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Green financing in Pakistan’s transportation

Green financing is a crucial tool for achieving stronger policies, increased private-sector investment,
global sustainability targets, particularly SDG 13 and international collaboration. Financial institutions
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(climate action). It enables governments, businesses, are working to integrate environmental and social risk
and financial institutions to allocate funds to projects management into lending activities, but they struggle
that reduce environmental risks while ensuring long- with data limitations, regulatory barriers, and restricted
term ecological stability. Developing economies rely capacity to assess and fund environmentally friendly
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on green financing to address air and water pollution, projects. Pakistan’s transportation sector is vital to
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mitigate climate change effects, and manage resource the economy, handling 90% of freight and passenger
depletion, while also fostering sustainable employment movement. However, public transport remains outdated
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and technological advancements. Pakistan’s high and inefficient, dominated by buses, rickshaws, and
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vulnerability to climate change has intensified the focus informal services. Major urban centers such as Karachi,
on green financing as a solution. The National Climate Lahore, and Islamabad face overcrowding, inadequate
Change Policy and the Pakistan Climate Change transit infrastructure, and a lack of integrated transport
Act highlight its role in mitigating environmental systems. Rapid urbanization and population growth
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risks. However, low awareness of sustainable project further increase the need for sustainable transportation
opportunities and limited access to institutional funding solutions. 31
continue to hinder sectoral growth. The Pakistan In addition to these challenges, urban expansion and
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Stock Exchange (PSX) has introduced green bonds, demographic shifts have placed increased pressure on
and commercial banks have launched sustainable existing transport infrastructure, highlighting the urgency
financing options, but Pakistan’s green finance sector for long-term planning and investment in sustainable
remains in its infancy compared to other developing mobility systems. Several significant challenges affect
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nations. While the National Climate Change Policy Pakistan’s transportation sector, foremost among
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(2012) and the Climate Change Act (2017) establish them pollution. The sector is heavily reliant on fossil
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foundational commitments to low-carbon development, fuels, particularly diesel and petrol, which contribute
their implementation remains limited. According to significantly to air pollution, causing health problems
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the United Nations Development Program 2023 and and environmental degradation. Vehicular emissions
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the Pakistan Institute of Development Economics, these are a major source of urban air pollution. Cities such as
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policies suffer from weak enforcement mechanisms, Lahore and Karachi frequently rank among the world’s
inadequate inter-ministerial coordination, and a lack most polluted due to vehicle emissions and industrial
of localized action plans. For instance, although the activities. Chronic traffic congestion plagues major
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policy promotes sustainable transport, it lacks binding urban centers, leading to economic losses and increased
financial instruments and specific timelines. Moreover, travel times.
provincial governments have not uniformly adopted or Traffic congestion alone is estimated to result
adapted the National Climate Change Policy objectives, in a 3% gross domestic product loss in urban areas
resulting in implementation gaps in urban transportation due to wasted time and fuel. Existing transport
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planning and EV financing strategies. Several Pakistan- infrastructure is inadequate to meet the demands of
based studies have highlighted the fragmented state a growing population. Poor road conditions and
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of green finance. For example, Goodwin found that outdated public transport reduce efficiency and user
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green financing in Pakistan is largely donor-driven, appeal. In addition, Pakistan has one of the highest
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with minimal private-sector leadership. A 2023 report fatality rates in the region, with over 27,000 deaths
by the State Bank of Pakistan (SBP) revealed that annually due to road accidents. In response to these
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fewer than 5% of financial institutions have climate- challenges, the government of Pakistan has introduced
aligned investment portfolios. Compared to countries various sustainable transport initiatives. The Lahore
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such as India and Vietnam – where central banks have Metrobus, launched in 2013, has successfully reduced
established mandatory green lending quotas – Pakistan’s traffic congestion, discouraged private vehicle use, and
policy frameworks remain largely voluntary. This gap improved urban mobility. The Orange Line Train,
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constrains the flow of climate finance into transformative inaugurated in 2020, further supports low-emission
infrastructure, including sustainable mobility systems. urban transport. Meanwhile, Lahore’s Green Bus
The SBP reports that current green finance levels Service, powered by compressed natural gas, reduces
are insufficient to meet Pakistan’s climate preparedness harmful emissions, though it remains less eco-friendly
and carbon reduction goals. The country requires than fully electrified transport.

Volume 22 Issue 4 (2025) 113 doi: 10.36922/AJWEP025160121