Pakistan races to build climate defenses

May 15, 2026 (MLN): Pakistan is undertaking its most sweeping institutional overhaul of climate policy to date, rolling out measures spanning flood preparedness, green finance, electric vehicles, carbon levies, and renewable energy even as the country braces for a potentially more destructive 2026 monsoon season and carries over Rs 5.2 trillion in energy sector circular debt that threatens to crowd out climate spending.

It is reaffirmed that Pakistan remains among the world's most climate-exposed nations. Severe monsoon floods in 2025 caused multibillion-dollar damages and widespread displacement, echoing the catastrophic 2022 floods and underlining what the report describes as a persistent systemic risk.

The country's standing in global Climate Risk Index assessments reflects elevated vulnerability across both single-year and long-term horizons, according to the World Bank Group assessment letter prepared as part of IMF’s Third Review under Pakistan's Extended Arrangement under the Extended Fund Facility and the Second Review under the Resilience and Sustainability Facility, published in 2026.

Looking ahead, the National Disaster Management Authority has warned that the 2026 monsoon season may be more intense than usual, with projections pointing to increased rainfall severity and a wider geographic spread.

In response, the Prime Minister has endorsed a national flood preparedness plan focusing on federal-provincial coordination, early warning systems, flood mitigation infrastructure, and restoration of climate-damaged assets. The NDMA has also issued a National Disaster Response Plan 2026 designed as a comprehensive and scalable framework to guide response operations across all tiers of government.

A digital monitoring and evaluation system for Pakistan's National Adaptation Plan launched in 2023  is expected to be completed by mid-2026. The report notes this will be the first time the government is able to systematically track sectoral and provincial adaptation progress and integrate climate risk data into broader planning.

On public investment, all projects exceeding Rs7.5 billion are now required to undergo climate risk assessments evaluating exposure to floods, heatwaves, and other hazards before approval  described as the first time Pakistan has embedded climate risk screening into its core development programming. Additionally, at least 30% of total infrastructure spending must be directed toward climate-relevant or climate-resilient measures.

Climate budget tagging has expanded notably at the subnational level. Punjab's FY2025–26 Annual Development Programme tagged Rs 795 billion as climate-related, including Rs 277 billion specifically for adaptation investments across water, agriculture, and urban sectors.

The Ministry of Climate Change is also drafting a National Glacier Preservation Strategy, currently under stakeholder consultation. The report highlights Pakistan's particular exposure given that it is home to the world's largest concentration of non-polar glaciers.

GREEN FINANCE AND BANKING REFORMS

The State Bank of Pakistan issued a circular on December 10, 2025, requiring all banks and Development Finance Institutions to adopt the Pakistan Green Taxonomy, incorporating nationally defined green criteria into lending and investment portfolios beginning in 2026.

The Securities and Exchange Commission of Pakistan simultaneously issued revised ESG Disclosure Guidelines for listed companies, with mandatory climate risk disclosures phased in by June 2029.

Pakistan also launched its first Sovereign Domestic Green Sukuk, valued at US$100 million, at the Pakistan Stock Exchange on May 16, 2025, earmarked for climate-resilient and new energy projects.

A climate stress testing framework has been introduced by the State Bank, requiring phased implementation by June 2029. The framework is designed to assess banks' exposure to climate-related transition and physical risks.

ENERGY TRANSITION AND TRANSPORT

The report notes that renewables have surpassed earlier national targets ahead of schedule, with solar  particularly distributed generation by consumers  emerging as the fastest-growing contributor to the power mix. Subnational initiatives in Punjab and Sindh have accelerated rooftop solar adoption through public facilities and municipal programs.

At the federal level, Prosumer Regulations 2026 have shifted new applicants from net metering to a net billing framework.

The report cautions that while this aims to ensure the long-term financial sustainability of the power system, it alters payback periods for households and commercial users, and that predictable policy signals will be important to maintain investor confidence.

On transport, the New Energy Vehicle Policy 2025–2030 establishes phased targets for electric vehicle penetration across two-wheelers, three-wheelers, and passenger vehicles, provides purchase subsidies, and outlines fiscal incentives for domestic assembly and charging infrastructure.

A notable feature highlighted in the report is the explicit inclusion of social equity provisions reserving a portion of EV subsidies for women and lower-income consumers.

Furthermore, the government has institutionalized a carbon levy with a legislated escalation path, intended to discourage emissions-intensive fuels, encourage EV adoption, and generate fiscal revenues for climate priorities. The report calls for a clearer framework to monitor how levy proceeds are allocated.

Under Article 6.2 of the Paris Agreement, the Ministry of Climate Change has issued Letters of Intent for several mitigation activities, including two World Bank-supported projects in Punjab and Sindh.

These are expected to generate verified emissions reductions and unlock approximately US$40 million in results-based climate finance once verification milestones are met.

The report also flags Pakistan's growing exposure to the European Union's Carbon Border Adjustment Mechanism as an emerging competitiveness risk. While current CBAM coverage is limited, a potential expansion to textiles could pose significant challenges unless Pakistani firms develop the capacity to measure, report, and verify emissions at the facility level.

CIRCULAR DEBT AND FISCAL PRESSURES

The report acknowledges that tariff rationalization and subsidy reforms required under the IMF program create short-term affordability pressures.

Annual electricity tariff rebasing, semi-annual gas tariff adjustments, and the carbon levy are expected over time to align price signals with underlying costs and potentially crowd in private investment provided reforms are implemented predictably and accompanied by protections for vulnerable consumers.

WORLD BANK GROUP ENGAGEMENT

The World Bank Group's 10-year Country Partnership Framework for Pakistan (2026–2035) commits up to US$40 billion in total financing, US$20 billion in World Bank lending and a further US$20 billion in IFC and MIGA private sector mobilization at a pace of US$1.5 to US$2 billion per year.

Two of six framework outcomes are explicitly climate-focused. Since FY2014, 39% of all IDA/IBRD project commitments in Pakistan have delivered climate co-benefits.

Select ongoing and pipeline programs of note include:

IFC is also advancing a green taxonomy, sustainability-linked loans, green bond issuances, and an e-mobility advisory with Pakistan's Ministry of Production and Industries focused on electric two- and three-wheelers.

The report concludes that while Pakistan has advanced meaningfully across adaptation planning, climate-responsive public finance, financial sector alignment, renewable deployment, clean transport, and carbon market readiness, sustained progress will require maintaining policy predictability for private investors, formalizing disaster risk financing instruments, developing an economy-wide long-term low-emissions strategy, and accelerating preparedness for CBAM-related trade pressures.

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