The country is experiencing the devastating effects of climate change firsthand, from deadly floods to intense heatwaves. Despite contributing less than one per cent to global emissions, it ranks among the most climate-vulnerable countries, making the stakes higher than ever.

Addressing this crisis requires more than policy change and public awareness; it demands substantial, targeted funding, namely, Green finance — directing capital towards sustainable projects.

Green finance offers substantial economic and environmental benefits, mobilising resources for renewable energy, sustainable agriculture, and resilient infrastructure while attracting foreign investment to advance Pakistan’s development goals. It can help reduce emissions, preserve biodiversity, and enhance climate resilience. Initiatives like the Billion Tree Tsunami and Delta Blue Carbon Project restore carbon sinks and protect coastal areas.

The pressing question remains: how can Pakistan marshal the financial resources and private-sector commitment needed for a sustainable future? Government funds alone won’t suffice. With global development finance shrinking, private sector involvement could be transformative in driving impactful environmental solutions.

The country needs around $0.35 trillion from 2023 to 2030 to respond to climate challenges says World Bank

The government’s role lies in setting a strong policy framework and leveraging international climate finance, while the private sector can drive large-scale innovation and investment in green technologies. Major corporations, especially in high-emission sectors, can contribute by investing in cleaner energy, efficient processes, and circular business models.

According to the World Bank, the country needs around $0.35 trillion from 2023 to 2030 to respond to these challenges, with $0.15tr for adaptation and resilience and $0.19tr for decarbonisation efforts. However, in 2021, Pakistan’s climate efforts received only $4 billion, with over 80pc inflows from international sources. Local investment remains low, with domestic private sector contributions at just 5pc.

Moreover, the bulk of climate finance in Pakistan targets mitigation through renewable energy, leaving adaptation and resilience underfunded. Closing these gaps and boosting private-sector engagement is essential to meeting the country’s climate finance needs.

Despite challenges, Pakistan’s private sector holds significant potential to drive climate finance. Renewable energy projects, water conservation, and pollution control are examples of eco-friendly efforts that corporations could support by issuing green bonds —like those issued by the Water and Power Development Authority — aimed at investors prioritising environmental, social, and governance principles.

A carbon credit allows the holder to claim a reduction, removal, or avoidance of one tonne of carbon emissions. Through voluntary carbon markets, businesses can offset their emissions by purchasing these credits generated through verified emission-reducing or carbon-capturing initiatives. Countries like Brazil, Kenya, Indonesia, and India have effectively leveraged carbon credits to promote sustainable development and attract investment.

Pakistan has the Delta Blue Carbon Project for mangrove conservation, which has made strides in the global carbon market. Companies can invest in such projects, help local communities, offset their emissions, and trade these credits in global markets. The establishment of Verra Standards in Pakistan will help capture global carbon markets.

Flood barriers, sustainable agricultural systems, and renewable energy facilities are examples of climate-resilient infrastructure that private firms and the government can build together. Companies can lower their financial risks and contribute to assets that benefit communities and the environment through public-private partnerships. These investments are attractive, and tax breaks and concessional financing make them even more appealing, allowing businesses to achieve financial benefits in the long term.

For companies engaged in exports, adopting green practices in their supply chains — like minimising waste, reducing emissions, and sourcing sustainably — has become essential for accessing markets with stringent environmental standards.

As a major exporter to the European Union (EU), Pakistan faces both risks and opportunities under the Carbon Border Adjustment Mechanism (CBAM), which could impact its textile sector. The EU aims to combat carbon leakage by imposing a carbon price on imports from countries with less stringent climate policies. The CBAM is selectively applicable to nine products from 2026 but will be fully operational on all imports into the EU from 2030.

Compliance with the CBAM will help exporters improve industrial practices, enabling the country to compete globally by transforming our industries to low emissions standards through investment in cleaner production technologies.

Financial institutions have an opportunity to establish climate-focused funds that support local sustainable development initiatives and green startups. These funds generate financial returns and promote climate innovation by allocating resources to high-potential sectors such as sustainable agriculture, waste management, and renewable energy.

Pakistan can capitalise on its low greenhouse gas emissions to position itself as a sustainable climate partner in trade discussions with China. Enterprises can leverage China’s growing interest in sustainable goods by highlighting their products’ smaller carbon footprint, giving Pakistan an advantage in sectors like agriculture and textiles.

The private sector has the opportunity to negotiate lower tariffs, quicker customs processes, or green project joint partnerships. These measures complement China’s carbon intensity reduction goals and boost trade. Pakistan also has the potential to benefit from China’s emerging carbon markets by developing local carbon offset projects and selling credits to Chinese companies.

Key steps include establishing a robust emissions trading system, leveraging carbon markets to support Pakistan’s nationally determined contributions, transforming initiatives like the Ten Billion Tree Tsunami into tradable carbon credits for international markets, generating revenue, and providing cost-effective offsets.

The writer is the Secretary General and Chief Executive Officer of Overseas Investors Chambers of Commerce and Industry

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Published in Dawn, The Business and Finance Weekly, November 18th, 2024