In an increasingly interconnected world, responsible business conduct (RBC) — defined by the Organisation for Economic Co-operation and Development (OECD) as contributing to economic, environmental, and social progress while mitigating adverse impacts — has become essential for maintaining a competitive edge. For Pakistani businesses, where regulatory pressure is still evolving, aligning with international standards is crucial.

The European Union (EU) leads with frameworks like the OECD Guidelines, UN Global Compact (UNGC), EU Taxonomy, and Sustainable Finance Disclosure Regulation, making compliance vital for market access. This shift extends beyond Europe, with global buyers and development financial institutions like the International Finance Corporation and the Asian Development Bank prioritising RBC adherence in investment decisions.

For Pakistani companies, RBC is both a moral obligation and a business strategy. Integrating RBC into business operations can significantly enhance competitiveness, opening doors to new markets and attracting investment opportunities.

As a UNGC signatory, Pakistan follows a framework covering human rights, labour laws, environmental responsibility, and anti-corruption. Adhering to these principles ensures compliance with global standards, mitigates risks, and strengthens stakeholder trust.

Since many businesses are familiar with CSR, transitioning to an RBC approach will require capacity building to clarify where their responsibilities lie

Businesses that prioritise sustainability gain a competitive edge, appealing to customers who value ethical and responsible practices. In Pakistan, companies are expected by law to spend two per cent of their profits on corporate social responsibility (CSR) activities.

While CSR is important, these investments are often short-term focused, where businesses jump from one project to another, leaving the initiatives they invest in without any long-term benefit. Conversely, when businesses channel their funds through RBC strategies, the investments are more sustainable as all their interventions are linked to business goals, creating a two-way stream where the business also benefits, enhancing the incentive to invest.

However, effective implementation of RBC demands more than a superficial commitment. It requires a comprehensive approach, starting with leadership and board-level commitment extending through the management, operations, and employees, all the way to the businesses linked along the value chain. Companies must invest in training; conduct thorough assessments of their current practices; and establish clear, measurable targets for improvement.

Collaboration with industry experts, consultants, and civil society organisations is essential for developing and implementing effective RBC strategies. One of the challenges for Pakistani businesses is understanding the full extent of their responsibilities under RBC, which goes beyond the immediate value chain to encompass all facets of their operations, including their suppliers and even their suppliers’ suppliers.

While many businesses in Pakistan are familiar with CSR and have a strong philanthropic mindset, transitioning to a structured RBC approach will require capacity building and guidance to clarify where their responsibilities lie.

Much more is needed to align Pakistan’s human rights and labour laws with the true essence of RBC and ensure effective implementation. For instance, the mandated minimum wage remains far below a fair living wage, and some businesses struggle to meet the rising minimum wage due to inflation, while others are advancing discussions on decent living wages — approximately twice the minimum wage.

This commitment is challenging, but businesses seeking to provide employees with a security blanket are adopting what is known as a decent living package. While paying all blue-collar workers a decent wage may be difficult, businesses can offer benefits that enhance the quality of life and employee retention.

Moreover, health emergencies often push low-income workers into poverty. Providing insurance gives employees security without increasing base salaries. Businesses can also offer education subsidies or scholarship programmes. For example, a manufacturing firm providing engineering scholarships not only incentivises employees but strengthens its future workforce.

Other cost-effective incentives can significantly impact communities, such as allowing employees to take home clean drinking water, providing free or subsidised nutritious meals, or organising women’s health camps for female employees and their families. Partnering with non-governmental organisations for vaccination drives or educational sessions on child nutrition (to combat stunting) further amplifies impact.

These small investments foster a loyal, productive workforce, reduce employee stress, and create lasting positive change in communities. By implementing RBC practices, Pakistani companies enhance their global competitiveness and drive sustainable development within their communities.

The commitment to ethical practices not only positions businesses for increased investment and partnerships but also strengthens the entire nation’s socio-economic fabric. Embracing RBC is thus not merely a strategic choice for survival but a critical step toward a resilient and prosperous future for Pakistan.

The writer is the Sustainability Research Manager at the Pakistan Business Council, Centre of Excellence in Responsible Business

Published in Dawn, The Business and Finance Weekly, February 24th, 2025