Leveraging Climate Finance to Drive Innovation, Equity, and Resilience in Pakistan

An Interview with Ms. Nadia Rehman, Member (Food Security & Climate Change), Planning Commission

Climate finance plays a critical role in enabling governments to move beyond reactive planning and toward proactive, forward-looking investment in resilience. As climate risks intensify, there’s a growing need to embed adaptation and low-carbon development into national systems—and climate finance gives us the tools to do exactly that.

Globally, nearly 84% of climate finance is deployed domestically, which highlights the importance of building national mechanisms that can identify, prepare, and scale climate-aligned investments. In Pakistan, we’ve made significant progress in this direction by integrating climate considerations into how public projects are designed, screened, and selected. Every development project is now assessed for its vulnerability to climate risks, potential to reduce emissions, and ability to contribute to resilience. This helps ensure that climate objectives are mainstreamed into the country’s core development priorities.

More importantly, climate finance is helping us shift from isolated projects to a coordinated pipeline of investments that are eligible for green bonds, sukuks, and other innovative financing tools. This allows us to attract private capital, expand our fiscal space, and unlock new sources of funding for projects in sectors like energy, water, agriculture, and infrastructure. Climate finance isn’t just about money—it’s about creating a system that encourages innovation, de-risks investments, and drives long-term resilience across all levels of government and society.

Pakistan has made substantial progress in designing and implementing climate finance programs that drive innovation and build resilience across vulnerable sectors. One of the most significant milestones is the launch of the country’s first sovereign Green Sukuk in May 2025. The issuance raised PKR 31.98 billion and was oversubscribed by 5.4 times, reflecting strong investor demand. Structured as a three-year Ijarah-based instrument, the sukuk offers semi-annual rental returns and is fully tradable on the Pakistan Stock Exchange, qualifying for the Statutory Liquidity Requirement (SLR). With a minimum investment of PKR 5,000, it was designed to include not just institutional players but also retail investors and Roshan Digital Account holders. The proceeds are directed toward three climate-resilient infrastructure projects: Garuk Storage Dam (Balochistan), Naigaj Dam (Sindh), and Shagarthang Hydropower Project (Gilgit-Baltistan), each of which addresses critical water, flood, and energy challenges in high-risk regions.

Another innovative example is the Resilient and Accessible Microfinance (RAM) program, a USD 125 million facility designed to protect financial access in climate-vulnerable areas. It includes a USD 20 million Climate-Adaptive Agriculture Liquidity Window and a USD 105 million Contingent Liquidity Facility triggered by extreme weather events or official disaster declarations. The program is backed by a USD 23 million grant and uses parametric triggers and performance-based disbursement, enabling rapid response while ensuring financial stability for microfinance institutions and informal borrowers.

To further support climate-smart investments, Pakistan with support of FCDO and IFC, has introduced the Climate Investment Fund for Pakistan (CIFPAK), a £108 million facility that helps accelerate the preparation and implementation of bankable, climate-aligned projects. CIFPAK supports both public and private sector partners in aligning with green finance frameworks and serves as a foundational mechanism for scaling climate innovation through blended finance.

Pakistan is also restructuring major public sector projects to align them with climate finance instruments. A strong example is the Sindh Coastal Resilience Project, which combines multiple funding sources: USD 100 million from IFAD (61%), USD 6.73 million from the Government of Sindh, USD 0.92 million from the private sector, USD 2.75 million from beneficiaries, and USD 53.1 million from commercial banks. This model leverages concessional financing and commercial investment to build coastal infrastructure that strengthens resilience against sea-level rise, salinity, and floods.

Similarly, the Rural Development and Climate Resilience Project in Gilgit-Baltistan pools financing from the French Development Agency (AFD) (Rs 8.59 billion), the European Union’s Asia Investment Facility (Rs 1.4 billion grant), community contributions (Rs 1.88 billion), loan support from the Aga Khan Agency for Microfinance (Rs 3.31 billion), and an additional Rs 700 million grant from the Aga Khan Development Network. This project is enabling holistic rural development that integrates water security, agriculture, and community resilience through climate-smart investments.

Together, these programs showcase how a well-coordinated climate finance strategy can drive innovation in financial structuring, institutional reform, and public-private-community partnerships. More importantly, they demonstrate that climate finance is not only about raising funds—it is about designing systems that deliver resilience, inclusion, and long-term transformation on the ground.

The government is balancing immediate development priorities with long-term climate resilience by embedding climate and carbon screening directly into the national public investment planning process. Through the Intelligent Project Automation System (iPAS), automated climate and carbon screening is being operationalized across all five stages of the PC-I to PC-V formats. This ensures that every public sector project is evaluated not only for technical and financial viability but also for climate vulnerability, mitigation potential, adaptation benefits, and emissions profile.

As a result, projects are being designed with both near-term developmental outcomes and long-term climate risk management in mind. For example, new infrastructure investments are now required to report on resilience fields such as hazard exposure, emissions estimates, and adaptation components. This allows planners and approvers to make informed decisions that serve both present and future needs.

In parallel, a Green Project Asset Register has been developed to identify and consolidate eligible public sector projects across sectors like energy, water, agriculture, and transport. These projects are screened against Pakistan’s Green Taxonomy, the Sovereign Green Sukuk Framework, and climate finance eligibility criteria. Only those that meet resilience and sustainability thresholds are shortlisted for green sukuk issuance, blended finance, or carbon market piloting. This pipeline approach ensures that climate-compatible investments are prioritized for both domestic and international funding streams.

Altogether, these reforms ensure that Pakistan’s development agenda is no longer separate from its climate strategy. Instead, short-term service delivery and infrastructure goals are now being delivered through a lens of long-term climate innovation and resilience.

The government is actively working to embed gender equality and social inclusion in both the design and delivery of climate finance systems. This includes ensuring that public investments account for the differentiated impacts of climate change on vulnerable populations, particularly women, youth, and low-income communities.

As part of broader reforms in public investment planning, gender-responsive approaches are being introduced into the way projects are appraised and approved. Specifically, guidelines for gender-responsive project preparation and appraisal are under development. These guidelines aim to ensure that proposed investments not only address climate risks but also contribute to the empowerment and protection of those most affected by them.

At the programmatic level, social inclusion is also built into innovative financial instruments. The Resilient and Accessible Microfinance (RAM) facility—a USD 125 million program—specifically targets microfinance institutions and informal borrowers, many of whom are women in rural and climate-vulnerable areas. The facility includes a climate-adaptive agriculture window and contingent liquidity mechanisms, allowing rapid deployment of funds when disaster strikes. By doing so, it safeguards livelihoods, sustains credit access for the underserved, and strengthens financial inclusion even in times of crisis.

These measures reflect a broader shift toward climate finance systems that are not only technically sound but also socially responsive. By aligning financial flows with principles of equity and inclusion, the government is working to ensure that the transition to a resilient, low-carbon economy benefits all segments of society—especially those most at risk.

Yes. Climate finance is being structured to expand the participation of women and youth in resilience-building efforts. For example, the Rural Development and Climate Resilience Project in Gilgit-Baltistan, with blended financing from AFD, EU, and community contributions, includes components focused on women’s economic empowerment and community-led development in remote, climate-vulnerable areas. Similarly, the RAM facility safeguards financial access for informal borrowers—many of whom are women—through disaster-triggered liquidity support. These mechanisms enable women and youth to engage as active participants in climate innovation, not just recipients.