Seven years ago, the State Bank of Pakistan (SBP) issued its landmark Green Banking Guidelines (GBG), signalling that environmental and social risk management could no longer be treated as optional by local lenders. The 2017 circular requires board-level oversight, quarterly progress reviews and the creation of dedicated “Green Banking Offices,” positioning commercial banks as catalysts for low-carbon, climate-resilient growth.

The policy has moved the dial, but uptake is far from uniform. Although the policy has made a difference, adoption is not consistent. Although there is “growing consensus” that GBG deployment improves risk management and brand equity, a 2024 qualitative survey done by Khan et al of six large banks indicates that most institutions still rely on trial projects rather than system-wide integration. Green lending, finance for renewable energy, and internal resource efficiency initiatives are now “routine” in the industry, according to a parallel survey study (n = 250) published in PLoS One that same year by Jillani et al. in 2024. However, only 40% of respondents claim that their bank has included GBG into credit policy. Similar patchiness is shown by earlier case-study findings, which characterises Pakistan as “still at the initial stages of green-banking adoption.”

Leaders are beginning to differentiate. Five of the ten largest lenders in Pakistan, according to public disclosures and a 2023 UNDP policy brief on green finance, have operationalised Green Banking Offices. Soneri Bank’s Green Banking Office, for example, launched the “Yellow is the New Green” campaign in 2024 to promote environmental awareness among staff and customers. These developments align with findings from Khan et al. (2024), whose interviews highlight that early adopters often report reputational risk mitigation and smoother access to concessional finance lines offered by multilateral institutions such as IFC.

Yet two systemic gaps remain. First, climate risks are still treated qualitatively by most credit risk models, with few institutions quantifying them as probability-of-default drivers, delaying the adoption of climate stress testing. Second, disclosure remains fragmented. Most sustainability reports do not include Value-at-Risk under climate scenarios or relate financed emissions to Pakistan’s Nationally Determined Contribution (NDC). Tracking financed emissions against the NDC is important because it allows banks to measure how their lending and investment activities contribute to, or hinder, national decarbonisation targets, such as those related to energy, industry, and transport. This alignment not only supports Pakistan’s global commitments under the Paris Agreement but also enables institutions to access green finance tied to NDC implementation. The interviews conducted by Khan et al. (2024) also identified the lack of a national taxonomy and urged SBP to define thresholds for “green,” “transition,” and “excluded” assets.

Convergence with international disclosure standards presents an opportunity. On 31 December 2024, the Securities and Exchange Commission of Pakistan (SECP) announced the phased implementation of IFRS S1 and S2 beginning in FY2026. As noted by S&P Global (2025), Pakistan is one of 15 jurisdictions expected to adopt mandatory ISSB-aligned reporting this year, with first disclosures due by July 2025. Experience from other emerging markets suggests that aligning national green banking frameworks with the ISSB standards reduces transaction costs and facilitates implementation.

Where next? To stay ahead of the curve, Pakistani banks should:

  • Integrate decision-useful climate metrics into GBG reporting. Track Scope 1, 2, 3 emissions, financed-emissions intensity, and climate scenario exposure using data tools already used in energy transition and climate finance transactions. Embedding Value-at-Risk into green banking systems will enable peer benchmarking and streamline SBP supervisory review.
  • Embed ESG oversight into core governance structures. Transition from standalone CSR or sustainability committees to integration within the board risk committee, aligning with IFRS S1’s enterprise value lens. Complement this governance shift with targeted ESG training for directors and executives—available through domestic and international providers.
  • Pilot climate stress testing using SBP’s published templates. The 2023 Financial Stability Review by SBP includes a climate-scenario analysis framework. Banks can use this to assess the capital impact of floods, heatwaves, and carbon pricing—setting the stage for more comprehensive guidance expected in FY2026.
  • Align product innovation with the Pakistan Green Taxonomy. Start applying draft taxonomy categories to sovereign green sukuk, SME adaptation loans, and resilience-linked guarantees for internal understanding. Use-of-proceeds verification by climate-finance or ESG assurance specialists will improve investor confidence and facilitate access to concessional finance.

Taken together, these steps can turn compliance into competitive advantage. With better data, stronger governance, forward-looking risk assessments, and taxonomy-aligned product development, banks can reduce cost of capital, de-risk portfolios, and accelerate Pakistan’s climate transition.

The GBG provided the foundation; IFRS S1 and S2 offer the scaffolding for full integration. Merging national regulations with global disclosure frameworks will help financial institutions meet rising expectations while advancing the country’s climate resilience goals.