Research Paper

Climate Finance For Pakistan: what and

how.?
Dr Aneel Salman
Maryam Ayub

April 2024

KSBL-IPRI Chair Economic Security

 Climate Finance Potential for Pakistan

Executive Summary
Existing international climate finance is insufficient to meet Pakistan's mitigation and
adaptation needs defined in its Nationally Determined Contributions (NDC). To bridge this
gap, Pakistan requires innovative financing solutions, such as concessional finance instruments
like green bonds, debt-for-climate swaps, nature performance bonds, and carbon pricing
instruments. Utilising these instruments can mobilise green finance to achieve NDC targets.
Collaboration with the private sector, particularly in the banking and industrial sectors, is
essential to increase financial flow for climate initiatives. Moreover, vulnerable populations,
especially women and children, require support through green finance for food and water
security. Implementation strategies should focus on political stability, local governance
reforms, public-private partnerships, and enhancing international cooperation to attract climate
finance.
 DEFINITIONS

Climate Finance: Financial resources and instruments that are used to support action on
climate change.

Climate Security: Evaluating, managing and reducing the risk to peace and stability brought
on by the climate crisis.

Mitigation: Climate Change mitigation refers to any action taken by governments, businesses,
or people to reduce or prevent greenhouse gas emissions, or to enhance carbon sinks that
remove these gases from the atmosphere.

Adaptation: Climate change adaptation refers to actions that help reduce vulnerability to the
current or expected impacts of climate change like weather extremes and natural disasters, sea-
level rise, biodiversity loss or food and water insecurity.

Resilience: Climate resilience is the capacity of a community or environment to anticipate and

manage climate impacts, minimize their damage, and recover and transform as needed after the
initial shock.

COP: The annual United Nations conference dedicated to climate change, called the
“Conference of Parties” or “COP” has been organised under the UN Framework Convention
on Climate Change (UNFCCC) since 1995.

Green House Gases: Gases that trap heat from the sun in our planet’s atmosphere, keeping it
warm.

IPCC: The Intergovernmental Panel on Climate Change (IPCC) is an independent body

founded under the auspices of the World Meteorological Organisation (WMO) and the United
Nations Environment Programme (UNEP).

Nationally Determined Contributions: Nationally Determined Contributions (NDCs) are

climate pledges and action plans that each country is required to develop in line with the Paris
Agreement goal of limiting global warming to 1.5oC.

The Paris Agreement: the Paris Agreement is a legally binding international treaty aiming to
limit global warming to well below 2oC, preferably to 1.5oC, compared to the pre-industrial
level.
 “Humanity's actions are scorching the earth. 2023 was a mere preview of the catastrophic
future that awaits if we don’t act now. We must respond to record-breaking temperature rises
with path-breaking action. We can still avoid the worst of climate catastrophes. But only if
we act now with the ambition required to limit the rise in global temperature to 1.5 degrees
Celsius and deliver climate justice” (UN Secretary-General Antonio Guterres 12 Jan 2024)

Climate Change and its Impact

United Nations Framework Convention on Climate Change (UNFCCC) defines climate change
as “a change of climate which is attributed directly or indirectly to human activity that alters
the composition of the global atmosphere and which is in addition to natural climate variability
observed over comparable time”1. Climate refers to the average weather conditions in a
particular area. Climate change is the most dominating issue in today’s world. Since the earth’s
climate has been changing continuously, over the last 800,000 years, there have been 8 cycles
of ice ages and warmer weather conditions2. Fluctuations in land and ocean temperature beyond
the natural levels, aberrant trends in seasons, and unexpected rainfall patterns are reported
globally. The average temperature on Earth is associated with the concentration of greenhouse
gases. Since the industrial revolution, global temperature has been rising continuously with
increasing GHG emissions that constitute about two-thirds of carbon dioxide which is resultant
of burning fossil fuels3.

1
https://unfccc.int/resource/ccsites/
2
https://climate.nasa.gov/evidence/
3
https://www.unep.org/facts-about-climate-emergency
 Figure 1: Global mean temperature from 1855-2023
Source: WMO, 20234
The above figure shows the global mean temperature from 1860-2023. In 2019, the World
Meteorological Organisation reported that the average temperature around the globe is 1.1
degrees Celsius. The result of 1.1 degrees could be seen in increasing heatwaves, droughts,
winter storms, flooding, hurricanes, and wildfires5. In 1938, a scientist named Guy Callendar
first discovered that the temperature of planet Earth was getting warmer6. He argued that
industry carbon dioxide (CO2) emissions are responsible for global warming. The United
Nations Intergovernmental Panel on Climate Change (IPCC) prepare an assessment report that
provides updates about the science behind changing climate, as well as information about its
socio-economic impacts, feasible adaptation plans and mitigation options. IPCC assessment
report on climate change developed the link between human activities and climate change. The
following table presents the key findings of all these reports.

4
World Meteorological Report,2023; https://wmo.int/publication-series/provisional-state-of-global-climate-2023
5
https://www.unep.org/facts-about-climate-emergency
6
https://www.discover.ukri.org/a-brief-history-of-climate-change-discoveries/index.html
 Table 1: IPCC Assessment Reports

Year Reports Key Findings

st
1990 1 The concentration of GHGs including carbon dioxide, nitrous oxide,
Assessment methane and Chlorofluorocarbons (CFCs) are increasing significantly as
Report a result of human activities.
1992 2nd Two significant developments regarding the earth’s climate and humans
Assessment are (I) the concentration of GHGs, burning of fossil fuels and agriculture
Report making the temperature warmer and (ii) Human societies are becoming
vulnerable to climate hazards.
2001 3rd
Over the last 50 years, the warming of the earth’s temperature has been
Assessment attributed to human activities.
Report
2007 4th There is a medium level of confidence that the effects of regional climate
Assessment change on natural and human environments are showing up.
Report
2014 5th Human influence on climate change is evident. Current levels of GHGs
Assessment are the highest in history.
Report
2023 6th Without any doubt, human activity, mainly the release of GHGs is the
Assessment primary driver of global warming. There has been a persistent rise in
Report GHGs worldwide.
Source: IPCC7

Understanding how human activities are impacting the environment is critical for addressing
this issue. To lessen the impact of global warming Demark, Chile and Sweden developed
frameworks, laws and policies to adapt to the changing climate in their own countries also
providing support to the developing world. These three countries are leading in climate action8.
According to IPCC projections, there might be an increase in mean global temperature from
1.4 to 5.8o by the end of the 21st century. This increasingly warm weather has affected crop
production, the hydrological system, sea level, and ecosystems and is expected to get worse in
the coming years. More than 30% of the world's population bears lethal heat waves for almost
20 days every year. World Metrological Organisation reported 2019 as the second hottest year
and 2023 was reported as the hottest year globally by a huge margin. There were 240 natural
calamities reported around the world in 2023 including wildfires, floods, earthquakes, cyclones
and storms. Sea surface temperatures were extraordinarily high for most of the months, coupled
with intense maritime heatwaves. Levels of sea ice in the Antarctic were the lowest ever
recorded, minimum in February and a maximum in September9. The realisation of climate
change is the most alarming global challenge humanity is facing, everyone’s future is at stake,
but not equally. The impact of climate change has been severe for tropical countries, which

7
https://www.ipcc.ch/reports/
8
https://earth.org/countries-climate-policy/
9
https://wmo.int/news/media-centre/climate-change-indicators-reached-record-levels-2023-wmo
 mainly constitute developing countries. Developing countries with poverty and scarce
resources are the most vulnerable to changing climate conditions as compared to the developed
world with stronger adaptability capacity. Asia is considered to be one of the most vulnerable
regions to changing climate conditions due to its unique features including population,
geographical location, GHG emissions and economic structure from 2021 to 2022 weather
calamities ranging from China to Pakistan demonstrated the increasing impact of climate
change in Asia10. In Asia, freshwater availability is in a crucial position as it is projected to
decline and will brutally impact more than a billion people by the year 205011.

Impact of Climate Change on South Asia

For South Asian regions climate change is the most pressing issue at hand, as their economies
and societies are the most affected by climate change so far. These countries are heavily
populated with masses living along the coastal areas, depending majorly on fisheries and
agriculture for livelihood putting them at high risk. Most of these countries have witnessed a
sharp decline in crop production as a consequence of rising temperatures and climate-related
diseases were also recorded in some countries. The table above presents climate risk for South
Asian countries.

Table 2: Climate Risk for South Asian Countries12

Afghanistan Bangladesh Bhutan India Nepal Pakistan Maldives Sri

Lanka

Sea-level rise
- High - Modest - Modest High High
Glacier
retreat High High High High High High - -
Temperatur
e increase - High High High High High Modest High
Floods more
frequent - - Likely High High Likely High -
Droughts
more Likely High in - High - Likely -
frequent some areas
Source: M., Zia (2011)

10
https://credendo.com/en/knowledge-hub/asia-climate-risks-are-top-vulnerability-asia
11
Mustafa, Zia. "Climate change and its impact with special focus in Pakistan." In Pakistan Engineering Congress,
Symposium, vol. 33, p. 290. Lahore, 2011.
12
Mustafa, Zia. "Climate change and its impact with special focus in Pakistan." In Pakistan Engineering Congress,
Symposium, vol. 33, p. 290. Lahore, 2011.
 Table 3: Climate Security Index of South Asian countries13
Countries Ranking Values
Bangladesh 1st 0.871
Afghanistan 2nd 0.868
Pakistan 3rd 0.865
India 4th 0.840
Maldives 5th 0.837
Bhutan 6th 0.833
Sri Lanka 7th 0.809
Nepal 8th 0.51
Source: S., Aneel & A., Sheraz (2024)

The climate security index for South Asian countries is given in Table 3. South Asian region
is also vulnerable to Climate security. Bangladesh is the most vulnerable while Nepal lies at
the end with a value of 0.51. Pakistan is ranked in third position with a value of 0.865. It implies
that despite being an insignificant emitter of GHGs with only 0.9%, Pakistan is highly exposed
to the effects of global emissions.

Climate Change in Pakistan

Pakistan, a land of natural resources, fertile land, gas reserves, and mineral deposits is ranked
on the global climate index as 5th most vulnerable country to climate risks14. This indicates that
the country will continue to witness climate calamities like the disastrous floods in 2022. The
devastating floods of 2022 affected 33 million people and 8 million were displaced. 1,700
people lost their lives out of which one-third were children. The total flood damage to
agriculture, livestock and fisheries sectors totalled PKR 800 billion ($3.7 billion)15. The Floods
of 2022 were caused by multiple reasons including high precipitation, melting of glaciers, and
development of an intense low-pressure system over the land area due to heatwaves in May
and June16.

Although the country contributes to only 0.9% of global carbon emissions but still floods and
droughts have become regular for the country coupled with changes in agricultural patterns,
limited access to fresh water, and loss of biodiversity. Major contributions of GHG emissions
are energy, agriculture (37%), Transportation (9%), Industry (5%), Land use, Land use change

13
Salman, A (2024). “Climate Security Index: Analysing South Asia’s Climate Resilience,” n.d.,
https://ipripak.org/climate-security-index-analysing-south-asias-climate-resilience/.
14
https://www.germanwatch.org/sites/default/files/
15
https://www.undp.org/pakistan/publications/pakistan-floods-2022-post-disaster-needs-assessment-pdna
16
Mallapaty, Smriti. "Why are Pakistan’s floods so extreme this year." Nature 16 (2022).
 17
and forestry (5%) and water disposal (4%). The annual mean temperature of Pakistan over
the past 50 years increased to 0.5o and is expected to increase by 3oC – 5oC with the existing
global emission, and even higher with high global carbon emissions by the end of the century.
39% of Pakistan’s population lives in poverty and loss of livelihood by floods and droughts
have added to the difficulties. Women and children are prone to malnutrition due to damaged
livelihoods, especially in rural areas of Punjab and Sindh. The figure below shows the average
vulnerability to climate change by provinces with Punjab being the most vulnerable province.
However, the most affected district by climate change is Chitral and Lahore is the least
affected18.

Figure 2: Average Ranking of Vulnerability by Provinces19

Source: R., Arif & S., Aneel (2013)
Pakistan has made significant contributions to global climate diplomacy. In 1992, presided
over the G77+ China group of nations, in 2022 served as chair when the loss and damage fund
was initiated. However, climate governance has not received strong leadership at home
resulting in a gap in climate finance. Local governments are non-existent in many regions of
the country. Therefore, District disaster management authorities (DDMAs) are run by district
commissioners20. After the 18th amendment to the constitution of Pakistan, climate change
became a provincial issue with the Ministry of Environment handed over to the provinces

17
Government of Pakistan (2021), Updated Nationally Determined Contributions:
https://unfccc.int/sites/default/files/NDC/2022-06/Pakistan%20Updated%20NDC%202021.pdf
18
Rahman, Arif, and Aneel Salman. "A district level climate change vulnerability index of Pakistan." Centre for
Environmental Economics and Climate Change (CEECC) Working Paper 5 (2013).
19
Rahman, Arif, and Aneel Salman. "A district level climate change vulnerability index of Pakistan." Centre for
Environmental Economics and Climate Change (CEECC) Working Paper 5 (2013).
20
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
which implies that planning and policy implication became a local issue. To address the
changing climate Punjab government took initiatives like A draft Policy (2017) and an action
plan (2021). However, they remained unapproved to date. Given the constantly changing
climate scenarios, new data and relevant reports will be required. Khyber Pakhtunkhwa
adopted the KP Climate Change Action Plan (2022) and KP Climate Change Policy (2022)
addressing the issues of vulnerable communities and planning to create opportunities for
gender inclusion to mitigate the adverse impacts of climate change. On the other hand, the
Sindh Climate Action Plan (2022) was approved but the action plan has not been tailored.
Similarly, Balochistan drafted the Balochistan Climate Change Policy which is still under
development, Azad Jammu & Kashmir adopted the AJ&K Climate Change Policy (2017) and
GB Climate Change Strategy and Action Plan(2017) by Gilgit Baltistan21. The Punjab
government has allocated a whopping $1.4 billion for climate-related initiatives22. However,
the Sindh government's climate budget for the last 16 years equated to PKR 20 billion is less
than the PKR 27.5 billion cost of Malir Motorway, a mega road project23. Since all the
provinces are differently vulnerable to climate change the finance requirement also differs
accordingly.

The global climate index reported that from 1998-2018, almost 10,000 lives were lost due to
unprecedented climate events. To recover from the losses and to adapt to future climate-related
calamities, the urgency to act is even clearer.

Climate Finance, Sources, Instruments & Objectives

Climate finance is described as a route for financing funds to aid climate change mitigations
and adaptation actions. It is based on the principle of “common but differentiated responsibility
and respective capabilities” which implies that developed countries will provide financial
assistance to developing countries that are more vulnerable to changing climate conditions. An
International Agreement under the United Nations Framework Convention on climate change
to reduce Greenhouse gas emissions was adopted on 11th December 1997 known as the Kyoto
Protocol. During its first commitment period (2008-12) participating countries pledged to

21
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
22
https://climatefinance.pk/events-press-cat/cop28-panel-highlights-punjabs-climate-finance-landscape/
23
https://thecitizenry.pk/2023/09/26/big-claims-small-expenditures-battered-by-heatwaves-and-floods-sindh-
spent-less-than-half-its-climate-budget-in-16-years/
decrease their emission by an average of 5% below the 1990 level24. However, in its second
commitment (2013-2020) parties agreed to cut GHG emissions by at least 18% below the 1990s
level25. During the UN Climate Change Conference (COP 21) held in Paris, France on 12, Dec
2015, signed an international treaty on climate change called The Paris Agreement. The
objective of the treaty is to keep “the increase the global average temperature well below 2oC
above the pre-industrial levels” and to continue efforts “to limit the temperature increase to
1.5oC above pre-industrial levels”26. Paris Agreement serves as a landmark climate change
process because it brought all the nations to fight climate change and adapt to its effects. This
agreement provides a financial, technical and capacity-building support framework to help the
most vulnerable countries to the changing climate conditions. It states that the developed
countries will provide financial assistance to the developing countries for mitigation and
adaptation against the impacts of changing climate.

Climate finance is required for mitigation policies, to reduce GHG emissions large-scale
investments are necessary. Also, it is crucial for adaptation as significant financial resources
are required to help societies strengthen against the adverse impact of changing climate
conditions. Sources of climate finance can be public or private, national and international,
multilateral or bilateral. Some multilateral financial institutions include the Asian Development
Bank, European Investment Bank, International Financial Corporation, Islamic Development
Bank, and International Bank for Reconstruction and Development27. Green Climate Fund
(GCF), Adaptation Fund (AF), and the Global Environment Facility (GEF) are multilateral
funds developed by the United Nations Framework Convention on Climate Change
(UNFCCC) as financial instruments for providing financial assistance to developing countries.

24
https://climate.ec.europa.eu/eu-action/international-action-climate-change/kyoto-1st-commitment-period-
2008-12_
25
https://unfccc.int/kyoto_protocol
26
https://unfccc.int/process-and-meetings/the-paris-agreement
27
https://unfccc.int/topics/climate-finance/resources/multilateral-and-bilateral-funding-sources
 Table 4: Instruments of Climate Finance

1. Grants Grants are provided for non-revenue programs including capacity

building, knowledge building and other ongoing initiatives in the
recipient country.
2. Concessional Providing funds for projects that address major global development
Finance issues.
I. Thematic Bonds Fixed-income financial instruments are issued to use debt-based
solutions to address social and environmental issues.

a. Green Bonds Provide funding for projects that improve the environment or
mitigate the effects of climate change. Most of these are green “use-
of-proceeds” bonds fully backed by the issuer’s balance sheet with
revenue targeted for environmentally friendly projects.
b. Social Bonds The “use-of-proceeds” bonds are used to raise finance for new and
ongoing initiatives with positive social outcomes. Types of projects
for which social bonds are used include job creation, affordable
house pricing and socioeconomic progress.
c. Sustainability The proceeds of these bonds are restricted for financing and re-
Bonds financing a combination of green and social projects.
d. Sustainability- A form of sustainability bond that links the financing or bond
Linked Bonds structure to the coupon rate linked to the entity’s key performance
indicators. If the entity fails to achieve the set objectives debt relief
is cancelled as a penalty.
II. Market-Based
Finance
a. Debt-for-Climate The bilateral or multilateral donor, private or non-governmental
swap organisation writes off the portion of the nation’s debt in return for
its commitment to environmental projects using domestic funds.
Debt swaps are only done for climate mitigation and adaptation
projects.
b. Debt Finance To reduce the cost of projects by providing debt facilities in the
form of credit lines or project loans.
c. Equity Finance Provision of equity for climate mitigation projects by the
government without guaranteeing repayment and acquiring
ownership of the project.
3. Carbon Offset Specific initiatives aimed at reducing the carbon emissions or
Funds seizing the carbon i.e. taking out carbon dioxide and storing it to
reduce carbon emissions.
Source: Financing climate action in Pakistan, UNDP28

28
Financing climate action in Pakistan:https://www.undp.org/pakistan/publications/financing-climate-action-
pakistan-solutions-and-way-forward
As the impacts of adverse climate conditions are observed in all sectors of the economy, the
public budget and other funding mechanisms have started considering climate risk in
investment decisions. Countries have set targets for lowering GHG emissions and building
resilience against climate change through their nationally determined contributions (NDC),
Long-term climate strategies (LTS), and national adaptation plans (NAPs). Climate finance is
crucial for achieving such targets and building resilience against unprecedented climate
conditions. Global efforts of integrating climate change in government policies and initiatives
have gained momentum as the domestic and international climate finance prospects have
increased. Climate financing is an essential catalyst for developing countries to incorporate
climate change policies into their development agenda and promote mitigation and adaptation
activities.

Pakistan being a part of the United Nations Framework Convention on Climate Change
(UNFCCC) Paris Agreement has been performing its duties to assist in global efforts of
combating climate change. Pakistan was reported as one of the first South Asian countries to
establish a separate ministry to deal with climate issues i.e. Ministry of Climate Change and
has established a National Climate Action policy. Being a part of the Paris Agreement 2015,
Pakistan with the target of reducing 20% of projected emissions for 2030 has already aligned
its nationally determined contributions (NDCs) with its economic and sustainable development
vision.29 To attain this target roughly $40 billion in financing is required. Pakistan’s nationally
determined contributions (NDC) represent the nation’s commitment to transitioning towards a
climate-resilient economy. Pakistan’s updated NDC has set a goal of reducing emissions by
50% during 2015-2030. The goal is to reduce emissions by improving the energy mix,
promoting green transportation, avoiding new coal power plants, and prohibiting the use of
imported coal for electricity generation. At COP 26, Pakistan has shown commitment to some
ambitious mitigation actions and afforestation as the highlight of its nationally determined
contributions. But to successfully achieve such ambitious commitments political willingness
and climate finance are important. At this point, climate finance is a crucial element in
Pakistan’s climate action journey. According to NDC 2021, Pakistan’s energy transition
requires $ 101 billion by 2030 and $65 billion by 2040 for the finance required for associated
expenditures. Finishing ongoing renewable energy projects, increasing hydropower capacity,

29
Government of Pakistan (2021), Updated Nationally Determined Contributions;
https://unfccc.int/sites/default/files/NDC/2022-06/Pakistan%20Updated%20NDC%202021.pdf
strengthening transmission systems, and eliminating coal are the businesses that require
financing. Resilient, Recovery, Rehabilitation and Reconstruction Framework (2022), the 4F
framework provides an extensive plan for recovery and reconstruction post-flood disaster,
based on post-disaster need assessment (PDNA) performed in affected regions of the country.
The 4RF approach emphasizes four strategic recovery objectives (SROs): improving
governance and institutional capacities, generating employment opportunities, ensuring
financial inclusion and participation, and improving basic services and physical infrastructure
sturdily and sustainably. National Action Plan 2023, aims to implement adaptation measures,
increase inclusion and foster successful collaboration among stakeholders involved. The NAP
analyses climate risk and vulnerabilities and adaptation methods across 7 key areas including
agricultural-water nexus, natural capital, urban resilience, human capital, disaster risk
management, and gender, youth, and social inclusion.
 Figure 3: Pakistan's Updated Nationally Determined Contributions 2021
Source: Government of Pakistan, Nationally Determined Contributions30

30
Government of Pakistan (2021), Updated Nationally Determined Contributions;
https://unfccc.int/sites/default/files/NDC/2022-06/Pakistan%20Updated%20NDC%202021.pdf
To meet the set targets in these programs government of Pakistan has started the following
initiatives.

Table 5: Initiatives by the Government of Pakistan

Ten Billion Tree A tree plantation project in its third year to achieve a carbon
Tsunami sequestration project in its third year. NDC expects that 500 MtCO2e
Program will add to the global climate sink by 2040 if the Tsunami program is
implemented successfully.
The Protected Another adaptive action was launched on 29, June 2020 with of
Area Initiative objective of fostering and enhancing vital wildlife habitats in
Pakistan’s major national parks for preservation and ecological tourism
purposes. The program aimed to increase protected areas from 12% to
15% of total land area by 2023 with an estimated expenditure of Rs.
3.9 billion.
Recharge It aims to build resistance to climate change through eco-based
Pakistan adaptation and integrated management of flood risk. This initiative
program requires USD150 million investment to implement climate-resilient
infrastructure.
Electric vehicles The government of Pakistan aims at focusing on Electric vehicles, the
goal is to 30% of vehicle sales (passenger sales and heavy trucks) by
2030 and 90% by 2040 specifically in urban mass transit. EVs are
likely to be purchased by businesses and homes except for government
procurement for internal usage. The government may offer incentives
such as tax credits, to promote the adaptation of electric vehicles.
Transitioning to electric vehicles might diminish jobs in the fuel
business, and requires sector planning and temporary safety measures.
Government plans on initiatives aimed to convert animal manure into
methane as a fuel for rural families and public transportation in urban
areas. Methane contributes to nearly 90% of this sector’s GHG
emissions. Such initiatives in this sector are expected to generate profit.
Also, there’s a potential for investment in such a project as start-up
might be difficult.
Clean Production Government plans on industrial mitigation through “clean production
Technologies technologies” eco-standard, carbon trading incentives, and private
sector planning to minimise emissions. Specific actions required for
this initiative are by cutting the cement industry's GHG emissions.

In 2021, the total capital invested in Pakistan for climate activities equated to $ 4 billion out of
which 31% was sourced through the private sector and 69% from the public sector. Climate
funding received from international sources included $3,358 million (84%), government
development partners contributed $2.31 billion (58%) and $ 1,048 million (26%) from private
sector investors. On the other hand, finance generated by domestic sources was only $ 650
million i.e. 16% of total climate finance. The private sector contributed only $200 million (5%)
and the public sector contributed $ 450 million (11%). The table below presents an overview
of climate-related projects by different international organisations.

Table 6: Projects funded by the International Organisation

Projects Total Budget

Asian Preparing Kurram Tangi Integrated Water Resources $5Million

Development Development Project
Bank31 Preparing Climate-Resilient Agriculture and Natural Technical
Resources Development Project assistance
special fund
$2.25million

Climate change
fund $750,000
United Nations Pakistan Distributed Solar Project SAP024: This $54 million
Green Climate project provides customised financing options for GCF Financing
Fund (GCF)32 distributed solar PV options in Pakistan. GCF $10 million
guarantee facility will be used to finance 43MW of Co-financing
solar PV installation for houses, agri-businesses, and $44 million
small and medium-sized enterprises and
approximately 848.7k tonnes of emissions will be
avoided.
Transforming the Indus Basin with Climate-Resilient $47.7 million
Agriculture and Water Management FP108: this GCF financing
project will boost the country’s ability to use the $35 million
knowledge to adapt to the effects of climate change Co-financing
on agriculture and water management. It will $12.7 million
strengthen farmers’ climate resilience through skills,
knowledge, and technology development efforts.
Green BRT Karachi FP085: this project initiates $583.5 million
building a zero-emission bus rapid transit (BRT) GCF Financing
system that is safe and accessible to all in Karachi. $ 49 million
The project seeks to build a 30km long completely Co-Financing
segregated rapid bus transit (BRT) system using $534.5 million
biomethane hybrid bus feet.

Scaling-up of Glacial Lake Outburst Flood (GLOF) $37.5million

FP018: the project aims to construct 250 engineering GCF Financing
facilities including damns, spillways, ponds, tree $37 million
plantation and drainage to reduce risk. The capacity Co-financing
to react to flood scenarios will be enhanced by $0.5 million
disaster management policies and by introducing
weather monitoring stations.

31
https://www.adb.org/projects/
32
https://www.greenclimate.fund/countries/pakistan
 Islamic Signed agreement to finance for construction of $189 million
Development 800MW Muhammad Dam and Hydropower projects
Bank33 in KPK for the provision of clean water to 2 million
residents of Peshawar and support irrigation of new
farmland.
Global 12 national projects $37.44 million
Environment 15 regional projects $174.7 million
Fund34
Adaptation Sustainable actions for ecosystem restoration in $10,000,000
Fund35 Pakistan (SAFER Pakistan)

Pakistan has been receiving grants for adaptation and mitigation projects from different
bilateral sources. Major Bilateral donors of Climate finance for Pakistan include Australia
($4.88 million), Germany ($ 25.55 million) and Japan ($ 48.91 million)36.

Figure 4:Bilateral Climate Finance for Adaptation and Mitigation Actions

Source: Transparency International Pakistan37

33
https://www.isdb.org/news/isdb-signs-financing-agreements-amounting-to-us-180-million-for-mohmand-dam-
and-hydropower-plant-project-to-support-pakistans-green-agenda
34
https://www.thegef.org/projects-operations/country-profiles/pakistan
35
https://www.adaptation-fund.org/project/sustainable-actions-for-ecosystems-restoration-in-pakistan-safer-
pakistan/
36
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
37
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
Challenges in Climate Finance

International climate finance is flawed and misleading. In 2020, the “true value” of climate
finance by developed nations to developing countries was just $21-24.5 billion against the
reported figure of $83.3 billion38. The promise made by developed nations of providing $100
billion every year to developing nations has been fulfilled just once i.e. in 2022-202339.
Moreover, the gap between mitigation and adaptation finance continues to grow. In 2021,
estimated adaptation finance for developing countries decreased by 15% as of 2020. 40 The
disparities between funds allocated by developed countries and the adaptation requirements of
the developing world have widened. The provision of $100 billion every year by the developed
countries and the promise of increasing the collective provision of climate finance for
adaptation agreed upon in the Glasgow Climate Pact 2021 is not sufficient to fill the needs 41.
The government of Pakistan recognises that “financing the mitigation and adaptation gap” is a
challenge. As per the NDC report, the finance required for NDC implementation in the year
2030 will be roughly equal to $200 billion42. According to the World Bank, the total financing
required for Pakistan to meet climate challenges for 2023-2030 equated to $348 billion, out of
which $152 billion is required for adaptation measures and $196 billion for decarbonisation43.
Over the last 10 years, Pakistan collectively received $1.4-2.0 billion per year, that too in the
form of loans44. International climate finance is contributing to the existing debt crisis by being
dominated by loans that too with highest share of non-concessional loans. With the 78% debt-
to-GDP ratio, there’s little room in the budget to fund climate action.

38
Climate Finance Short-changed: The real value of the $100 billion commitment in 2019–2020: https://policy-
practice.oxfam.org/resources/climate-finance-short-changed-the-real-value-of-the-100-billion-commitment-in-
39
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
40
https://weadapt.org/knowledge-base/vulnerability/unep-adaptation-gap-report-2023/
41
https://www.dawn.com/news/1791418/climate-finance-gap
42
Government of Pakistan (2021), Updated Nationally Determined Contributions:
https://unfccc.int/sites/default/files/NDC/2022-06/Pakistan%20Updated%20NDC%202021.pdf
43
https://www.undp.org/pakistan/publications/climate-public-expenditure-institutional-review
44
financing climate action: enhancing effectiveness and transparency in pakistan’s climate governance
frameworks: https://transparency.org.pk/publication/
 Figure 5:Country wise Annual Climate Financing Needs
Source: National NDCs, CPI country report 2018-202145
From the figure, it can be safely stated that there’s a significant financing gap. Based on the
level of financing received in previous years it can be put forward that Pakistan will receive
nearly $39 billion from public finance sources like Multilateral Development Bank financing
and $9 billion from public-private partnerships for infrastructure projects, which will not be
enough to address climate action at priority basis. To achieve the ambitious targets of NDC21,
building climate adaptability and shifting from fossil fuel acquiring international climate
finance is essential as finance acquired by domestic sources is inadequate to achieve the set
targets. However, climate finance is not affordable, available and accessible for developing
countries. So far Pakistan has collaborated with the Green Climate Fund, Adaptation Fund,
Global Environment Fund and some other bilateral funds. Despite being 5th most vulnerable
country to climate change, Pakistan is experiencing quite little access to international climate
finance. The economic loss and damage caused by the 2022 floods was way more than the
disbursement received from all UNFCC funds including the Global Environment Facility, The
Adaptation Fund and the Green Climate Fund together. World Bank approved a $200 million
programme for rural investments and a rehabilitation plan for Khyber-Pakhtunkhwa46. The
United Nations Green Climate Fund has approved $11.4 billion for 209 projects in 128
countries. Pakistan has been allocated $249 million for 7 projects. Despite being approved for
years only 4 projects are under implementation and 25.7% of the total amount has been

45
National NDCs, CPI country report 2018-2021; https://unfccc.int/sites/default/files/NDC/2022-
06/Pakistan%20Updated%20NDC%202021.pdf
46
https://tribune.com.pk/story/2443105/piecemeal-approaches-to-climate-change
expended so far. On the contrary, Bangladesh which is also among the top 10 most vulnerable
countries to climate change has received a whopping amount of $441 million through the UN
Green Climate Fund. Similarly, India has been allocated $566.8 million for 10 projects. Both
Bangladesh and India have already received the disbursement of $85 million (48%) and $315
million (40%) as of 2022. 47

Another concern with International Climate finance is the nature of the financial assistance.
Despite the promises of providing financial assistance by developed nations to highly
vulnerable countries funds are provided in the form of loans. Out of all the $249 million
approved by GCF, Pakistan has to pay back $57.2 million as a loan to GCF. Moreover, of the
total investment approved for ongoing 4 projects only 18% of financing is done directly
through GCF. The maximum amount of these projects is being co-financed by Pakistani
institutions like the Natural Rural Support Program and JS Bank lately. These reasons are
enough to question the Green Climate Fund’s commitment to helping Pakistan build a climate-
resilient economy. How international organisations can justify demanding repayment with an
interest amount? Despite being severely affected by climate change the reason for this
discrimination is not clear. Pakistan is already under debt stress using most of its budget for
debt servicing, neglecting social sectors like Education and health, and diverting investment
from environmental issues.

Significance of Climate Finance

The role of climate finance is crucial for reducing Greenhouse gas emissions and building a
resilient economy against unprecedented climate conditions. Climate finance plays an
important role in the transition to low-carbon economies by funding projects that directly and
indirectly reduce carbon emissions. Investment in initiatives like renewable energy resources,
energy efficiency and environmentally friendly modes of transportation are examples of how
climate finance can help in mitigation policies. Climate finance can help build a resilient
economy against the impacts of climate change by financing initiatives like resilient
infrastructure, executing an early warning system for extreme weather conditions and
community-based efforts to adapt to climate change. Climate finance has emerged as an
important source for developing countries to combat the impacts of changing climate
conditions. however, its negative impacts can not be ignored. Climate finance intensifies
economic risk. Finance used for mitigation policies is associated with economic risk more than

47
https://www.greenclimate.fund/countries
adaptation finance. However, the adverse impacts of climate finance are negligible in countries
with high political stability and less violent societies. Therefore, a stable political environment
is required to reduce the economic risk attached to climate finance48

As per the population projection, young people in Pakistan will reach 181 million by 2050 with
an estimate of 4 million entering the working class every year. With an unemployment rate of
8% as of 2023, the conditions started worsening during the pandemic. The Ministry of Planning
Development and Special Initiative estimated that 12.3 million – 18.5 million people were out
of the workforce because of the global pandemic. Pakistan is mainly an agrarian economy
providing livelihood to nearly 45% of the national labour force. Adverse climate conditions
resulted in the loss of livelihood, productivity, and human and livestock well-being. Climate
change became the cause of instability in the agriculture sector leading to the loss of crops and
food insecurity. Effective utilisation of climate finance will result in employment opportunities
not only in the agriculture sector but also by investing in renewable energy and energy
efficiency projects will result in job opportunities across different sectors of the economy.
Effective use of climate finance will also enhance research opportunities in the country. An
improved research environment will eventually speed up the transition to a low-emission
economy resulting in economic growth. In developing countries, women and children are the
most vulnerable to climate atrocities getting affected by food and water scarcity. Climate
finance is crucial for addressing social inequalities and improving the condition of marginalised
groups by investing in climate-resilient infrastructure, provision of clean water facilities, and
sanitation systems and by adopting sustainable agriculture techniques. Effective utilisation of
climate finance not only builds a resilient economy but also leads towards a path of economic
growth, technical advancement and social justice. Thus, effective utilisation of climate finance
can help build a resilient economy for future generations.

The COP 28 UN Climate Change Conference was held in Dubai from 30 November to 13
December 2023 where representatives from more than 150 countries including the Head of
state, civil society, youth, business and international organisations attended the conference.
Climate finance was the central theme of COP 28 as the aims of the conference set by the host
country included accelerating the energy transition, focusing on citizens’ welfare and
livelihood and fixing climate finance. All these goals can be achieved by delivering climate
finance effectively. One of the key failures of climate finance is that developed countries have

48
Zhao, Jinsong, Boxu Zhou, and Xinrui Li. "Do good intentions bring bad results? Climate finance and
economic risks." Finance Research Letters 48 (2022): 103003.
failed to provide $100 billion per year to developing countries. However, the finance flows
have increased in previous years. India, China, Japan, and Brazil received the maximum
funding leaving behind most of the developing countries deprived of their due share. 49 Key
initiatives of COP 28 included a $30 billion climate fund announced by the UAE president.
$25 billion was allocated for climate strategies and $5 billion to stimulate investment funds for
the global south. The loss and Damage fund became operational during COP 28 where
developed countries have committed to provide more than $700 for financial assistance to
countries most vulnerable to climate change. UAE pledged $100 million, United Kingdom $40
million, Japan $10 million, Germany $100 million and USA $17.5 million50. The Caretaker
Prime Minister of Pakistan introduced “Recharge Pakistan” a seven-year project aimed at using
nature to adapt to climate change by transforming the country’s approach to flood and water
resource management. The total budget of the project is $77 million with $66 million in
financing from the Green Climate Fund.

Can debt for nature swaps solve Pakistan’s climate finance problem?

Debt for nature swaps are agreements where a debtor country agrees to protect its natural
environment and take initiatives to build a resilient environment in return for debt relief. Debt
swaps are increasingly becoming common worldwide. In 2022, the nature conservancy, the
Inter-American Development Bank and the Barbados government finished a $150 million debt
swap in exchange for Barbados' commitment to preserve 30% of its territorial sea and economic
zone51. Advantages attached to Debt swaps include enhancement in the use of resources,
improvement in the ecosystem and improvement in biodiversity management. Water
management can be improved if the government makes sure that debt for nature swaps if
implemented are used for environmental projects. Due to the complex legal setup required for
swaps their transactional cost is higher than other instruments. Also, engaging in debt swaps
negatively impacts the international credit rating of the debtor country. For the effectiveness of
debt swaps, long-term commitment on the side of the debtor country for implementing climate
action is required. Pakistan can successfully implement Debt-for-nature swaps by addressing
the following difficulties. Climate Finance Experts are required at ministry levels to make an
actional plan for the successful implementation of debt swaps.

49
https://www.thethirdpole.net/en/climate/opinion-at-cop28-climate-finance-takes-centre-stage
50
https://www.cop28.com/en/news/2023/11/COP28-Presidency-unites-the-world-on-Loss-and-Damage
51
https://www.dawn.com/news/1812956
Conclusion

This paper addresses the issue of Climate finance and sources and instruments of climate
finance in Pakistan. The analysis indicates that climate finance is essential for adaptation
against adverse impacts of climate change and building a resilient environment. Although,
Pakistan ranks as 5th most vulnerable country to the impacts of climate change. However, the
International climate finance available is not sufficient for the mitigation and adaptation plans
of the country. To achieve the ambitious goals set by the Nationally Determined Contributions
(NDC 21) Pakistan needs an effective roadmap for generating green finance. The government
needs to engage the private sector in finance generation through public-private partnerships.
Also, the government of Pakistan should use concessional finance instruments like Debt for
climate swaps and natural performance bonds as a means to deal with the two pressing matters
in its hands i.e. Debt crisis and the adverse effect of changing climate conditions. Although
climate change and green finance are the most talked about issues of the world, still it is
important to raise awareness among the general masses including women and children. Instead
of waiting for international financial assistance government of Pakistan needs to come forward
with a low-carbon climate-resilient environment and form a strong local government as they
are the first line of defence against climate calamities. As of 2023, total debt and liabilities
owned by Pakistan equated to $271.2 billion. Both Climate change and whooping debt are
issues in the hands of the government of Pakistan. Pakistan can deal with both issues effectively
by using instruments like Debt for swaps. Also, the Government should move forward with the
Nature Performance Bond as a debt relief incentive. The first nature performance bond was
proposed in 2021 however, there have been no developments after that. Since we are not able
to bag enough international climate finance, the government should increase public-private
partnerships and take steps to engage the general public on every level in this cause. There have
been enough talks on how climate change should be addressed in seminars and conferences.
However, there’s a need to educate the general masses including women and children so that
they can also take part in this initiative. The climate-related curriculum should be included at
primary and secondary levels and local government bodies should take initiatives to educate
the general masses so that they can play their role in this regard even if it’s by planting a tree
in their locality.
 Policy Recommendation

 Pakistan has not been getting the desired foreign investment required for working on the
Nationally Determined Contributions (NDC). There is a need for an alternative route for
generating green finance required to build a resilient climate. Pakistan has great potential for
adopting concessional finance as a financing source against climate change. Concessional
finance is being used globally for green financing. Some of the instruments of concessional
financing include Green bonds, Debt-for-Nature Swaps, Nature performance bonds and Carbon
Pricing instruments. Using green bonds as a source of climate finance will help achieve its
NDC targets timely. In 2021, the Water and Power Development Authority (WAPDA)
launched a 10-year Green Bond for a hydro-energy project and raised $500 million.52 Given
the overwhelming response, SECP has approved national guidelines for green bonds to
encourage the innovative financing model. The government should also use such initiatives to
generate green finance.
 The Government needs to collaborate with the private sector, especially collaboration with the
banking and industrial sectors is necessary. The role of SBP is crucial in this regard. SBP can
promote financial markets and remove barriers to green finance.
 In developing countries, the most vulnerable communities to climate change are women and
children who are at risk of malnutrition due to water and food insecurities. Green finance should
be used for increased crop production and the provision of clean drinking water.
 Political stability and building a resilient environment are interlinked. The new government
needs to formulate a clear reform plan for an equal, low-carbon and climate-resilient
environment. The government should focus on the formulation of local government and
improved governance structures as local governments serve as the first line of defence against
unprecedented climate events like floods, droughts, heatwaves, glacier outbursts and urban
flooding. Also, to attract foreign financing for addressing climate change, the government
needs to show strong political commitment and willingness and needs to present this issue on
international platforms in a way that attracts finances.
 Climate finance sourced from the domestic private sector is insufficient as compared domestic
public sector. The private sector should be engaged in public-private partnerships and should
be encouraged to acquire climate finance to address climate change.

52
Pakistan issued first green bond | Green Finance Platform
 Despite being the 5th most vulnerable country to climate change, Pakistan has not been getting
its due share of climate finance against climate change. International funding is influenced by
political power and preference. To become a priority of international donors, the government
should focus on improving geopolitical ties and show a strong commitment towards building
a resilient economy.
About the Authors

Dr. Aneel Salman holds the distinguished KSBL-IPRI Chair of Economic Security at the
Islamabad Policy Research Institute (IPRI) in Pakistan. As a leading international economist,
Dr Salman specialises in Monetary Resilience, Macroeconomics, Behavioural Economics,
Transnational Trade Dynamics, Strategy-driven Policy Formulation, and the multifaceted
challenges of Climate Change. His high-impact research has been widely recognised and
adopted, influencing strategic planning and policymaking across various sectors and
organisations in Pakistan. Beyond his academic prowess, Dr Salman is a Master Trainer,
having imparted his expertise to bureaucrats, Law Enforcement Agencies (LEAs), military
personnel, diplomats, and other key stakeholders furthering the cause of informed economic
decision-making and resilience.

Maryam Ayub holds a M-Phil in Economics and Finance from PIDE. Her areas of expertise
are Macroeconomics, Climate Finance and Development Economics.