Mohibullah, a crane driver from Balochistan, was the talk of the town when he courageously saved a family on the brink of drowning in a flash flood. While the nation rushed to laud him for his heroic act, many questioned the efficacy of the local disaster management authority.

Those floods were not a once-in-a-decade event. In fact, every year in August, the skies unleash their massive ferocity, leaving the government to grapple with its impact. Within days, the tranquil Indus and its adjoining rivers and dams turn into raging torrents, and fertile fields turn into flooded wetlands. In August 2022, when I was doing a consultancy with the United Nations Development Program, I witnessed the first-hand impact of these recurrent disasters on Balochistan and Sindh, where the relentless downpours disrupted every facet of life, from bustling urban centres to the heartlands of rural Sindh, where people lost their annual crops – leaving them at the mercy of foreign grants and domestic donations.

Whenever I give a talk on Pakistan, I often refer to ‘climate injustice’ – the unequal distribution of the negative impacts of climate change.

Pakistan contributes less than one percent to global greenhouse gas (GHG) emissions, yet it is one of the countries most impacted by climate change – and that is why Pakistan finds itself on the brink of economic collapse, as every year governments are forced to funnel resources into providing relief to climate-impacted communities. Every time a calamity strikes, Pakistan starts looking for grants and aid for short-term relief rather than working on attracting climate-focused foreign direct investments aimed at securing a sustainable future.

This dependence on international grants is preventing Pakistan from making the long-term investments needed to build climate resilience.

In light of these challenges, there is a critical need to rethink our approach to sustainability and environmental, social, and governance (ESG). It is also something that the private sector needs to look at as a necessity and not a luxury. Business in Pakistan is often disconnected from the broader issues of socio-environmental challenges, as the focus has always been to maintain a specific bottom line, no matter what the cost to society and the environment. In absolute terms, Pakistan ranks among the largest 20 GHG emitters in the world, with carbon dioxide in the energy sector and methane in agriculture taking the lead. This represents a significant challenge considering Pakistan’s commitment to reducing its overall emissions by 50% in nationally determined contributions by 2030. Whenever a calamity strikes, businesses are at the forefront of the impact, which often comes in the form of supply chain disruptions, increased operational costs due to extreme weather events and shifts in consumer demand towards more sustainable products and services.

Rethinking our approach will not come at the cost of profits. It presents an opportunity for businesses to innovate and thrive in a rapidly changing environment. For instance, Kroll’s ESG and Global Investor Returns Study found that ESG leaders globally earned an average annual return of 12.9%, almost 50% higher than the 8.6% earned by laggard companies. In the US, ESG leaders saw a 20.3% average annual return, which was about 50% stronger than the 13.9% return of laggard companies. Rethinking the approach, or, in other words, embracing the intersection of ESG and climate change, will transform the role of the private sector from being part of the problem to becoming the key player in the solution. However, unless the private sector is given access to green finance, the process of rethinking will remain a distant dream.

In Pakistan, ESG regulations are almost non-existent. The Securities and Exchange Commission of Pakistan (SECP) “stride towards promoting responsible business practices and environmental stewardship with the issuance of ESG Voluntary Disclosure Guidelines for listed companies” came with a “voluntary nature”, and companies were only “encouraged to adopt the guidelines” caveat. Similarly, the State Bank of Pakistan issued Green Banking Guidelines in 2017 to “reduce vulnerability of banks from risks arising from the environment.” However, these guidelines are still “far from being followed in letter and spirit.”

Green finance too (financial investments flowing into sustainable development projects and initiatives that promote environmental sustainability) is shrouded in ambiguity, primarily due to the lack of robust regulatory frameworks, limited awareness among investors and insufficient integration of ESG criteria in the financial decision-making processes. One of the most talked-about green financing tools are green bonds. Worldwide, green bonds amounted to $620 billion in 2023.

Looking towards the region, in June 2017, Tadau Energy Sendirian Berhad issued Malaysia’s first green Sukuk (Islamic bond) worth $58.4 million to finance a 50 MW solar project in Sabah. In 2018, Indonesia, the world’s most populous Islamic nation, issued the first sovereign green Sukuk worth $1.25 billion at a 3.75% yield, driven by strong demand after Indonesia’s 2017 upgrade by Standard & Poor’s, along with a $1.75 billion non-green Sukuk at 4.4%. The funds raised are dedicated to green projects, with Indonesia ensuring that no financing goes to fossil fuels or peat burning.

While Indonesia and Malaysia have made significant progress, the government of Pakistan, according to Finance Minister Muhammad Aurangzeb, is still “working on issuing domestic green Sukuk bonds by December 2024 to finance sustainable development projects.” The recent announcement regarding issuing Panda bonds worth over $300 million to Chinese investors is a step in the right direction, but its success will depend on strategically aligning the financial objectives with China’s regulatory requirements, market conditions and investor appetite. To ensure the success of the Panda bonds, it is crucial to establish transparent communication with Chinese investors, provide clear and robust financial disclosures, and align the bonds with China’s sustainable development goals.

If Pakistan has to scale the issue of these bonds, it must create a conducive and robust regulatory framework with clear guidelines for green bonds, sustainability-linked loans, and other green financing tools aimed at promoting ESG integration. The SECP as well as the Pakistan Stock Exchange (PSX) need to take the lead by forging alliances with global stock exchanges like the London Stock Exchange. This can be done, for example, by leveraging the London Stock Exchange’s advanced sustainable finance data and analytics capabilities and using the FTSE Russell’s expertise to launch green indices linked to PSX entities and develop alliances and partnerships similar to the Glasgow Financial Alliance for Net Zero, the Transition Pathway Initiative, and the UN’s Sustainable Stock Exchanges Initiative.

Furthermore, the government must consider providing tax incentives and subsidies to encourage private sector investment in green projects. In the US, the investment tax credit (ITC) and the production tax credit schemes support renewable energy projects, with the ITC allowing companies to deduct 30% of the cost of installing a solar energy system from their federal taxes. Similarly, in Canada, the Accelerated Capital Cost Allowance offers tax incentives for businesses investing in clean energy generation and energy conservation equipment.

Access to green finance and tax incentives will help the private sector invest in sustainable technologies and practices.

Businesses looking for private sector investment should tread this landscape, as it will enhance their reputation, making them more attractive to investors who are increasingly prioritising ESG considerations in their investment decisions. To effectively integrate ESG practices, Pakistan’s private sector must adopt sector-specific strategies that address the unique challenges and opportunities within their industries.

As per the finance division, as of March 2024, Pakistan’s total installed electricity capacity stands at 42,131 MW, with thermal power dominating at 59.4%, while hydel, nuclear, and renewable sources contribute 25.4% and 8.4%, respectively – a stark reminder of Pakistan’s heavy dependency on fossil fuels. The World Bank is of the view that apart from the GHG emissions stemming from fossil fuels, the energy sector’s reliance on these sources exacerbates inefficiencies due to structural issues, poor planning and subsidies, leading to unreliable supply, significant fiscal deficits (circular debt), and a gas sector where heavily subsidised prices benefit a few manufacturers rather than farmers.

To achieve energy sustainability, the World Bank has suggested a five-pronged approach, which, if followed through the lens of private sector participation, can generate significant synergies. First, enhancing the efficiency of state-owned distribution companies can reduce losses, improve service quality and enforce financial discipline. This can be done through private sector participation – via privatisation or concession contracts. Second, on the demand side, private sector investment in energy-efficient technologies and services, such as upgrading appliances and retrofitting buildings, can significantly reduce reliance on imported fuels and lower consumer costs. Third, in the gas sector, allowing private entities to access LNG terminals and participate in tariff reforms can optimise resource allocation and drive decarbonisation. Fourth, industrial decarbonisation relies heavily on private sector innovation and investment in energy-efficient processes, fuel switching and the adoption of green technologies, with climate finance facilitating these transitions. Finally, a successful energy transition will require private sector involvement in developing off-grid solutions, clean cooking technologies and targeted retraining programmes to ensure equitable access to modern energy services, particularly for vulnerable communities.

Coal power plants can also be repurposed for renewable energy. To do so, Pakistan needs to identify one coal power plant, develop a case study for repurposing the coal and, if successful, replicate it to other coal power plants. In Ontario, electricity production was totally decarbonised by replacing coal with nuclear energy, and with impressive results. Electricity generation in Ontario now produces about 25 grams of CO2 per kWh, which is “well under levels consistent with the objectives of the Paris Agreement (50 grams), compared to 230 grams of CO2 per kWh previously.” This experiment generated 22,000 job opportunities, with another 5,000 expected to be created when the operating lifetime of the existing reactors is extended. Global examples are there, and we don’t have to reinvent the wheel to decarbonise Pakistan’s electricity sector.

Agriculture, when strategically leveraged by the private sector, can be a pivotal force in transforming Pakistan’s economic and environmental trajectory, particularly through the adoption of climate-smart agriculture (CSA). The agriculture sector contributes 24% to GDP and employs over a third of the population, making the sector’s impact on the economy undeniable. However, agriculture also accounts for 41% of Pakistan’s GHG emissions, largely from livestock and cropland. In this respect, the private sector holds the key in terms of effecting a paradigm shift towards sustainability by investing in CSA practices that mitigate these emissions.

Drawing from European examples, such as the precision agriculture technologies pioneered by companies in the Netherlands, the collaborative CSA platforms such as Agrisource in France and the Climate Smart Beef Genetics project led by Genus Plc in the UK (it focuses on reducing the environmental impact of beef production by employing genetic solutions to breed cattle), Pakistan’s private sector can lead the way in introducing advanced farming technologies, developing climate-resilient crop varieties and facilitating carbon sequestration initiatives. These efforts would not only align with global sustainability trends but also open new markets and increase profitability by meeting the growing demand for sustainable agricultural products. The investments and innovations the private sector can bring are critical and will ensure that agriculture sustains the economy and contributes to Pakistan’s climate resilience and long-term economic growth.

Emissions from Pakistan’s industrial sector have increased exponentially and are projected to increase 230% between 2012 and 2030, rising from approximately 59 million metric tons of CO2 equivalent (MtCO2e) to nearly 196 MtCO2e. This increase reflects the acceleration of industrial growth as well as the intensification of resource-intensive processes, which call for the thorough incorporation of ESG concepts into industrial processes. Reducing the industry’s environmental impact requires shifting the focus towards resource efficiency by implementing sophisticated waste recycling systems, energy-efficient technology and innovative water conservation measures.

Similarly, the principles of the circular economy in terms of product design, reparability and recyclability need to become common denominators when drafting manufacturing policies and should be incorporated into Pakistan’s soon-to-be-drafted industrial strategy. Turning waste into secondary resources will reduce emissions as well as build resilient value chains that promote environmental and economic sustainability. Collaborative initiatives with international organisations, such as the Ellen MacArthur Foundation, can furnish Pakistani manufacturers with frameworks and best practices that comply with international standards, thereby augmenting the industry’s potential to substantially contribute to the worldwide shift to a low-carbon economy. Pakistan has to combine technical innovation, international cooperation and ESG integration to position itself as a regional leader in sustainability.

Technology is pivotal in advancing ESG goals as it can instill efficiency and transparency in the three sectors mentioned above. In the energy sector, advanced grid management systems, combined with predictive analytics and next-generation energy storage technologies, can facilitate the seamless integration of renewable energy sources, optimise load balancing and minimise dependence on fossil fuels. Precision agriculture technologies, including IoT-enabled sensors and AI-driven analytics, can enhance resource efficiency and climate resilience by enabling real-time monitoring and data-driven decision-making, thereby reducing input waste and improving yield predictability. In industries, AI-powered process optimisation and blockchain can enhance supply chain transparency, drive resource efficiency and support circular economy models by ensuring traceability, minimising material wastage and maximising resource recovery.

The real impact of change, as evident from Mohibullah’s story, lies not in abstract policies but in the hands of people facing extraordinary challenges. In this respect, the intersection of climate resilience and ESG is a unique opportunity to harness this grassroots strength and transform it into a national movement that unites businesses, communities and individuals. The only viable way to create a resilient future where every flood, drought and natural disaster becomes a catalyst for innovation and collective action is by placing climate change at the centre of our socio-economic strategies.

The debate is not only about mitigating the risks. It is about redefining the narrative – where a crane driver’s courage is as crucial as a CEO’s commitment to green finance, and where the people of Balochistan and Sindh are not just victims of climate injustice but active participants in building a sustainable future. The road ahead demands that the government and the regulators bridge the gaps between policy and practice while taking into account local realities. The fight against climate change is a shared journey that will ultimately empower every citizen, strengthen every community, and transform Pakistan into a beacon of resilience in an increasingly fragile world.

Faraz Khan MBE is CEO & Partner, Spectreco and Founder, SEED Ventures. He can be reached at faraz@spectreco.com