Green Banking or Greenwashing?

Ali Nawaz Rahimoo

Umarkot: The floods that struck Pakistan in 2011 and 2022 were not only humanitarian disasters; they were warnings of a changing climate reality. The destruction of homes, crops, roads, and livelihoods revealed how vulnerable the country’s economy is to extreme weather events.

The International Monetary Fund estimates that these climate disasters caused economic losses of around $58 billion, highlighting the urgent need for stronger resilience. As Pakistan faces increasing climate risks, one sector is undergoing a major transformation: the financial industry.

Green banking is emerging as a key tool in directing money toward projects that can help the country adapt to climate change while supporting sustainable economic growth.

For years, environmental concerns remained largely outside traditional banking decisions. However, the growing frequency of floods, heatwaves, droughts, and water shortages has forced financial institutions to rethink how they assess risk.

The State Bank of Pakistan has taken the lead in introducing reforms aimed at making the financial system more environmentally responsible.

The journey began with the Green Banking Guidelines in 2017, encouraging banks to consider environmental and social risks while making lending decisions. In 2022, the Environmental and Social Risk Management Manual provided banks with a clearer framework to evaluate projects, manage climate-related risks, and support sustainable investments.

The introduction of the Green Taxonomy in 2025 further strengthened this process by identifying which activities can be classified as environmentally sustainable, helping investors and financial institutions direct funds toward genuine green initiatives.

Pakistan’s banking sector is gradually moving beyond traditional lending models. Climate considerations are increasingly becoming part of financial planning and investment strategies.

According to the State Bank of Pakistan, all banks and financial institutions now have dedicated green banking officers. A large number of institutions have also introduced formal green banking policies covering areas such as environmental risk management, sustainable financing, and reducing their own carbon footprint.

Many banks have started integrating environmental and social assessments into their lending processes, ensuring that climate risks are considered before financing major projects.

This shift represents a major change in how financial decisions are made, with sustainability becoming an important factor rather than a secondary concern.

One of Pakistan’s most visible examples of green finance has been investment in renewable energy.

The Renewable Energy Refinance Scheme, launched in 2016, has helped expand clean energy projects by providing financial support for renewable power generation. By 2024, the initiative had supported thousands of projects and contributed significantly to renewable electricity capacity.

Solar energy, in particular, has gained attention as businesses, households, and agricultural communities look for alternatives amid rising energy costs and climate challenges.

The financial sector is also supporting new investment tools, including green bonds and sukuks, which allow organizations to raise funds for environmentally sustainable projects.

Pakistan’s first green sukuk marked an important milestone by demonstrating that climate-focused investments can attract significant financial support.

The transition toward green finance is not limited to large corporations and commercial banks. Microfinance institutions are also playing a role by supporting communities most affected by climate change.

Small loans are increasingly being used to help individuals adopt renewable energy solutions, purchase electric bikes, install solar home systems, and invest in climate-resilient farming technologies.

The insurance sector is also exploring ways to protect vulnerable communities through products such as crop insurance, helping farmers recover from losses caused by extreme weather events.

These efforts are important because climate change often affects low-income communities the most, making access to financial protection and adaptation tools essential.

The movement toward sustainability is also changing how financial institutions operate internally.

Many banks are reducing paper use, expanding digital banking services, and installing solar energy systems at their branches. Some have introduced measures to encourage customers to adopt environmentally friendly habits.

These changes show a growing understanding that sustainability is not only about protecting the environment but also about improving efficiency, reducing costs, and strengthening long-term business resilience.

Despite progress, Pakistan’s green finance journey is still in its early stages.

Building a climate-resilient economy will require stronger cooperation between government institutions, banks, investors, and communities. Greater access to climate data, improved technical capacity, and stronger investment frameworks will be essential.

The country also needs more financing for areas such as climate-smart agriculture, water management, resilient infrastructure, and disaster preparedness.

Public-private partnerships and innovative financing models can help reduce investment risks and encourage more private-sector participation.

Pakistan’s climate vulnerability is undeniable, but the growth of green finance offers a pathway toward a more resilient future.

From renewable energy projects and green bonds to community-level financing, the financial sector is beginning to play a larger role in addressing environmental challenges.

The transformation will not happen overnight, but the direction is clear. A sustainable economy will require continuous innovation, stronger policies, and long-term commitment.

Green banking is no longer just a concept discussed in policy circles, it is becoming a practical tool that can help Pakistan protect livelihoods, support economic growth, and prepare for a climate-challenged future.

The writer is a social development professional based in Umerkot Sindh. He can be contacted on anrahimoo@gmail.com. 

The article is the writer’s opinion, it may or may not adhere to the organization’s editorial policy.