Pakistan is ranked as the fifth most vulnerable country globally and stands at a critical juncture in its fight against climate change. Extreme weather patterns are rapidly increasing, and the 2022 floods, which displaced over 33 million people, submerged one-third of the country, destroyed two million homes, and caused $15.2 billion in economic losses, serve as a reminder of the disasters that lie ahead.
GREEN FINANCING
Pakistan is ranked as the fifth most vulnerable country globally and stands at a critical juncture in its fight against climate change. Extreme weather patterns are rapidly increasing, and the 2022 floods, which displaced over 33 million people, submerged one-third of the country, destroyed two million homes, and caused $15.2 billion in economic losses, serve as a reminder of the disasters that lie ahead.
Experts agree that human-induced factors, including rapid urbanisation, deforestation and excessive industrial and vehicular emissions, have exacerbated Pakistan's climate vulnerability. Despite contributing less than one per cent to global carbon emissions, Pakistan disproportionately bears the consequences of climate change.
However, mitigation and adaptation efforts can still limit Pakistan's worst climate change effects. Pakistan’s energy and resource challenges highlight the urgent need for businesses to adopt climate-smart solutions. With immediate action and targeted investments, the country can transition from vulnerability to resilience through green financing.
The recent COP29 summit in Baku set the stage for this transformation. World leaders pledged to triple annual climate finance for developing nations to $300 billion by 2035 — a lifeline for vulnerable economies like Pakistan. However, current climate finance flows remain inadequate, with only $4 billion invested in climate-related activities in 2021; the World Bank estimates a financial requirement of $348 billion by 2030 to achieve Pakistan’s climate-resilient and low-carbon development goals.
Pakistan must seize this opportunity to channel resources toward green growth, starting with SMEs, which contribute 40 per cent to GDP and employ 80 per cent of the non-agricultural workforce. However, limited financing, technical capacity and awareness hinder their adoption of sustainable practices. Financial institutions view green projects as high-risk, and the regulatory framework remains weak.
While the State Bank of Pakistan introduced Green Banking Guidelines in 2017, serious efforts have been lacking. Recently, the SBP launched a Green Taxonomy Framework to classify green projects, aiming to boost investor confidence and drive financing. However, more decisive policy action and financial sector engagement are essential to accelerate Pakistan’s transition to a low-carbon economy.
Green financing empowers SMEs to drive climate adaptation and mitigation through innovative solutions. By 2026, climate adaptation could present a $2 trillion annual economic opportunity, with nearly two-thirds of global adaptation finance directed toward developing countries, positioning them as the primary hubs for investment.
Pakistani SMEs can leverage this funding to scale innovations that address environmental risks while unlocking new markets. Many businesses are advancing sustainable infrastructure, climate-smart agriculture and innovative water management. With green financing, these solutions can expand across industries, strengthening climate resilience and accelerating Pakistan’s transition to a sustainable economy.
Pakistan’s climate-resilient and low-carbon future hinges on integrating sustainability across all levels of the economy. While large-scale infrastructure projects are vital, SMES are equally crucial in meeting emissions reduction targets, driving green innovation and ensuring resources. Bridging the $348 billion climate finance gap requires efficient allocation of resources, particularly in areas where the private sector can drive change. By demonstrating scalable green business models, SMEs can create pathways for greater international funding, accelerating the transition to a low-carbon economy.
Recognising SMEs' role in climate action, Karandaaz Pakistan launched the GreenFin Innovations (GFI) initiative to support early-stage green solutions and climate change efforts in Pakistan. The programme provides up to Rs50 million per business in concessional growth capital and business planning support and has so far committed Rs388 million to 11 scalable green solutions. GFI’s success emphasises concessional financing’s role in scaling green innovation. Karandaaz, through its subsidiary Parwaaz Financial Services Limited, also issued Pakistan’s first private-sector Green Bond, mobilising private capital for renewable energy, sustainable agriculture and clean transportation -- a milestone in expanding climate-linked financial instruments in the country.
Several SMEs showcase the transformative potential of green financing. Supported by GFI, Concept Loop has redirected 420 tonnes of multi-layer plastic (MLP) from landfills, processing 320 tonnes into durable pavers for roads and public spaces, avoiding 1,100 tonnes of CO emissions. MyWater, with Rs50 million in growth capital from GFI, has dispensed 64 million litres of clean water, eliminating 128 million plastic bottles and preventing 323 million kg of CO2 emissions.
In agriculture, NRSP’s solar-powered irrigation systems now support 300 farmers in Punjab, cutting CO2 emissions by 130 tonnes annually. Meanwhile, Davaam, a refill station startup, has repurposed 13,910 plastic bottles and prevented 1,504 kg of CO2 emissions, scaling operations with early-stage concessional funding from Karandaaz.
These successes highlight how scaling SME-driven green solutions can attract larger pools of climate finance. By showcasing viable and scalable models, Pakistani businesses can position themselves as investment-ready, securing domestic and international climate funds. At the same time, shrinking foreign aid for climate projects underscores the urgency for Pakistan to scale up private-sector investments in green solutions. This shift secures investors' sustainable returns and strengthens businesses' contributions to national climate goals.
With the EU’s Carbon Border Adjustment Mechanism (CBAM) set to impose carbon tariffs on exports from high-emission countries by 2026, Pakistan faces a narrowing window to align with global environmental standards or risk trade penalties. Aligning with global environmental standards through green financing will ensure access to key markets and future-proof Pakistan’s economy against climate risks.
Awareness campaigns targeting SMEs can bridge the knowledge gap, while public-private partnerships can foster investments in infrastructure. Policymakers must advocate for increased allocations from international climate funds and ensure resources are directed to scalable, high-impact projects.
SMEs hold the key to Pakistan’s green transition. Strategic investments in their climate innovations can unlock new markets, create jobs, and position Pakistan as a leader in sustainable development. With global commitments from COP29 and the fast-approaching CBAM deadline, immediate action is critical to meet environmental targets and ensure economic resilience in a rapidly evolving global economy.
Komal Khalid Siddiqui is a marketing and communications technical assistant at Karandaaz Pakistan.
Asra Malik is an analyst for innovation investments at Karandaaz Pakistan.
