needs to project its sustainability and compliance progress in a vigilant manner, these unlawful inspections by the compliance bodies might cause grievance in the industry.

It is of critical importance for Pakistan to formulate a statutory body, that is responsible to regulate and monitor all the compliance bodies, via issuance of the national compliance standards for them.

The major responsibility of this statutory body will be, to issue guidelines for industrial compliance based on the mandatory requirements by the UN conventions on human rights, labor rights, environment and good governance, standardized for Pakistan to fulfill. The statutory body will also issue guidelines, with minimum requirements, for all the compliance bodies for their legal enrollment and registrations. Importantly, the statutory body will make tripartite consultations mandatory for the certification bodies to consider during their inspections. The tripartite partners, being generally the government, employers and workers, will have the authority to appeal against the unlawful inspections, that are undisciplined and unfair. This will take place through an appeal forum provided by the statutory body, that will address concerns petitioned by the tripartite partners and resolve any disputes among them.

The statutory body will legally bind all the national and international compliance bodies, to align their inspections with its guidelines and standard procedures for the assessment of the industries, in a regulated and an acceptable manner.

The formation of this statutory body will be a milestone achieved by Pakistan to project its sustainability progress in a real and a disciplined manner.

REFERENCES

Accenture. 2022. Scaling ESG solutions in fashion.

URL: https://www.accenture.com/_acnmedia/PDF-176/Accenture-Retail-Scaling-ESG-Solution-2022-Edition-Full-Report.pdf

Farnsworth, G. et al. 2022. Environmental, Social and Governance (ESG) explained: Five important considerations for companies and their lawyers. Holding Redlich.

URL: https://www.holdingredlich.com/environmental-social-and-governance-esg-explained-five-important-considerations-for-companies-and-their-lawyers

Mathis, S. 2022. Environmental, Social and Governance (ESG). TechTarget. URL: https://www.techtarget.com/whatis/definition/environmental-social-and-governance-ESG

Peterdy, k. 2022. ESG (Environmental, Social and Governance). Corporate Finance Institute. URL: https://corporatefinanceinstitute.com/resources/esg/esg-environmental-social-governance/

 

by Shahid Sattar and Eman Ahmed

The textile sector is the central pillar of our industry, contributing nearly a quarter of Pakistan’s manufacturing value-addition and providing employment to about 40 percent of the country’s industrial labor force. Textiles comprise over 60 percent of national exports.

To increase exports, the GoP announced its Textile and Apparel Policy, 2020-25, under which adequate energy (electricity and RLNG) is to be provided to export-oriented textiles and apparel industrial units at ‘regionally competitive energy tariffs’ (RCET).  The Textile sector contributed $ 19.4 as export proceeds last FY. The sector has added further production capacity through new projects and enhancements vide TERF, and now has the potential to generate more than $24 billion exports in FY23, provided energy supply – especially gas/rlng – is adequate. The industry in Punjab is already being supplied only 70 MMcfd of gas against a requirement of approximately 200 MMcfd. This is severely curtailing its production and it is feared that gas/RLNG supply will be further reduced during the coming winter months.  The export sector’s total requirement for gas/RLNG is 350 MMcfd which is approximately 9% of total supply of approximately 3800 MMcfd expected this winter. The restriction of gas supply to domestic or power sector to prioritize the export sectors needs to be planned in order to prevent further deterioration in the country’s trade balance.

Gas/RLNG allocation follows a merit order basis which places domestic and power generation use at a higher priority than the export sector. Given the extremely sensitive and urgent forex requirements of Pakistan export sector’s gas allocation priority must be revised to No 1, ahead of the domestic sector. Pakistan can survive without hot water or space heating but will be in severe difficulty if exports decline.

The argument that electricity supply can provide the energy needed is patently wrong as grid supply cannot substitute for the steam and hot water use of the industry apart from the quality issues which are already reducing the industry output by about 25%. Power load enhancements and new connections are delayed and at present over 126 applications are pending with the Discos. The power division is fully briefed on this but little if any progress is visible on new enhancement of loads, new connections, or quality of supply.

Another aspect that requires serious attention is that gas/RLNG curtailment has been consistently applied on the units located in Punjab. This has placed them at a severe disadvantage both in terms of pricing and availability as supplies to Sindh based plants have not been curtailed in the past. A fair and just system would ensure that gas supply to Punjab based exporters is also not curtailed and adjustments made in the supply of other sectors to accommodate. Gas/RLNG being supplied to Punjab is priced at $9 for less than 50% of the average consumption of mills last year. This formula irrationally excludes the new plants / expansion that have been made during the last 2 years. The Gas/RLNG being supplied to mills in Punjab is less than 1/3 of the required quantity of 200 MMCFD. At present gas supply to Sindh export industry is supplied at $ 3.75/ MMBTU (Rs 840) and at a quantity meeting 80% plus requirements. This is contrary to the commitment that differential in gas / RLNG pricing within the country will be less than $2 to keep Punjab industry competitive. This huge differential means that Punjab based industry is paying for gas at $9 and electricity at 9 cents/kwh while bulk of Sindh industry is generating their own electricity at 4 cents / kWh.

Given this differential Punjab based industries are no longer viable and have no option but to close as they are no longer competitive and available orders are shifting or in process of shifting to the cheaper alternatives internationally and within Pakistan.

A further issue is that due to a misinterpretation of the gas priorities, supply to non-export processing units such as glass, ceramics and steel continues unabated despite this being completely unjustifiable from an economic viewpoint. Decision was taken by Federal Cabinet on Gas Supply Priority Order, notified on December 16, 2021, wherein fertiliser and power sectors were given upward revision till March, 2022 to facilitate augmented production of urea and generation of electricity. On expiry of this SRO Zero rated industry is now at the second priority at par with power generation.

Amidst increasing domestic demand and dwindling supply of gas – including imports of RLNG – circular debt is continuing to mount. It is a fact that the power sector bureaucracy is deeply entrenched in existing systems that have been beneficial for their vested interests. Pakistan’s energy crisis has persisted for decades, and power shortages are estimated to have cost the equivalent of at least 3-4% of GDP each year since 2008, in direct output losses alone. In addition, the impact on jobs has been severe, especially in the industrial sector. Furthermore, we must remain cognizant of the fact that electricity is perceived as a fundamental “right” and consumers are not willing to pay for it (Burgess et al., 2020). This notion coupled with our unreliable supply, poor service, and weak infrastructure translates into Pakistan’s energy sector being stuck in a “bad equilibrium.”

Amid elevated levels of inflation, the war in Ukraine, and rising interest rates, global economic growth is expected to be weak in 2022 and 2023. The war has resulted in elevated prices of food and energy, and the situation is increasingly dire. Being an oil importing country, Pakistan heavily relies on hard currency to finance imports, and is thus faced with mounting food and energy prices and deteriorating external balances. Moreover, industries in Pakistan are energy intensive and will therefore see rising input costs of energy, other commodities and borrowing. With interest rates being synchronized with the US Fed policy interest rates, borrowing and servicing debt costs are expected to rise. Furthermore, the strengthening value of the US dollar has been constricting the textile industry’s liquidity and eroding competitiveness.

An export-led economic growth model is central to strengthening developing economies like Pakistan’s, but this also requires a more diversified product basket and diversified markets. The major exports of textiles need to be supported for value addition while simultaneously tapping into other products and services. This is more sustainable than acquiring more foreign aid.

Higher value addition through technology, IT investment and renewable energy generation are the most impactful and symbiotic means to improve the economy while simultaneously enhancing worker capabilities and enabling integration into Global Value Chains. Enhancing internal capacity in these industries will allow is to reduce imports. Pakistan’s import bill has historically been weighed down the most by petroleum imports; therefore, drives for domestic exploration of renewable energy sources must be introduced, and the transition to solar and wind capacity must be pursued aggressively, which will have positive impacts on job creation and skill enhancement for the population.

If we target the doubling of Pakistan’s trade value by 2030, there is a need for aggressive export facilitation by the government by incentivizing exports and reducing tariffs for the most productive and high potential exporting industries, and by reviewing non-tariff barriers to trade and ensuring international standard compliance. The country should engage professional consultants to lobby for GSP+ status for Pakistan. With our competitive advantage in textiles, Pakistan should be able to target 10-15 leading brands and retail chains in the USA and Europe for sourcing Textile & Clothing from Pakistan.

It is often argued that giving priority and subsidies to exporters will lead to neglect of other industries and businesses such as local startups. However, this is the most effective geo-economic strategy for a country like Pakistan that struggles to in forex through other sustainable means, so these measures are critical for the long-term stability of the economy. Another strategic implication to bear in mind is that reducing oil imports may result in energy shortages if domestic production is not able to keep pace. Since exports are to be supported on a priority basis, this may lead to power cuts for domestic consumers and industries that are less productive, resulting in energy insecurity in the short term. However, the strategy of prioritizing domestic energy is not geo-economically prudent and is more often applied for political gain over the economic prosperity of the country. If Pakistan’s economy is to survive this winter of discontent, it is crucial to prioritize gas supply to the export sector – thereby preventing Pakistan’s premature deindustrialization.

 

by Shahid Sattar and Noreen Akhtar

INTRODUCTION

Pakistan’s export performance data and progress by the World Bank indicates that the country’s exports have reached around $35 billion, showing a 24% increase compared to that of 2020 (Macrotrends 2022). Pakistan’s Free Trade Agreements (FTAs) have, over time, reduced barriers to the export-led growth. For instance, China allows Pakistan a tariff-free access to its market. Also, EU’s GSP+ (Generalized System of Preferences) status allows duty and quota free market access to maximum exports from Pakistan. EU has remained the top export destination for Pakistan’s textile industry. In 2020, 75% of total exports made to EU were from Pakistan’s textile and clothing industry (European Commission 2022a). Pakistan’s exports growth to the EU has increased from around 26% in 2007-2013 to 47% in 2014-2021. However, considering a period of 9 years, the growth rate shows a comparatively slower pace (Javaid 2022).

Pakistan’s export market is heavily reliant on its textiles while the stability of textile industry’s exports is majorly reliant upon free access to the global market such as that of EU. Thus, Pakistan needs to enhance its eligibility under the EU’s GSP+ preferential status and utilize it effectively to make its export-led growth steady as well as to stay in line with other regional competitors including Bangladesh. GSP+ status is crucial for Pakistan to achieve a stable economic growth as in the absence of this status, “country would have to face an MFN Tariff of a maximum of 12% for most traded commodities under GSP+ and would also be paying an anti-dumping duty of 13% to the EU on cotton bed linen” (Javaid 2022). The status has also supported Pakistan to enhance its capabilities to grow in a sustainable manner, diversify its economy and create employment opportunities. It also accelerated Pakistan’s efforts in improving compliance to major human and labor rights and environment and good governance related international conventions.

EU awarded Pakistan the GSP+ status in 2014 and Pakistan, fortunately, became the largest beneficiary of GSP+ among all other awardee countries (European Commission 2022b). This status will end in December 2023 and its continuation is highly reliant upon a strong implementation of the 27 mandatory international conventions related to environmental and social compliance along with the treaties to be newly added. Therefore, Pakistan needs to accelerate its current efforts to fulfil the requirements of these conventions in all its sectors including the textile industry.

Pakistan has ratified all the compulsory international agreements required for the GSP+ renewal. These treaties fall under four categories: Human rights, labor rights, environment and climate change and good governance.

COMPLIANCE TO THE HUMAN RIGHTS CONVENTIONS

Pakistan has shown significant progress towards compliance to the human rights conventions. The country’s constitution prohibits torture and other cruel, inhuman or degrading treatment. The penal code prohibits criminal use of force and assault. The constitution orders free and compulsory education for all children aged 5 to 16, regardless of their nationality. Also, government authorities support NGOs/INGOs work to ensure safety of IDPs. Pakistan has also shown progress to human rights by proposing Protection of Journalists Bill 2021 and became the first country in South Asia to launch National Action Plan on Business and Human Rights. The Government also launched Ehsaas Program in 2019 supported by the World Bank, that aimed to develop a resilient social protection system via emergency cash initiative.

WOMEN

Women’s rights have gained considerate attention over past years. Rape is considered criminal offense. The following major initiatives took place to safeguard women’s rights in the country: Implementation of Women’s Protection Act, Punjab Protection of Women Against Violence Act, designation of special courts countrywide to have an exclusive focus on gender-based violence, KPK Domestic Violence Against Women Act 2021, introduction of cellphone apps to enable women to contact police, increase in research initiatives by the foundations on gender-based violence, operation of Crisis Center for Women in Distress by the government, Enforcement of Women’s Property Rights (Amendment) Bill 2021, Punjab government funding women’s career centers and crisis centers that provide legal and psychological services to women and emergency shelters for women and children, initiation of economic empowerment programs such as Kisan Ki Beti Project to enhance skill development of rural women, financially empowering women via initiatives such as Ehsaas Kafaalat Program, appointment of first female chief justice in the High Court (US Department of State 2021) and increasing awareness via peace marches such as Aurat March.

Moreover, regarding night shift hours for women employees, the Factories Act 1934 now known as Factories (Amendment) Act 2012, states that “no woman shall be allowed to work in a factory except between 6 am and 7 pm. With the exception, the Provincial Government by notification in the official Gazette, vary the limits laid down above to any span of ten and a half hours, or where the factory is a seasonal one, of eleven and a half hours, between 5 am and 7.30 pm.” Recently, however, Pakistan has supported women’s empowerment and allowed work in nights shifts. Sindh Assembly in this regards passed Sindh Factories (Amendment) Bill, 2021 and Sindh Shops and Commercial Establishment (Amendment) Bill 2021 to allow women work during night shifts under better work conditions. Both bills made the employers accountable to provide safe workplaces with better facilities including transportation for women working beyond 7pm (Tunio 2021).

MINORITIES, OTHER RACES AND ETHNICITIES

Racial and ethnic violence and discrimination is prohibited in all the sectors. According to Pakistan’s constitution, all citizens are entitled to equal protection before law and minorities shall be given freedom to practice their religions and cultures. The constitution also discourages racial, sectarian or tribal discrimination. Moreover, some of the initiatives at the country level that have ensured minority rights include the 2017 Hindu Marriage Law and KPK Rehabilitation of Minorities Endowment Fund Act 2020 (US Department of State 2021).

CHILDREN

Regarding children’s rights, the constitutional mandates have made education compulsory and free for the children aged 5 to 16, regardless of any nationality. Moreover, government has taken multiple initiatives to protect children. For instance, both boys and girls have access to the government medical care facilities. Sindh provincial assembly has passed Child Protection Authority Amendment Act 2021 to take strict action against child abusers. Child protection courts were inaugurated by the Peshawar High Court in KPK. Various laws aim to protect children from sexual abuse and cruelty and KPK government built hundreds of schools to educate internally displaced children deprived of education. The legislative progress includes launch of National Action Plan on Child Abuse and launch of National Child Labor Survey. Lastly, agencies were established to track child abuse and in response to the Zainab abuse case, Zainab Alert, Response and Recovery Bill 2019 was approved (US Department of State 2021).

PERSONS WITH DISABILITIES

The law supports equal rights for persons with disabilities and the responsibility of protecting their rights is given to the provincial special education and social welfare offices. There are departments or offices legally responsible to address educational needs of disable persons in each province in Pakistan. Pakistan also supports employment quotas at federal and provincial levels in public and private organizations to reserve 2% of jobs for persons with disabilities. Moreover, the National Council for the Rehabilitation of the Disabled had job and loan facilities for the disable.

OTHER SEXUALLY ORIENTED AND GENDER IDENTITIES

Pakistan has taken certain positive measures under UN Human Rights Conventions, to ensure rights of other gender identifies. Regarding transgender rights, Transgender Persons (Protection of Rights) Act 2018 was incorporated and government of Sindh, in 2019, announced to provide 0.5% of office jobs in Sindh police force to the transgender community. KPK province has also shown effective improvement regarding transgender rights. For instance, transgender prisoners are held separately to improve prison situation. There are dedicated intake desks for transgender persons in KPK police stations and transgender rights education is added to police training courses. Transgender sensitization trainings are also held for police officers in Punjab and Islamabad. Lastly, Supreme Court ruling allows transgender community to obtain national ID cards listing third gender to participate in elections as both candidates and voters (US Department of State 2021).

COMPLIANCE TO THE LABOR RIGHTS CONVENTIONS

After 18^th amendment, most of the labor force in Pakistan is under authority of provincial labor laws. In Pakistan, the government collaborates with the labor NGOs to assist workers regarding capacity building, support establishment of labor unions to organize workers, advocate for the wellbeing of workers and to support workers get access to citizenship benefits. Moreover, the ministries in KPK, Punjab and Sindh worked to register brick kiln workers to enhance their access to labor courts and other services as well as to regulate the industry efficiently. Also, the government of Punjab supported Elimination of Child Labor and Bonded Labor Project to overcome child and bonded labor in brick kilns. Under this project, the workers were supported to obtain national IDs and interest-free loans as well as schools were established at brick kiln sites (US Department of State 2021). Government of Pakistan has also signed an MOU with ILO and launched Better Work Program to achieve decent work standards, especially in the export-oriented Textiles and Apparel sector, supporting the sector in improving labor conditions and enabling greater freedom of association.

Regarding prohibition of child labor and forced labor, in 2020, Pakistan’s federal government amended Child Protection Act 1991 and prohibited child domestic and other hazardous labor. Pakistan’s constitution prohibits employing children younger than 15 in any factory, mine or other hazardous sites. Moreover, some of the provinces such as KPK have set minimum age for hazardous work to be 18 which meets the international standards of minimum age for employment. Moving on, Baluchistan passed Baluchistan Forced and Bonded Labor System (Abolition) Bill in 2021 to prohibit forced and bonded labor as well as Baluchistan Employment of Children Prohibition and Regulation Act to protect children from hazardous working conditions. The legislative progress also includes launch of National Action Plan on Child Abuse, launch of National Child Labor Survey and Punjab’s Restriction on Employment of Children Act.

Compliance to the rights to acceptable working conditions has also received strong attention. KPK raised minimum wage standards and mandated women and transgender workers to receive equal remuneration. According to the law, maximum workweek hours are 48 with rest periods and paid annual leaves. Overtime pay, sick leaves, health care, social security and education for worker’s children are other basic facilities required to be ensured. In 2019, rights of women working in farming, livestock and fisheries were recognized via Sindh Women Agriculture Workers Act, ensuring their minimum wages, sick and maternity leaves, accurate working hours and right to collective bargaining and social security.

 COMPLIANCE TO THE CONVENTIONS RELATED TO ENVIRONMENT AND CLIMATE CHANGE

Environment and climate change have received extensive devotion in Pakistan. One of the biggest accomplishments was an effective control on wildlife trafficking and raise awareness among communities regarding illegal wildlife trafficking and sustainable trophy hunting. The main stakeholders include Pakistan Customs as well as other bodies such as Ministry of Climate Change who supported relevant organizations through capacity building. Also, a system of

permits was established to transport rare animal species abroad and regular monitoring takes place at the airport. Lastly, law enforcement agencies were trained by WWF regarding illegal wildlife trade (Javaid 2022).

Pakistan has endorsed hazardous waste and chemicals related UN conventions such as Basel and Stockholm Convention. The Ministry of Climate Change has recently published National Hazardous Waste Management Policy and EPAs are responsible to monitor national environmental quality standards and regulate effluent release and pollution-oriented manufacturing in the industries.

Pakistan has ratified all conventions related to climate change and ozone depleting substances (ODSs). The global GHG emissions data indicates that Pakistan contributes to around 1% to these emissions (UNEP 2021). Energy and agriculture are the main sectors responsible for most of the emissions as 46% emissions come from the energy sector and 41% from agriculture (USAID 2016). The entire industry sector contributes 5% to the country GHG emissions. Although, Pakistan’s contribution to the global emissions is comparatively low, its GHG emissions are increasing at an alarming rate and so is its vulnerability to the climate change. To overcome these, the country has shown significant progress via substantial initiatives.

For instance, the Government of Pakistan (GoP) developed National Climate Change Policy (NCCP) as a major guideline to ensure climate change mitigation and adaptation in the country. NCCP was revised and updated in 2021 to ensure sustained economic growth by integrating climate change at policy level and fulfilling SDG implementation in every sector (Ministry of Climate Change 2021). Pakistan’s continuous efforts in overcoming GHG emissions also include updation of the Nationally Determined Contributions (NDCs) in 2021. Despite Pakistan’s financial needs remaining high, the updated NDCs aim to decarbonize its economy and enhance its climate resilience by cutting 50% emissions, shifting to 60% renewable energy and targeting 30% electric vehicles by 2030 (UNFCCC 2021).

Other legislative and policy actions to achieve greener Pakistan in future include Billion Tree Tsunami Program, Protected Areas Initiatives, Recharge Pakistan Project to reduce flood risks and enhance water recharge and National Action Plan on Sustainable Consumption and Production in collaboration with the EU.

COMPLIANCE TO THE CONVENTIONS ON GOOD GOVERNANCE

Pakistan has improved on part of the UN Convention on Corruption. Javaid (2022) states that “According to Financial Action Task Force (FATF), Pakistan has substantially completed its two action plans, covering 34 items and warrants an on-site visit to verify the reforms implementation.” Recently, this visit by the FATF’s technical team took place and the global money laundering and financing watchdog removed Pakistan from FATF’s grey list (Hussain 2022).

REMAINING CHALLENGES

Under the status of GSP+, Pakistan has shown a strong commitment towards ensuring social and environmental sustainability in the country. However, the progress needs to be enhanced and amplified to all the sectors.

The progress regarding human rights states that the right to free speech and press is subjected to restrictions. Blasphemy law restricts rights to free speech concerning matters of religion. Also, journalists and media platforms reporting on sensitive topics are subjected to harassment and violence. Also, national legislations regarding protection of refugees including access to basic services and employment opportunities are not endorsed (US Department of State 2021). Further, corruption is persistently observed in the politics and government.

Regarding women’s rights, spousal rape is not explicitly criminalized, rape survivors face procedural barriers to have access to courts and there is no centralized law enforcement data collection system in the country. Moreover, women become victims of honor killing and forced marriages and face legal and economic discrimination. Forced religious conversions, unlawful kidnapping and detentions, target killing and religious discrimination are other remaining concerns associated to human rights.

Pakistan also needs to advance its efforts in ensuring rights and safety of children. The major focus needs to be diverted towards monitoring and effectively implementing regulations regarding child abuse and sexual exploitation, forced early marriages and displaced children (US Department of State 2021).

Furthermore, rights of persons with disabilities require strong recognition in all sectors of Pakistan. The initiatives must focus on measures including education of children with disabilities, increasing employment quotas and improving access to public transport and health-care facilities. Lastly, marginalization of transgender women, violence against other sexually oriented persons, unlawful attacks on the families and residences of transgender community, mob killing and discrimination in employment, housing, education and other services require an effective consideration (US Department of State 2021).

The current progress regarding compliance to the labor rights conventions indicates that the provincial laws regarding collective bargaining excluded banking and financial sector, forestry and hospital workers and self-employed farmers. Relevant regulations are not enforced effectively to penalize those denying labor rights. Illegal strikes are strictly monitored and large scale strikes are often interrupted by the police. Moreover, forced and child labor still exists in Pakistan. The sectors are presented in figure 1 (Bureau of International Labor Affairs 2022). Children still work on hazardous sites, domestic workers are hired informally with no limits to working hours and inspection of child labor and minimum age requirements is a failure in the country (US Department of State 2021).

Occupational health and safety is another crucial area that requires maximum attention of the authorities. Workers are usually not trained regarding health and safety measures. Also, dangerous working sites such as mines lacking ventilation still exist and contract workers or the invisible workforce not in records usually fall victim of accidents (US Department of State 2021).

Initiatives regarding environmental safety and climate change have shown promising results. However, the relevant sectors are still facing prevalent challenges. For instance, due to inefficient monitoring, capacity building and financial instability, manufacturing industries including SMEs still use hazardous chemicals such as POPs and import unverified contaminants. This not only causes aquatic and land ecotoxicity but also creates hazardous working conditions for the workers. Moreover, the GHG emissions are increasing at an alarming rate and so is the country’s vulnerability to the climate change. Overall, there is a lot of scope for Pakistan to enhance its climate change adaptation and mitigation via proper utilization of funds, hunting international climate change grants as well as by ensuring an interdisciplinary approach to this change.

Figure 1. List of goods produced by child labor and forced labor (Bureau of International Labor Affairs 2022).

SUSTAINABILITY PROGRESS OF PAKISTAN’S TEXTILE INDUSTRY

SOCIAL SUSTAINABILITY AND COMPLIANCE

Pakistan’s textile industry can play a vital role in fulfilling human rights conventions in the country. As Pakistan’s major share of exports relies on textiles, the industry has a vital responsibility to act for the renewal of GSP+.

The industry, fortunately, is giving utmost attention to social compliance in all sectors. For instance, figure 2 presents the human rights principles targeted by US Apparel and Textiles to be addressed in 2022. Sarena Textiles has also added employee welfare in its major goals. Other initiatives by the textile industry to ensure human rights include Pheonix Project by Artistic Milliners that aims to fight gender-based violence by employing victims of acid attack, Enriching Lives Program by Gul Ahmed to provide training and employment to differently-abled people and Sapphire’s Deaf Reach Program providing trainings and employment to the deaf.

Figure 2. Targeted principles related to human rights, labor rights, environment and anti-corruption to be addressed (US Apparel and Textiles 2021).

The focus, however, needs to be enhanced by ensuring protection of all workers including those from the minority groups, transgender communities and disabled from unlawful conflicts. Moreover, effective monitoring against official corruption must be ensure to improve transparency in the sector. Effective regulations to ensure women’s safety need to be enforced. Moreover, the textile industry must treat every worker with different cultural, religious, ethnic and tribal background equally in terms of freedom of expression as well as social and financial security.

Further, Bureau of International Labor Affairs has marked Pakistan’s textiles as goods produced using child labor. Thus, the protection of rights of children needs to be a highest priority area for the industry. Child abuse must be monitored and regulated and child labor must be reduced to the minimum.

Compliance to the UN labor rights conventions is the matter most associated to Pakistan’s textile industry as it employs 40% of the total labor force (SDPI 2022). In order to make relations between business and human rights favorable, labor rights must be fulfilled.

Pakistan’s textile industry has added fulfilment of labor rights in its main agenda. This is successfully followed by an increase in trainings related to labor rights, provision of fair remuneration and allocation of fair working hours as well as elimination of child labor. For instance, figure 3 presents the 2022 sustainability challenge map of one of the textile companies which is US Apparel and Textiles. It clearly highlights the assurance of labor rights and prohibition of forced and child labor in the industry (US Apparel and Textiles 2021). Moreover, Interloop is another major textile company that, as a result of its initiatives to ensure human and labor rights, achieved the following people impacts in 2021:

• 25,000+ people provided with decent work and employment opportunities
• 4000 children provided with quality education at 29 TCF schools
• 8000+ empowered through lean tool and trainings
• 500 young women and men equipped with higher education
• 2028 women working at interloop
• 25,000 patients provided with free healthcare facilities
• 6000 local talent promoted through sports events

The efforts, however, need to be enhanced. To achieve this, the industry needs to ensure freedom of association and encourage collective bargaining by providing workers relevant labor rights related trainings and education. Moreover, strong inspection of labor rights implementation needs to be ensured by the social compliance departments. This includes monitoring of forced and compulsory labor, extra working hours without wages, hazardous working conditions, freedom of speech, gender discrimination as well as child labor. Also, special departments must be associated to inspect the child labor element.

Figure 3. Sustainability challenge 2022 mapping (US Apparel and Textiles 2021).

ENVIRONMENTAL SUSTAINABILITY AND COMPLIANCE

Pakistan’s textile industry has incorporated the long-ignored principles of environmental consciousness in its agenda. One of the examples is presented in figures 2 and 3, which indicate the major environment and climate change related principles and sustainability mapping set to be addressed by the US Apparel and Textiles. Interloop is another great example which has, as a result of its green initiatives, shown the following environmental impacts in 2021:

• 7,390,289 KWH energy saved which is equivalent to energy used by homes for one year 631
• 21,295 Tons of GHG emissions avoided which are equivalent to tree seedlings grown for 10 years 352,117
• 81,864 M3 water saved which is equivalent to daily water consumption (based on 6-member family) 68,220 families

(Interloop 2021)

Sarena Textiles encompasses a range of environmental matters of global importance including responsible sourcing, water stewardship, energy conservation, carbon footprint reduction and certifications and transparency. Crescent Bahuman Textiles has achieved crucial certifications including OCS, GRS, Higg index, ZDHC, ISO 14001, Cradle to Cradle, Oeko-Tex, GOTS, and WRAP. Its major environmental initiatives include enhancing carbon sink, shift to renewable energy sources and rainwater harvesting. The Crescent Textile Mills Limited (Crestex) has prepared its sustainability roadmap to present its vision 2050. It has aligned its development and all activities to achieve this roadmap. This roadmap indicates that Crestex has envisioned to reduce its carbon footprint and achieve net zero by 100%, reduce unsustainable water consumption, shift its development to the renewable energy sources as well as reduce landfill waste and comply with the ZDHC requirements (figure 4).

Other initiatives taken by Pakistan’s textile industry to achieve environmental sustainability by reducing carbon footprint and increasing water conservation include revolutionary zero waste dying technology by AGI Denim, initiation on rainwater reservoirs of 6 million gallons by KMLG, GHG reduction via Heat Exchanger Rehabilitation Project by Al Rahim Textile Industries and sustainable textile bleaching by Interloop.

However, the industry is still facing major environmental issues. For instance, land and marine ecotoxicities are major environmental concerns associated to Pakistan’s textile industry (UNCTAD 2021). Thus, the industry needs to significantly enhance its efforts to make its manufacturing less pollution oriented. This can be done by banning import and use of hazardous chemicals, updation of effluent treatment plants (ETPs) and improving safety standards to use and store hazardous chemicals. The industry needs to regularly update its members regarding lists of chemicals of concern and most hazardous chemicals which are frequently updated by the international bodies and top export destinations such as EU, UK and US.

Figure 4. Crestex’s vision 2050 (Crestex 2022).

Furthermore, the textile industry contributes around 9.5% to the country level industrial GHG emissions and 0.095% to the global GHG emissions. The emissions from the industry, however, are showing an increasing pattern (USAID 2016). Therefore, industrial emissions need to be monitored and efficient technology needs to be installed to filter hazardous air pollutants. Also, textile industry needs to shift its focus towards renewable energy sources to combat climate change.

EU is one of the major export destinations of Pakistan and EU’s GSP+ status allows tariff-free access to Pakistan’s exports to the EU. Pakistan is the largest beneficiary of GSP+. This status has not only supported Pakistan grow its exports, the country also has enhanced its capabilities to grow in a sustainable manner and diversify its economy and create employment opportunities. It also accelerated Pakistan’s efforts in improving compliance to major human and labor rights as well as international conventions on environment and good governance.

GSP+ ends in December 2023 and its extension is crucial for the country to boost its export-based GDP but also, to shape its development sustainably. The country, in this regard, must fulfill the requirements by all the mandatory international conventions on human rights, labor rights, environment and climate change and good governance. The current efforts are crucial and require global appreciation; however, they need to be enhanced in all the sectors. Pakistan’s textile industry also needs to enhance its current efforts, especially regarding labor rights and environment and climate change.

The current practices and efforts indicate that Pakistan has not utilized the GSP+ status to the maximum and therefore, it must reshape its development in all the sectors and align it with the international requirements to achieve sustainable development. This will not only help Pakistan enhance its trade capacity; the country will also increase its job market, stay in line with its export competitors such as Bangladesh and implement SDGs in every sector by socially and environmentally complying to them.

Dr. Gohar Ejaz

Exports remained largely stagnant from 2012 to 2018, while regional competitors witnessed commendable export growth rates that strengthened their economies considerably. Our inward-oriented trade policies served as a substantial roadblock to the economy’s ability to keep pace in global trade, despite the great potential of our business sector. Then in 2019 as a result of regionally competitive energy tariffs and TERF, considerable progress was made thereby increasing exports by 60% over the following 3 years. However, this progress led to a situation where exporters’ working capital and ease of doing business needs became more acute.

Textile Exports

With the withdrawal of Zero-Rating (SRO 1125) and the implementation of a 17 percent General Sales Tax (GST) on export-oriented sectors, the cost of doing business has increased to unsustainable levels, as a consequence of the liquidity crunch from the non-payment and delay in refund of GST collected.

Sales tax is consumption based, which inflates inventory and capital costs, serving as an impediment to new projects as capital cost increases by 20 percent and refund can only happen after commercial operations. According to a report by the IMF, the cascading effect of GST has harmed Pakistani exporters’ competitiveness as there is currently no systemic method to ensure that all tax paid on inputs may be charged against a final sale is fully refunded. In this huge cycle of sales tax collection, exporters suffer in the form of delayed pending and deferred refunds. The cost of collecting and refunding sales tax outweighs the revenue collected by a significant margin. The administrative cost of collecting and refunding sales tax is estimated at Rs 10 billion. The imposition of sales tax has resulted in billions (over Rs. 250bn) of rupees in liquidity transferring from the industry to the FBR. Despite the commitment to pay refunds within 72 hours under the FASTER system.

Rather than encouraging import substitution, these regressive policies are doing the exact opposite by dis-incentivizing local production and promoting cheap imports. For instance, when a company holding a DTRE, Bond or EOU license needs to buy raw materials like cotton, yarn or greige fabric, if it imports them through these schemes, it does not have to pay sales tax or duties, whereas, if they buy the same material from domestic industry, it is required to pay 17% GST and wait for its ultimate refund after exports which entails a minimum wait of nine months.

The counterproductive GST system has distorted the level playing field for local manufacturers and now heavily favors sales tax free imports. It appears that the government policies do not take into account the need to develop and support domestic industry and are actively substituting local production with imports. Consequently, the economy has been undergoing premature de-industrialization and capital is rapidly draining from the country.

Requiring businesses to first pay taxes and then later struggle to obtain refunds is an irrational policy measure for several reasons. Firstly, the government already owes refunds worth over Rs 250 billion to exporters and has no fiscal space for making that payment. Secondly, there is no reason for exporters to believe that they will get their sales tax refunded in due time while their prior refunds still remain unpaid, thereby depriving them of liquidity and of their own resources which could very well have gone towards modernization and expansion. Eliminating the sales tax waiver for a fragmented industry with a long and complex value chain has increased the production cost for exporters.

In a rational policy environment, to keep businesses liquid this sales tax should have been imposed in a step-wise progressive manner. It is still in vital interests of the exports and economy that the government should consult stakeholders for initially imposing a rational percentage of sales tax to ensure adequate cash flow and hence timely fulfillment of export commitments. In all countries, Value Added Tax (VAT) begins at extremely low rates and gradually rises. When it is performing well, the tax would be gradually increased.

On one hand, the government advocates promotion of exports and ease of doing business, but on the other hand problems have been created for industries. The government should commit to the oft-quoted economic direction of export-led growth so that the country may move forward on the path of economic development by promotion of business and industrial activities.

The zero-rated regime for the whole textile supply chain was first introduced by the Finance Act 2005 to stimulate export-oriented sectors in Pakistan and minimize flying invoices, which was resulting in more refunds than tax collection. Zero rating was then withdrawn in 2013 without providing the expeditious refund system that was committed, thereby creating liquidity a crunch for exporters. Then zero rating was restored in 2016 but subsequently rescinded for the export-based industry in the June 2019 budget announcement. This decision was based on a misrepresentation of facts and pretext by Federal Board of Revenue (FBR). FBR claimed that the domestic sales constitute more than 50 percent of all sales from the textile sector and somehow the industry was evading approximately $12 billion worth sales tax on domestic sales. However, domestic sales of the sector do not exceed 20% of industrial output, as later conceded by FBR. Back in 2019, the government assured industrialists that they will examine the issue in 6 to 8 months, but no such review has been taken even after the passing of 3 years.

In July 2019, FBR issued bonds in lieu of sales tax refunds pending, but these bonds were not of any value as no bank was willing to discount them. Following the failure of the bond system, the FBR implemented the FASTER system, which guaranteed reimbursements within 72 hours. FBR claimed that they had implemented a robust and sustainable sales tax claim refund system to ensure that exporters do not face a liquidity crisis as a result of the withdrawal of sales tax exemption for them. Despite making a commitment to pay refunds within 72 hours, the FBR has not honored this commitment It must be noted that a significant amount has accrued as “Deferred Sales Tax.” As a matter of routine, a portion of the claims through Sales Tax returns are routinely deferred or rejected by FBR. A large proportion of the amount vanishes into thin air being neither paid nor rejected or deferred. The FASTER system usually raises typical objections and errors in the data, which can be resolved by refund processing officers. Yet the system is unresponsive and unable to cater for the complexity of the textile sector, and is therefore in need of serious review and modifications.

Because of the high rate of sales tax, trade volumes outside the Sales Tax System have expanded, resulting in smuggling, outright fraud, and the import of used clothing into the country. Pakistan is among the top importers of used clothing. Meanwhile India, which has a much larger population and higher poverty rates, has at least half the import value of Pakistan. This indicates that Pakistan is importing fresh textile and apparel under the guise of used clothing in order to avoid taxes and tariffs. This happens to be rejected new apparel and clothing from all over the world that is dumped on our market at extremely low prices under the guise of worn clothing. This creates a cheap alternative that is impossible to compete with. Pakistan imported used clothing in FY21 at a cost of about $1.4 per capita per year, while India usually imports at a cost of $0.8 per capita per year. Pakistan imports about 43 percent more used garments than India.

In the last five years, Pakistan’s imports of worn clothing increased by 153 percent in quantitative terms and nearly 200 percent in value terms.

Since our import of used clothing is unsustainably high, we suggest that the government must;

• Incentivize local production and sales to prevent smuggled and imported apparel, which impacts the balance of trade
• Implement effective anti-dumping and under-invoicing laws
• Impose 20% regulatory duty on used clothing imports in order to prevent the misuse of regulation. Duty-free imports should be available exclusively to registered charities importing used clothing.
• At the point of entry, the Customs Enforcement Directorate shall conduct a routine check on all containers labelled as used clothing.

When collecting sales tax on domestic sales, it should be deducted at the Point of Sale. This will subject any product sold domestically from any source to a 17 percent sales tax, including smuggled goods. As a result, the domestic market will remain regulated and classified as “Made in Pakistan”.

Textile exports are expected to increase from $19.35 billion (FY 22) to $ 25 billion this fiscal year and $50 billion over the next four years. Considering that our currency has depreciated by 60-70% in the last year, exports have climbed to over Rs. 3 trillion, but working capital has not increased. To bridge the gap, industry requires double the amount of working capital that is currently available – and this is further exacerbated by the situation where in order to impose sales tax on domestic sales of textiles, the whole sector gets roped in. Under these circumstances, the restoration of zero-rating is imperative to improve exporters’ liquidity position, improve competitiveness and act as a deterrent to cheating and smuggling, and as a result, the market will remain documented and largely made in Pakistan.

The pace of competitiveness and modernization in the global textile market is progressing exponentially. In order to effectively compete, we must lower our cost of doing business and make it comparable to our regional competitors such as India, Bangladesh, and Vietnam. To achieve the targeted exports, business-friendly policies should be ensured for the industry to grow and further achieve increased targets on a yearly basis. There is immense potential in the textile industry to engineer an economic turnaround and achieve targets not only in exports but in economic growth, through consistent policy support.

 

Shahid Sattar and Amna Urooj

One of the most important industrial sectors, the textiles industry contributes significantly to national economies, job creation, and exports in developing nations such as Pakistan. The size of the global textile market, estimated at USD 993.6 billion in 2021, is expected to increase at a 4.0% compound annual growth rate (CAGR) according to a report by Mordor Intelligence. In 2021, Asia Pacific held the highest share in the textile market. China leads the global textile exports, meanwhile Pakistan has a share of 2% in global textile exports. All of the world’s major textile economies, including Pakistan, have grown in the first nine months of 2022. Due to the ongoing global recession, there are concerns about a decline in the most recent quarter, however, unusual growth occurred in the first three quarters of 2022. China, Bangladesh, Indonesia, Vietnam, Italy, Turkey, Germany, and Pakistan all saw strong increases in textile exports. Pakistan’s textile exports scaled by 5% in the first quarter of FY23 compared to September’21.

However, export numbers are not the only benchmark of performance for textile industries in twenty first century. If textile firms follow Sustainable Business Practices, and show a satisfactory status of Sustainable Business Practices, only then they’re able to compete in the modern world. Simply stating, making a profit while also having a positive impact on society (the people), the environment (the planet) is only possible with sustainable business practices – the three Ps. In today’s corporate world, sustainability is a critical component of social and environmental responsibility and is a fundamental first step in protecting the earth for future generations. These practices not only save money, cut down on waste, and save natural resources, but they also aid in protecting the environment and the inhabitants of it.

Few examples of Sustainable Business Practices include using renewable energy, manufacturing environmentally friendly products, recycling and reduction of waste, sustainable packaging, composting, ethical sourcing, sustainable supply chain management, employee welfare, fulfilling corporate environmental and social responsibility and finally sustainability reporting.

Even though the textile sector of Pakistan is seen as one of the most significant sectors from an economic perspective, the supply chain for this sector is plagued by serious environmental and social issues. The primary environmental issue connected to the textile industry is the pollution of water bodies brought on by the discharge of untreated effluents. The sector also contributes to air pollution as dust, cotton lint, and other pollutants are produced during spinning and weaving, which worsens the working environment. Environmental protection was once the textile industry’s most neglected sector, but as people’s awareness of the issue has grown in response to the depletion of nonrenewable resources, the effects of climate change, and ecological destruction, it is now widely acknowledged that a more responsible approach to the environment is required.

Pakistani textile firms are continuously striving hard to adopt Sustainable Business Practices. One of the examples is that of Net Zero Pakistan. It is a national partnership involving cutting-edge businesses, government organizations, and sectoral specialists to achieve Pakistan’s objective of net zero carbon by 2050. The alliance is on its way of setting out the plan and structure by which Pakistan’s private sector may hasten its transition to sustainability and accomplish this net zero objective. Out of the 23 signatories of this partnership, 22 belong to the textile and apparel sector such as Gohar Textiles, Crescent Bahuman and many others. The signatories have committed and set net zero targets, affirmed to measure and disclose transparently the levels and sources of GHG emissions, vowed to decarbonize value chains and lastly have shown interest in advocating for climate action.

The textile sector is also actively engaging in international conventions and platforms such as ‘Better Work Programme’, ‘Decent Work Country Programme-IV (2023-27)’, ‘The Accord on Fire and Building Safety’, to name a few. Moreover, in lieu of its Corporate Social Responsibility (CSR) initiatives, All Pakistan Textile Mills Association (APTMA) has recently signed an MOU with National Emergency Operations Centre for Polio Eradication Initiative, a national coordination body of the Government of Pakistan to create an enabling environment to achieve a shared objective of attaining a healthy future by eradicating polio from Pakistan.

According to numerous analyses of empirical studies, the textile firm’s efforts to manage the environment are positively impacted by regulatory pressure (Jeswani et al. 2008; Babiak and Trendafilov 2011; Ervin et al. 2013). As an illustration, earlier studies shown that firms are more receptive to regulatory factors and in taking part in voluntary environmental programmes (Delmas and Toffel 2004; Jeswani et al. 2008). The reasons for going sustainable are industry agreements, regional environmental regulations, and national environmental regulations regarding water, waste, and energy efficiency. The reasons for going sustainable are also regional environmental regulations regarding water, waste, and energy efficiency (Sharma & Narula, 2020). Pakistani textile firms are, for example, under the regulatory pressure by European Union’s (EU’s) Scheme of Generalized Scheme of Preferences Plus (GSP+) to avail duty free export to EU. They are actively displaying a responsible attitude in the quest for a better position against such regulatory pressures.

The government’s environmental rules and regulations strengthen the management of Pakistani textile companies’ desire to put these methods into effect and aid in the improvement of their environmental performance. Despite the financial constraints they face, the impact of regulatory body pressure demonstrates that businesses are willing to invest resources to stop environmental deterioration given proper backing from government programmes. Instead of viewing regulatory pressure as a danger, they view it as an opportunity to become more environmentally friendly.

Competitive pressures are known to drive businesses to differentiate their products, boost production, and ultimately persuade them to embrace environmental management techniques. According to empirical research, market forces such as competition and demand are crucial in driving businesses to embrace sustainable practices. According to several empirical studies (Chkanikova and Mont 2015; Jeswani et al. 2008; Sgaard Jrgensen et al. 2010; Wu- et al. 2012), companies that were under more intense competitive pressure were more likely to adopt their competitors’ business models in order to maintain or even increase their competitive advantage. Pakistan accounts for a sizeable portion of worldwide textile exports, and in order to compete in the market, textile producers must satisfy customers’ environmental demands.

Textile firms are also influenced by market competition to enhance their environmental performance. Competition pressure has an impact on sustainability efforts, and green business practices that uphold environmental standard help businesses stay competitive. International brands frequently show a greater willingness to abide by environmental laws and have the brand value to persuade consumers to adopt environmentally friendly habits. Therefore, textile firms frequently use the same technique and create an environmental strategy based on international rivals.

Pakistani textile firms are taking steps to improve environmental performance, such as developing long-term contractual relationships with their suppliers, contractors, and agencies with proven credentials in waste recycling. Other actions done by them to ensure sustainability include selling cotton waste produced during spinning to be used in the production of inferior yarn and other home furnishings. These activities aid firms in expanding into new market niches, growing their local and international businesses, and maintaining their competitiveness as a result of which they see an increase in market share.

Furthermore, a positive relationship between the impact of “demand from foreign buyers” on sustainable business practices exists, according to prior research (Menguc et al. 2010). Market pressure has been shown to positively influence a firm’s commitment to environmental protection, increasing investment in environmental management practices, and encouraging environmental collaborations.

The production process in Pakistani textile firms also complies with textile standards including GOTS (Global Organic Textile Standards) and BCI (Better Cotton Initiative). These standards outline internationally accepted criteria that guarantee textiles are organic, including ecological and social norms supported by independent certification of the full textile supply chain. These standards allow textile producers and processors to export their organic fabrics with a single certification that is recognized in all important markets, leading to an increase in sales and total revenues for the firms. Nevertheless, several factors exist that impede the textile firms from adopting sustainable business practices along with their quest to pursue Sustainable Business Practices.

According to empirical research, administrative attitudes and dedication matter a lot when it comes to a firm’s decision-making and adoption of environmental management techniques (Petrini and Pozzebon, 2010; Wu- et al., 2012). Lack of internal environmental expertise, a lack of skilled human resources and environmental issue management skills, a lack of support from top management, and ultimately a communication gap from top management are the primary causes that cause managerial hurdles.

The technological capabilities of businesses may also have an impact on the adoption of sustainable business practices. According to certain studies, businesses with greater Research and Development (R&D) facilities may use more pollution control techniques to green their supply chains (Harrington et al. 2008; Ervin et al. 2013). Furthermore, organizational hurdles are sometimes a result of the lack of appropriate benchmarking tools. Government information and support for domestic businesses to use sustainable practices is lacking.

Sustainable Business Practices are adversely impacted if the company has economic obstacles such high implementation costs and a lack of financial resources. Since the textile sector requires a lot of money, financial recovery takes time. They have little money or resources to spend in high-cost technical advancement, Pakistani textile companies frequently choose low-cost technological solutions for production.

Pakistani textile companies are just beginning to incorporate Sustainable Business Practices. A lagging behind status is also a result of the different economic and institutional challenges that businesses in developing countries—such as Pakistan—face compared to those in rising economies.

Our textile businesses recognize and agree that the health and development of the textile industry depend on the natural environment and its preservation. Internal management and organizational constraints do not have a substantial impact on the firm’s operations, however a variety of factors including regulatory, market, and economic considerations are more relevant in forcing firms to adopt sustainable practices. In textile companies, external considerations (such as the danger of loss of markets) rather than internal ones are what are putting pressure on sustainability. However, addressing internal issues could significantly advance sustainability in these businesses. In order to further improve the scope of sustainability for textile enterprises, greater attention should be placed on the role of regulatory authorities. The businesses should also integrate a sustainable enterprise. To aid in developing that identity, the businesses should integrate a sustainable business plan from the very beginning. The training should incorporate knowledge of sustainable practices.

The initial cost of compliance is the main obstacle to implementing these practices when it comes to rules and financial restrictions. In addition, uncertain policy changes, weak enforcement, and low knowledge reduce manufacturers’ acceptance, necessitating cost regulation. Companies that are prepared to adopt environmental measures (especially Small and Mid-size Enterprises) must receive assistance from the government. For instance, if a company has established an effluent treatment plant (ETP), assistance should be offered. Assistance in the form of subsidized loans and credits will also go a long way. Additionally, there shouldn’t be any managerial distinction made between domestic and international customers’ interests; after this is done, attention shall turn to incorporating pollution control strategies. The adoption of the proactive environmental policies by businesses should be aided by the strengthening of national and regional legislation. The adoption of a proactive environmental strategy by businesses will help them make the best decisions and commit to more extensive environmental practices. This will be made possible by the strengthening of national and regional legislation.