Large-scale green finance to turn tables on climate change

ISLAMABAD: Green finance has the potential to play a significant role in mitigating the effects of climate change. By mobilizing large-scale investment, it can support the transition towards a low-carbon, climate-resilient economy, thereby reducing greenhouse gas emissions and addressing the pressing challenges posed by climate change, reports WealthPK.

According to the International Finance Corporation, opportunities for green growth worth US$197.1 billion are available in various sectors of Pakistan to meet the 2030 climate targets.

Potential investments include $90 billion in green building financing, followed by $41.7 billion in electric vehicles, $41.5 billion in renewable energy, $10 billion in climate-smart agriculture, 7.5 billion in climate-smart urban water, and $6.4 billion in municipal solid waste management.

The latest report published by the Sustainable Development Policy Institute (SDPI) showed that the flow of green finance from foreign investors to Pakistan has also gradually increased over the past decade. Two of the biggest international funds involved in the process are the Global Environment Facility (GEF) and Green Climate Fund (GCF).

The report said the GEF had supported 38 projects in Pakistan by providing nearly $100 million in funds; it is currently facilitating four projects by providing a total of $131 million. The report said the current green finance flows were insufficient to meet the growing needs of the country.
According to the Ministry of Climate Change, these investments are insufficient to curb the climate crisis in Pakistan. As per the updated NDC targets set in 2021, the country requires at least $101 billion for energy transition by 2030.

According to the SDPI report, acquiring green finance in Pakistan is contingent on overcoming the challenges associated with the development and implementation of green financing mechanisms.

The report pointed out that for a struggling economy like Pakistan, green finance represents a lifeline that can support the development goals while reducing its vulnerability and contribution to climate change.

The report highlighted that Pakistan must make significant efforts on this front, as inaction will likely push the country back in the global competition. Given the country’s economic situation and institutional capacities, the effective strategy would be to take small, calculated steps forward, it added.

According to the report, the first 6-12 months of the process should be spent planning and preparing for the road ahead. Pakistan must overcome inefficiencies and challenges in its industrial, financial, and legislative sectors, it added.

Based on the report, the government should develop a concrete strategy for closing down fossil-fuel-based power plants and reaffirm its commitment to a just energy transition in order to gain credibility in the eyes of international investors.

As stated in the report, the government should work with all relevant stakeholders to clearly define and develop all terms and concepts related to sustainable development and acquisition of green finance.

According to the report, a solid strategy for implementing green financing mechanisms in Pakistan should be developed in the second phase, which would last about 1-2 years. This should include developing and implementing process-specific guidelines and reporting procedures.

However, during this phase, compliance with the guidelines and regulations should be voluntary to encourage wider adoption and gradually develop a market for green financing tools. They should be made mandatory as part of the next phase once they become more mainstream.

The report stated that the third and final phase should see the guidelines and disclosure mechanisms developed in the previous phase adopted and implemented entirely and made mandatory for all stakeholders.

Following this, the report recommended the country’s transition from green finance to sustainable finance by incorporating environmental, social, and governance principles into the already established green financing mechanisms, as it is critical to dealing with climate change and energy transition holistically.