Green Banking or Greenwashing?
Ali Nawaz Rahimoo
Umarkot: The devastating floods of 2011 and again in 2022 did far more than destroy infrastructure and livelihoods, they exposed a hard truth that climate change is no longer a distant risk but a present and recurring crisis.
According to estimates by the International Monetary Fund (IMF), these disasters have together inflicted an economic loss of around $58 billion on Pakistan. In response, the IMF approved $1.4 billion in May 2025 under its Resilience and Sustainability Facility, aimed at strengthening Pakistan’s capacity to withstand climate-related shocks.
Yet this support is not without expectations: Pakistan is now under pressure to demonstrate real, measurable progress toward building a climate-resilient economy.
At the center of this transition is the State Bank of Pakistan (SBP), which has taken on the role of driving the financial sector toward sustainability. Over the past several years, it has introduced a series of reforms designed to integrate environmental and social considerations into banking and investment decisions.
The 2017 Green Banking Guidelines first laid the foundation by encouraging financial institutions to incorporate environmental and social (E&S) risks into their operations. This was followed in 2022 by the Environmental and Social Risk Management Manual, which provided structured tools for risk classification, internal environmental monitoring, and the expansion of lending toward green sectors.
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More recently, the draft Green Taxonomy introduced in 2025 has added much-needed clarity by defining which activities qualify as “green,” helping direct capital more effectively toward sustainable investments.
On paper, progress is increasingly visible. The SBP reports that all banks and financial institutions now have dedicated green banking officers in place.
A significant majority [79 per cent] have adopted formal green banking policies focused on risk management, green business development, and reducing internal emissions.
Meanwhile, 69 per cent have incorporated E&S risk assessments into their credit evaluation processes, signaling that climate considerations are gradually being embedded into mainstream lending decisions rather than treated as peripheral concerns.
One of the most effective instruments in this evolving landscape has been the Renewable Energy Refinance Scheme, launched in 2016.
By 2024, it had disbursed Rs94.7 billion, supported more than 4,500 renewable energy projects, and contributed to the generation of 2,061 megawatts of clean electricity.
Building on this momentum, the SBP is also enabling the development of green bonds and sukuks, offering credit enhancements and aligning eligibility with the emerging national Green Taxonomy.
A notable milestone in this direction has been Pakistan’s first green sukuk worth Rs30 billion, which marked an important step in mobilizing capital for sustainable development.
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Importantly, this shift is no longer confined to large-scale commercial banking. Microfinance institutions are increasingly participating in climate-linked financing by offering microloans for electric bikes, solar home systems, and climate-resilient agricultural technologies.
At the same time, the insurance sector is beginning to respond to climate vulnerability through innovative crop insurance products aimed at protecting farmers from weather-related losses.
The non-banking financial sector, regulated by the Securities and Exchange Commission of Pakistan (SECP), is also contributing to this momentum.
Institutions such as InfraZamin and Kashf Foundation have issued a Rs2.5 billion bond to support women-led infrastructure projects, rural education, and small businesses. Similarly, Parwaaz Financial Services has launched a Rs1 billion green bond focused on renewable energy, sustainable agriculture, energy efficiency, clean transport, and pollution control.
Banks themselves are also slowly transforming from within.
Many are shifting toward paperless operations, expanding digital banking services, and installing solar systems in branches. Some are even introducing behavioural incentives, such as charging fees for printed ATM receipts, to encourage more environmentally conscious customer behaviour. These changes reflect a broader realization that sustainability is no longer a reputational add-on but a core requirement for long-term resilience and competitiveness.
Looking ahead, the planned adoption of Pakistan’s National Green Taxonomy is expected to bring greater coherence and credibility to the green finance ecosystem.
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By standardizing what qualifies as green investment, it will help improve transparency and investor confidence. However, scaling up climate resilience will require far more than regulatory alignment.
It demands stronger public-private collaboration, especially in areas such as resilient infrastructure, early warning systems, and sustainable water and agricultural management.
Pakistan’s recent solar energy expansion demonstrates what is possible when policy and market incentives align.
The next step is to build on this momentum through blended finance models that combine public funding with private capital to reduce investment risk and scale climate solutions. Equally important is the need to improve access to climate risk data, strengthen institutional capacity, and develop practical tools that enable financial institutions and businesses to act effectively on adaptation strategies.
Ultimately, green banking in Pakistan is no longer an abstract policy ambition, it is gradually becoming embedded within the financial system itself. From large renewable energy investments to small-scale microloans, the direction of travel is clear.
Yet the transition remains incomplete and fragile. Sustained commitment, stronger coordination, and continuous innovation will be essential if Pakistan is to turn climate vulnerability into an opportunity for inclusive and sustainable growth.
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.
