Air pollution is an economic risk, moot told

ISLAMABAD: A finance panel titled, ‘Financing Clean Air: Finance Sector Pathways for Industrial Transition’, chaired by Umang Vats, Regional Analyst Asia-Pacific, UNEP Finance Initiative, and Muhammad Rashid Mafzool Zaka, DG Research from Pakistan Institute for Parliamentary Services (PIPS) convened Pakistan’s commercial banks, capital market and the State Bank of Pakistan to discuss how Pakistan’s financial system can strategically accelerate investment in clean-air action and industrial decarbonisation.

The session was held during held during Air Sensors International Conference – ASIC Pakistan Mitigation Series 2025. Held on December 13 in Islamabad, and anchored in the State Bank’s Green Taxonomy, the session examined practical pathways for integrating air-pollution and climate-transition risks across high-emitting sectors—including steel, cement, transport, chemicals, and energy—and translating these risks into credible, finance-able opportunities.

The Panel discussed how Pakistan has laid important groundwork through the SBP Green Banking Guidelines (2017) and the ESRM Implementation Manual (2022), which introduced environmental screening, due-diligence procedures, Green Offices, and preferential support for eligible green investments. Yet these remain primarily project-level safeguards tools to prevent financing of harmful projects, rather than mechanisms that treat climate and nature risks as portfolio-wide, system-level drivers of financial stability.

Pakistan’s financial sector has long operated under the illusion that air pollution is someone else’s problem—an environmental issue rather than a financial one. But when 128,000 lives are cut short each year and particulate matter pollution routinely exceeds safe limits, air pollution is no longer an externality; it is a balance-sheet risk, a governance failure, and a national liability. A banking system that remains ‘neutral’ in the face of this reality is not neutral—it is mis-pricing risk. Modern finance must confront this truth.” Repurpose finance is the key for our times.

The global financial sector has already moved well beyond voluntary ESG. Under the UN-convened UNEP Finance Initiative, more than 350 banks and insurers are now embedding climate and nature risk into strategy, governance, and risk management. Institutions are expected to assess physical and transition risks across entire portfolios, set science-based targets for Scope 1–3 emissions, and align financing with net-zero and nature-positive pathways.

In her remarks, Umang Vats, Regional Analyst Asia-Pacific, UNEP FI shared a higher percentage of bank signatories to the Principles of Responsible Banking have adopted sector-specific credit-risk policies for borrowers in emissions-intensive sectors such as power utilities (695), oil and gas (545), and mining (61%). Emerging global sustainability regulations are shaping ESG landscape including sustainable disclosure standards by UK banks, and mandatory emissions reporting in many middle eastern banks.

As co-chair of the plenary, Mohammad Rashid Mafzool Zaka, DG Research, PIPS, highlighted the severe human cost of air pollution in Pakistan’s major cities—Lahore, Karachi, Faisalabad, and Peshawar—where an estimated 128,000 premature deaths occur annually.

On implementation of SBP’s Green Taxonomy, Zarak Khan Deputy Director, SME, housing and Sustainable Finance, SBP said the central bank is operationalising the Green Taxonomy through a phased, coordinated roadmap with commercial banks, SECP and stakeholders—prioritising banking-sector capacity building, aligned ESG disclosures with private sector, and pilot implementation with select sectors. ‘The core objective of the green taxonomy is climate mitigation and adaptation where our focus is on reducing GHG emissions. The ‘Do no significant harm’ section of the Taxonomy covers the overall air pollution aspect.’