- Tuesday | 28 Feb, 2023
- Hina Aslam, Ubaid ur Rehman Zia, Zainab Zahid
- Policy Briefs/Papers
Climate finance is imperative to meet Pakistan’s adaptation and mitigation needs in line with the Nationally Determined Contributions (NDCs). Enabling these investments and flow of capital from public, private and financing institutions require efficiently deployed market-based financing mechanisms such as green bonds. Currently, the green bond market in Pakistan is critically underdeveloped. This study addresses the significant knowledge gap in analyzing the challenges and potential way forward for them to support Pakistan’s low carbon development. It involves an extensive desk review supported by consultative discussions conducted with key stakeholders, i.e. public sector, development partners, financing institutions, corporations, and international experts. The study indicates that the challenges for an un-developed state of green bonds in Pakistan lies in i) limited number of bankable climate change projects, ii) inability to define what is “Green” due to varying international taxonomies, iii) limited capacity and awareness, iv) time and cost overruns in the projects, and v) unfriendly regulatory environment for local financing institutions. Therefore, to upscale climate finance, Pakistan must define its sector-wide taxonomies on what is considered “Green”, and then develop a “sustainability financing framework” that could allow the government to issue green bonds. For reducing the existing knowledge gap, a well-coordinated effort would be required by all stakeholders to come up with capacity building and dissemination workshops, develop local standards and reporting templates, and provide support in open-source solutions for quantifying the impacts. To increase market competitiveness of green bonds, the State Bank of Pakistan (SBP) can allow local banks and other financial institutions policy preferences such as in calculation mechanism of their loan-deposit ratio.