Apex court proposes Islamic finance for environmental projects
The top court has given guidelines to Punjab government for setting up a Wastewater Treatment Plant (WWTP) in order to treat the contaminated water flowing into the River Ravi.
While it is well established that policy-making falls within the domain of the executive, the court, in exercising its constitutional duty to safeguard fundamental rights under Article 9 of the Constitution, has, over the years, developed a substantial knowledge base regarding environmental challenges.
Therefore, without encroaching upon the policy-making prerogative of the executive, the court deems it appropriate to suggest certain options that the executive authorities may consider while formulating its response to the challenge at hand, that is, the delay of three decades in setting up the WWTP, says seven pages written judgement authored by Justice Syed Mansoor Ali Shah.
The bench clarified that these recommendations, while not binding, are intended to assist the executive in discharging its obligations towards environmental protection and sustainable development.
The order says that the land measuring 6,937 kanals was acquired by the Water and Sanitation Authority (WASA), an agency of the Lahore Development Authority (LDA), in three locations of Tehsil and District Lahore – Babu Sabu, Jhuggian Nagra, and Niaz Beg – in 1991-1992 through two awards dated 24.12.1991 and 23.02.1992.
The land was acquired for the public purpose of setting up a Wastewater Treatment Plant (WWTP) to treat the contaminated wastewater flowing into the River Ravi.
The order also said that initially, the WWTP was to be funded by the World Bank, but negotiations did not materialize, and nearly three decades have passed without any progress on the ground. The WASA MD and Housing and Urban Development Punjab secretary submit that fresh loan negotiations are now being pursued with the French Development Agency (AFD). In this regard, it is submitted that Form PC-11 is being put up for approval before the Provincial Development Working Party (PDWP), Central Development Working Party (CDWP), and the Executive Committee of the National Economic Council ("ECNEC") – key bodies responsible for economic planning, infrastructure development and public sector investments.
"It is further submitted that the ECNEC approval is expected by late August 2025, and, if granted, loan negotiations with AFD will commence in February 2026", says the order.
Justice Shah, while giving suggestions, has noted that access to climate finance is essential for ensuring climate adaptation and resilience, particularly in vulnerable regions like Pakistan, where environmental degradation directly affects fundamental rights such as life, health and dignity. In this context, climate finance emerges as a viable, self-sustaining alternative that not only aligns with environmental responsibility and financial sustainability but also upholds fundamental rights under the Constitution.
Islamic finance principles, particularly those emphasizing risk-sharing and ethical investment, offer a non-debt based approach to financing critical infrastructure. WASA may consider leveraging Waqf (Endowments), Sukuk (Islamic bonds), and Public-private Partnerships rooted in Islamic finance. For instance, a Green Sukuka Shariah-compliant financial instrumentcan be issued to raise funds specifically for the water treatment plant, attracting investors who seek both financial returns and environmental impact.
Islamic finance has been a game changer in climate action, offering ethical and sustainable financial solutions for the Global South. Indonesia successfully launched a Green Sukuk in 2018, raising $1.25 billion to finance renewable energy and climate resilient projects, demonstrating that Islamic financial instruments can effectively mobilize resources for environmental sustainability.
Malaysia's Sustainable and Responsible Investment (SRI) Sukuk, has funded water conservation, waste management and solar energy initiatives. By integrating Islamic finance into climate strategies, particularly in Muslim-majority and climate-vulnerable countries like Pakistan, there is significant potential to mobilize resources and enhance the impact of global climate initiatives.
The order also said that WASA may explore a range of WWTP technologies, including cost-effective and homegrown technological solutions to urgently provide sustainable water management for the people of Pakistan.
"Additionally, the restriction on using 6,937 kanals of acquired land exclusively for the WWTP may also be reconsidered. Given that the project footprint does not require acres of land, WASA may repurpose the remaining land for other climate adaptation initiatives such as afforestation, renewable energy projects (solar or wind farms) or sustainable agriculture to combat soil degradation and improve food security. By diversifying adaptation projects in the same area, WASA not only maximizes land use but also strengthens resilience against climate change. This aligns with the Pakistan's National Adaptation
Plan (2023-2030) which prioritizes adaptation efforts and identifies several key sectors such as water security, agriculture and food security, disaster risk reduction, health, urban planning and infrastructure, ecosystems and biodiversity and energy.
"Our institutions must promote national adaptation strategies through indigenous financial tools and home grown solutions that align with sustainability, community well-being and long-term economic stability," the order stated.
"Considering the importance of WWTP and its bearing on fundamental rights of the people, WASA may want to reconsider its financial and technological options while pursuing its negotiations with AFD."
"Let the PDWP through its Chair, Chairman Planning and Development Punjab, Civil Secretariat Lahore, CDWP through its Chair, Deputy Chairman Planning Commission, Pakistan Secretariat, Constitution Avenue Islamabad and ECNEC, Cabinet Block, Cabinet Secretariat, Red Zone Islamabad conclude the matter latest by end of August 2025. ECNEC is directed to submit its final report to the Court before the next date of hearing. A copy of this Order be dispatched to PDWP, CDWP and ECNEC for information and further action," read the order.
The court will resume the hearing in last week of September 2025 to assess whether the relevant authorities have successfully concluded the matter after exploring all possible financial and technological alternatives.