South Asia stands at a pivotal moment in its sustainability journey. Home to a quarter of the world’s population on less than 5% of the planet’s landmass, the region faces unique environmental, social and governance (ESG) challenges that demand tailored solutions. As regulatory frameworks tighten and investor scrutiny intensifies, accounting and advisory firms are stepping into an increasingly vital role, helping businesses – particularly SMEs – navigate this complex terrain.
The sustainability landscape across South Asia is characterised by stark contrasts and pressing needs. As Mahesh G Dalvi, director of ESG and sustainability services at RSM India, observes: ‘Every third person in South Asia is below the poverty line.’
This reality shapes the region’s approach to ESG. While environmental concerns dominate global discussions, South Asian nations must balance sustainability imperatives with social development priorities. The challenge is particularly acute given the region’s vulnerability to climate impacts while simultaneously contributing significantly to global greenhouse gas emissions – with India alone accounting for around 8% of these.
Regulatory momentum builds
India has emerged as a regional leader in mandatory ESG reporting. The country’s Business Responsibility and Sustainability Report (BRSR) framework now requires the top 1,000 listed companies to produce comprehensive sustainability disclosures, with the top 500 mandated to obtain third-party assurance from 2025/26. This represents a dramatic shift from just two years ago when companies were largely unaware of BRSR.
‘A shift of the mindset is the biggest challenge’
Momentum is spreading across the region, albeit at different paces. Pakistan’s stock exchange has issued voluntary ESG guidelines aligned with global IFRS Sustainability Standards, while Bangladesh, as Dalvi notes, has seen sustainable finance grow from 8% to 38% of total financing between 2020 and 2024.
Sri Lanka, through the Colombo Stock Exchange’s engagement with the Global Reporting Initiative, has begun formalising ESG awareness initiatives for its 300-plus listed companies. However, as Buddhi Pathiraja FCCA, director of BDO Consulting Sri Lanka, notes, implementation remains challenging. ‘A shift of the mindset is the biggest challenge,’ she says. ‘We need to introduce rules, acts and regulations, as some people are resistant to change.’
The SME challenge
Perhaps nowhere is the sustainability challenge more acute than among SMEs. These businesses face what Dalvi describes as a ‘knowledge and resource constraint’ that makes ESG compliance particularly daunting. There are significant variations in ESG awareness and adoption across the region, with SMEs often lacking the capacity to navigate constantly evolving standards, despite mounting pressure from customers and suppliers – in particular, multinational corporations.
In Pakistan, Muhammad Adnan Salat FCCA, co-founder of Finnovus Consulting, has developed an innovative approach to address these challenges. ‘Many businesses have fears around confidentiality, transparency over results and their adaptability to technology,’ he observes. His solution involves artificial intelligence-powered ESG compliance tools that automatically capture data flow and evaluate against recognised ESG frameworks.
‘Social requirements are country-specific, while governance is stock exchange-specific’
Indeed, the integration of technology is emerging as a crucial factor in making ESG compliance more accessible and efficient. Salat’s approach exemplifies this trend: ‘I make it scalable, agile and adaptable, with the capacity to handle multi-focus, multi-region frameworks.’ His system can process ESG compliance checks in minutes rather than days or weeks, potentially reducing costs by 90%.
This technological approach is particularly relevant given the region’s rapid digital transformation. India’s digital banking revolution has demonstrated how technology can leapfrog traditional barriers, providing a template for ESG adoption.
Country-specific approaches
The diversity of the South Asian region necessitates tailored approaches to ESG implementation. As Dalvi explains: ‘Environmentally, we share this planet, but social requirements are country-specific, while governance is stock exchange-specific.’
India’s BRSR framework reflects this philosophy with its balanced approach. Of the nine principles, only one focuses specifically on environmental impacts, while the remainder address social and governance issues including ethics, human rights, employee practices and consumer behaviour.
‘Often, clients see ESG initiatives as a cost centre rather than a long-term value driver’
In contrast, smaller economies like Bhutan (with only 19 listed companies) and Maldives (with nine listed companies) focus primarily on corporate governance issues. ‘Board diversity is not a priority in these smaller countries,’ Dalvi notes. ‘The main focus is on corporate governance because board structure disclosure isn’t available in the public domain.’
Building capabilities
Professional services firms across the region are rapidly expanding their ESG capabilities to meet growing demand. RSM’s approach exemplifies this trend with what Dalvi describes as a ‘three-layer pyramid’: compliance at the base, performance improvement in the middle and full ESG integration at the top.
‘ESG is about being future-ready. Financial reporting is mostly about past performance,’ Dalvi emphasises. This forward-looking perspective is crucial for businesses seeking competitive advantage rather than mere compliance.
BDO Sri Lanka has embedded sustainability considerations into its regular audit processes while developing specialised teams. ‘We have a separate team that focuses on sustainability based on the global concept of net zero,’ explains Pathiraja.
Overcoming resistance
Despite growing momentum, firms report significant client resistance to ESG initiatives. ‘Often, clients see ESG initiatives as a cost centre rather than a long-term value driver,’ observes Salat. ‘Their main concerns tend to revolve around adaptability, clarity of outcome measurement, and whether the investment will yield tangible returns.’
The key to overcoming this resistance lies in demonstrating clear business benefits. As Salat explains: ‘I approach this by helping them look beyond the immediate spend to longer-term benefits – improved profitability, stronger shareholder value, and reduced risk.’
Looking forward
The future of ESG in South Asia appears increasingly bright, driven by regulatory momentum, investor pressure and growing business awareness. However, success will require continued collaboration between regulators, businesses and advisory firms to ensure frameworks remain practical and accessible, particularly for SMEs.
As Dalvi concludes: ‘We have the largest renewable energy solar plant installations in India. Farmers are given solar panels at subsidised rates so they become self-sustainable. Such schemes are very successful and demonstrate how sustainability can drive both social development and environmental progress.’
Indeed, the region’s unique circumstances – balancing poverty alleviation with environmental protection, social development with governance reform – may well provide a model for other developing regions facing similar challenges in their sustainability journeys.
