In 2023, global clean energy investment soared to an unprecedented $1.8 trillion, but this record figure masks a deeper imbalance. While advanced economies continue to dominate with private capital and policy coherence, emerging markets (except China) remain stagnant, drawing a meagre $260 billion annually.
CLIMATE FINANCING
In 2023, global clean energy investment soared to an unprecedented $1.8 trillion, but this record figure masks a deeper imbalance. While advanced economies continue to dominate with private capital and policy coherence, emerging markets (except China) remain stagnant, drawing a meagre $260 billion annually.
Over the past 14 years, Pakistan secured $4.6 billion in renewable investments, but economic instability, high interest rates, and currency volatility have derailed momentum, stalling projects worth $911 million. For countries like Pakistan, where climate vulnerability is high and fiscal headroom is thin, this is not just a funding gap; it is a development trap.
Despite ranking as the third most polluted and eighth most climate-vulnerable country, with rising poverty, falling life expectancy and projected climate-related losses of $1.2 trillion by 2050, Pakistan remains critically under-resourced. According to Renewable First’s latest report, climate tech investment is still nascent: venture capital funding totalled just $42.5 million in 2024, 0.01 per cent venture penetration, with a 0.74 per cent funding gap relative to startup needs. Meanwhile, climate investment needs are estimated at $348 billion by 2030, with only 14 per cent likely to be met through current financing channels, leaving a fivefold gap in adaptation finance and a sixteen-fold shortfall for mitigation.
Amid institutional paralysis, the Pakistani public has begun writing its own energy script. The import of 21 GW worth of solar panels between mid-2023 and early 2025 signals a grassroots transition underway. These panels, mostly Chinese-made, could theoretically power half the country. Unlike other Global South economies, this solar surge is not state-led or donor-financed, but rather a result of soaring tariffs and erratic power supply.
This bottom-up transition is equally visible on the roads. With 30 million motorcycles nationwide, startups like Zyp Technologies are catalysing an electric two-wheeler revolution. Their battery-swappable bikes drastically cut costs for urban riders, offering a lifeline amid inflationary fuel prices. But these promising trends are not supported by the financial ecosystem in the way they should be.
Further, climate tech globally has faced a correction; investment fell by 40 per cent in 2024 to around $51 billion, down from its 2023 peak of $84 billion. The decline in reflects waning investor interest amid economic uncertainty and slower returns in the sector. Rising interest rates, fewer exits, and investor fatigue around ‘greenwashed’ products have led to more selective funding. In Pakistan, the impact is magnified. Climate ventures attracted just 2–3 per cent of total startup funding between 2019 and 2023, compared to 6–10 per cent globally. Even now, the country’s first dedicated climate tech venture fund – Climaventures -- has raised just $15 million of its targeted $40 million, albeit with GCF support.
What further complicates matters is the dearth of tailored support. Nearly 80 per cent of incubated climate ventures are housed in National Incubation Centers (NICs), which lack sector-specific programming. With no homegrown success stories and few technical experts, the startup pipeline remains thin. Moreover, capital-intensive verticals like distributed solar, EV manufacturing, and waste-to-energy systems require patient capital that the current venture market -- geared towards quick exits -- is ill-equipped to provide.
Pakistan’s youth bulge and its 100+ million mobile broadband users create fertile ground for digital innovation. This potential materialised when startup funding jumped from $10 million annually in 2016–2018 to over $350 million in 2021 and 2022. Much of that capital, however, went to e-commerce and fintech, not climate tech.
The reasons are manifold. Climate ventures face longer gestation periods due to tech-heavy solutions, import dependencies, and dynamic regulatory hurdles. Licensing delays and limited local manufacturing mean even promising ideas can take 2–3 years to reach market readiness. Add to this the absence of consumer financing for products like EVs -- 90 per cent of banks abstain from such lending -- and you have a vicious cycle of low demand and low supply.
While capital, policy and technology remain skewed towards advanced economies, Pakistan cannot afford to sit on the sidelines. With its unique bottom-up solar boom and growing EV experimentation, the country has the raw ingredients for a successful climate venture ecosystem
Even with consumer demand, many founders must build markets from scratch due to limited data and precedents, balancing product development with consumer education. They are not just entrepreneurs but ecosystem architects.
On paper, Pakistan’s government has developed solid climate policies and institutions, mobilised over $300 million from the GCF, secured a $1.4 billion IMF climate loan, and committed to a $20 billion World Bank programme. However, fragmented ownership, poor fund utilization and weak coordination hinder implementation. The private sector struggles with complex incentives, slow approvals and conflicting priorities, limiting effective participation in climate action and green growth.
There is also a significant breakdown in communication. Public-private dialogue on climate issues remains minimal, and startups are rarely consulted during policy design. This disconnect isolates innovation from implementation, hindering progress on both fronts. Even international partners find it difficult to align their support without clear frameworks effectively. Notably, to meet Pakistan’s climate finance requirements -- estimated at $348 billion between 2023 and 2030, equivalent to 10 per cent of GDP -- approximately 84 per cent of the necessary funding will need to come from international sources, primarily development institutions, rather than the domestic private sector.
Four things must happen to unlock climate tech in Pakistan. First, financing architecture must evolve. Blended finance models, that is combining concessional capital with private equity, can help de-risk investments in climate verticals. Green credit guarantee schemes, public co-investments, and patient capital pools are essential to scale risky but vital innovations. Innovative instruments like securitisation and currency hedging are critical, with LCOEs rising by over 100 per cent without concessional lending. Leveraging Pakistan’s Rs4 trillion non-bank finance sector and scaling proven models like GCF-backed first-loss structures could unlock capital at lower return expectations, reigniting investor confidence and enabling the country’s clean energy transition. Without swift action, the climate finance gap will remain a barrier to resilience and inclusive growth.
Second, policy implementation needs to catch up with ambition. A single climate action taskforce with representation from federal and provincial governments, the private sector, and climate financiers could help align efforts, track progress, and crowd in investment. Regulatory clarity and standardisation especially for EVs, solar rooftops and carbon markets should be a top priority.
Third, to strengthen Pakistan’s startup ecosystem, particularly in emerging sectors like climate tech, there is an urgent need to invest in foundational education and infrastructure. Over a third of children in Pakistan are out of school, with 36 per cent in primary, 30 per cent in middle, 44 per cent in high school, and 60 per cent in higher secondary levels. Punjab (11.73m) and Sindh (7.63m) have the highest numbers of out-of-school children, followed by KP (3.63m) and Balochistan (3.13m), while ICT reports the lowest at 0.08m. As a result, the future talent pipeline for startups is severely constrained.
Startups need a workforce that is literate, digitally skilled, and innovation-ready. Bridging gender gaps, improving school infrastructure, and integrating STEM and entrepreneurship early are key. Startup support programmes must evolve, offering domain-specific mentorship, technical guidance and tailored market access, especially for climate ventures. The government can boost this by partnering with multilateral agencies to fund specialised programmes and align climate diplomacy with local innovation.
To build climate resilience, Pakistan must scale private sector engagement, which currently contributes just 0.5 per cent of GDP to climate initiatives. Reaching 2030 targets -- 50 per cent emissions reduction, 60 per cent renewable energy, 30 per cent EV adoption -- requires robust public-private partnerships. Expanding renewables could create over 327,000 jobs by 2030. Climate-smart agriculture is also critical, with 40 per cent of the workforce reliant on a sector threatened by drought and water scarcity. Instruments like the National Climate Finance Strategy, carbon markets and $15 million in startup funding from the Green Climate Fund can drive innovation.
The world is undergoing a green transformation. While capital, policy and technology remain skewed towards advanced economies, Pakistan cannot afford to sit on the sidelines. With its unique bottom-up solar boom and growing EV experimentation, the country has the raw ingredients for a successful climate venture ecosystem. But it needs a nurturing environment, one where policy, finance, and innovation align.
The climate crisis is not just an environmental issue. It is a development challenge, an economic imperative and a test of governance. Pakistan must treat it as such -- with tangible action that unlocks the full potential of its people and ideas.
Furqan Ali is a Peshawar-based researcher who works in the financial sector.
Arfa Ijaz is an environmental engineer and a research assistant at the Sustainable Development Policy Institute (SDPI),Islamabad.
