Green taxonomy key to climate funds

Pakistan is positioning itself to access billions of dollars in international climate financing after finalising its Pakistan Green Taxonomy (PGT), a key framework designed to classify sustainable economic activities and align them with global climate finance standards.

Speaking to The Express Tribune on the sidelines of "Sustainability and the New Carbon Economy" at the Future Summit 2025 in Karachi, Sajjeed Aslam, Partner at Spectreco LLC, USA, emphasised that the taxonomy marks a turning point in Pakistan's climate policy architecture, enabling the country to credibly engage with international lenders, multilateral institutions and carbon markets. He stressed that this new framework, if coupled with transparent monitoring systems and capacity building, could unlock transformative funding opportunities from mechanisms such as the United Nation's Loss and Damage Fund, International Monetary Fund (IMF)'s Resilience and Sustainability Facility (RSF) and sustainability-linked investments.

Pakistan's completion of its Green Taxonomy is a "necessary precondition for credibility" in global climate finance, he said.

Without a standardised taxonomy and verifiable data, no global institution will channel climate funds effectively, he explained. "The taxonomy bridges the gap between Pakistan's sustainability commitments and its ability to report, measure and verify results, especially for decarbonisation and waste management projects."

Aslam noted that the EU's Carbon Border Adjustment Mechanism (CBAM), which will be fully implemented by 2026, has created urgency for Pakistan's industries - particularly textiles - to reduce and report emissions transparently. "CBAM is forcing exporters to prove their carbon neutrality. Without credible MRV (measurement, reporting and verification) systems, our products will lose competitiveness in European markets," he warned.

To address this, Aslam shared details of Pakistan's ongoing MRV pilot projects. Under the Suthra Punjab initiative, for example, the provincial government has begun integrating waste management data across multiple municipalities. Punjab is building its own MRV framework to monitor emissions, waste flows and recycling outputs, which could serve as a national prototype, he said.

He added that Sindh's public-private partnership housing projects for flood-affected communities also show promise as models for climate-resilient urban planning. "The future lies in decentralised systems - provinces must develop digital MRV tools so that when international auditors review our climate projects, the data is consistent, transparent and comparable," Aslam said.

The Spectreco partner highlighted how AI-driven sustainability tools are emerging as a critical enabler for climate finance readiness. "Artificial intelligence can automate data collection from thousands of local projects, normalise it and match it against green taxonomy indicators," he said. "This creates an integrated pipeline of projects that can directly qualify for climate-linked loans or carbon trading platforms."

He said international investors increasingly require traceable sustainability data before disbursing funds, whether for green bonds, ESG-linked finance or multilateral climate programmes. "The days of broad commitments and donor-driven project reporting are over." AI and MRV systems together provide the transparency required for Pakistan to access results-based finance, Aslam added.

Pakistan's finalised taxonomy, he said, now aligns with international standards such as those of the EU, ASEAN and the World Bank, and identifies six priority sectors - energy, agriculture, industry, transport, water and waste management - where investments can yield measurable emission reductions and climate resilience.

"This taxonomy will be the backbone of Pakistan's climate investment plan," Aslam emphasised. "It tells investors where the opportunities are and assures them that the financing will produce measurable green outcomes."

He also noted that Pakistan's improved macroeconomic stability under the IMF's RSF provides a unique opportunity to attract blended climate financing. "If we can merge fiscal discipline with sustainability-linked budgeting, Pakistan can access the RSF's green window more effectively," he said.

However, experts cautioned that taxonomy alone is not enough. "Implementation is key," said Aslam. "We need clear MRV guidelines for each sector, a digital repository of verified projects and alignment between provincial departments and financial institutions."

He also called for partnerships between the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP) and provincial governments to ensure the taxonomy translates into bankable projects.

"Pakistan has the policy architecture in place; now we must operationalise it," Aslam said. "If we synchronise taxonomy, MRV and AI-enabled monitoring, Pakistan will not just meet donor conditions but lead the region in sustainable finance readiness."

He said that as global trade and finance become increasingly linked to environmental compliance, Pakistan's green taxonomy offers a blueprint for economic competitiveness. "Climate finance is no longer charity, it's part of trade, investment and credit ratings," Aslam said. "If we can measure it, we can finance it. And if we can finance it, we can decarbonise."