Green Finance Systems in Pakistan No One Knows About
On paper Pakistan’s green finance system is eight years in the making. In practice, it has moved less than a billion dollars. The policies exist. So where’s the implementation?
The Frameworks Are Real
Since 2017, the State Bank of Pakistan has rolled out four frameworks in sequence: Green Banking Guidelines, an Environmental, Social Risk Management (ESRM) framework built with the International Finance Corporation (IFC), and in December 2025, a national Green Taxonomy that gives banks and investors a single, science-based definition of what actually counts as “green”.
That same month, the State Bank did not stop at taxonomy, it also directed all banks and Development Finance Institutions (DFI’s) to use the taxonomy when writing or updating their own green banking policies, issued a new Regulatory Framework for Climate-related Financial Risks, and rolled out Guidelines on Climate Stress Testing requiring banks to run climate shock scenarios against their own portfolios.
Three steps taken altogether was a real shift toward procedural requirement, not just a reference document sitting on a shelf. But the main thing, capital allocation, is still left entirely up to each institution. The taxonomy tells banks what ‘green’ means, but not that they have to fund it.
Money Hasn’t Followed Policy
Since 2021, only three instruments have been put in place: a $500 million WAPDA Eurobond, a PKR 30 billion sovereign green bond in 2025, and a Rs. 1 billion private placement by a single company; nearly all of them are directed almost entirely toward hydropower and dam construction. A few other companies have started the process, but the broader corporate pipeline hasn’t developed at scale. Adding it all up, Pakistan has issued somewhere between $600 and $700 million in green bonds and Sukuk, total, across eight years.
The scale of the gap is what exemplifies the issue, Pakistan needs an estimated $47 billion a year in climate finance through 2030. A figure that lines up with a broader financing gap of roughly $348 billion by 2030. Against that, the country has been receiving somewhere between $1.4 and $2 billion a year, and even that fraction comes with strings attached. In total 80% of the climate finance Pakistan receives arrives as loans, not grants. Of every Rs. 100 collected in climate-linked taxes, Rs. 89.4 goes straight to the general treasury rather than climate programmes. And over 30 years, Pakistan has accessed less than $1 billion combined from the Global Environment Facility (GEF), Adaptation Fund, and Green Climate Fund.
The comparison with other South Asian neighbours makes the shortfall harder to understand. As of 2025, Pakistan has secured roughly $331.7 million from the Green Climate Fund for 11 projects, while India secured $1 billion for 15, and Bangladesh $464.3 million for 10, despite Pakistan ranking among the world’s most climate-vulnerable nations by any measure.
The Gaps That Remain
In the same fiscal year Pakistan tagged its first climate-labeled federal budget done under IMF supervision. Yet, even with that framework in place the country taxed solar panels and hybrid EVs alongside a new carbon levy on fossil fuels, working against the very transition the budget claims to fund.
The money that exists is also aimed narrowly. All three instruments issued so far have gone toward hydropower and dams, while entire categories of climate risk have no dedicated instrument at all. Flood resilience, early warning systems, and urban heat don’t have one. Even though disaster risk management and urban resilience are already named as priority sectors within the taxonomy itself, the recognition hasn’t turned into an instrument yet. Neither does energy efficiency, despite an estimated $18 billion investment opportunity by 2030 with paybacks typically under five years is just sitting untouched.
At the same time, it is important to recognise that the reforms do not eliminate the benefits of rooftop solar altogether. Consumers can still substantially reduce their electricity bills by using the electricity they generate during daylight hours. Greater emphasis on self-consumption may encourage households to adopt battery storage systems and adjust electricity usage patterns to maximise savings. Although exporting electricity has become less profitable, producing and consuming one’s own electricity remains economically beneficial, particularly as retail electricity tariffs continue to rise.
What Needs to Change
None of this is unfixable though, and the taxonomy itself isn’t a problem, it is a real foundation that exists but hasn’t been built. Turning that framework, the taxonomy, available into something that has to be followed is the next important step: binding disclosure requirements, not just a reference document banks can consult if they choose to.
The instruments need to widen, too. The hydropower and dams have absorbed every dollar issued so far, while flood resilience, early warning systems, and urban heat, a few big risks that Pakistan lives with still do not have a bond or a Sukkuk built for them. The way our money goes needs to also change. Domestically, that Rs. 89.4 of every 100 needs to start flowing toward climate programmes instead of the general treasury, and tax policy needs to stop working against the transition it claims to support Internationally, a country already managing real fiscal pressure shouldn’t be borrowing its way into climate resilience; approval with funds like the GCF, the Adaptation Fund, and the Fund for responding to Loss and Damage needs to become a real priority, not an afterthought.
The frameworks took eight years to build. What happens in the next one will decide whether they were ever more than paperwork.
References
(1) State Bank of Pakistan (SBP), Pakistan Green Taxonomy Circular (SH&SFD Circular No. 06 of 2025), December 2025.
(2) State Bank of Pakistan (SBP), Regulatory Framework for Effective Management of Climate-related Financial Risks (SH&SFD Circular No. 07 of 2025), December 2025.
(3) State Bank of Pakistan (SBP), Guidelines on Climate Stress Testing (FSD Circular No. 01 of 2025), December 2025.
(4) Pakistan Today (Profit), “SBP directs banks to adopt Pakistan Green Taxonomy for sustainable financing,” December 11, 2025.
(5) Mian Ahmad Naeem Salik, “Pakistan’s National Green Taxonomy: Framework and Integration,” Institute of Strategic Studies Islamabad (ISSI), Issue Brief, March 24, 2025.
(6) Namra Saleem, “Bridging the Climate Finance Gap: Pakistan’s Evolving Landscape & the Road Ahead,” Discourse 2025, Policy Research & Advisory Council (PRAC), Karachi, 2025.