Page 23 - CMA Journal (Nov-Dec 2025)

Focus Section
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Pakistan’s Path to Sustainable Finance:
Green Taxonomy and Carbon Market Readiness
Introduction Recently, Pakistan has
made significant
Climate change is one of the biggest problems in the progress in this area. In
twenty-first century that poses severe danger to the February 2025, the State
environment, the society and the economy. In order to Bank of Pakistan (SBP)
resolve this issue, the economy must be essentially released the draft
re-oriented towards sustainability with inclusion of National Green Taxono-
investment, climate resilient growth and low carbon my for public comment,
development (UNEP FI, 2023). In this context, there is a need working with the Minis-
to coordinate capital flow with financial development, try of Climate Change
economic expansion and climate goals.
and Environmental
To help investors, regulators and legislators, nations around Cooperation (MoCC &
the world are creating green taxonomies, which are EC) and with assistance
classification schemes that specify environmentally from the World Bank. In
sustainable economic activity. Important turning points in order to help financial Imtiaz Bashir, FCMA
this transition include China’s Green Bond Endorsed Project institutions with credit
Catalogue, the European Union’s Green Taxonomy and the allocation and portfolio Senior Instructor of Commerce
ASEAN Taxonomy for Sustainable Finance (EU Commission, alignment, the frame- Government Graduate College
2020; ASEAN, 2021). At the same time, carbon markets have work attempts to of Commerce, Multan
become more popular as a way to set prices for carbon categorize activities into
emissions and encourage low carbon investments; more green, amber and red groups according to their environmen-
than 70 countries have either implemented or are preparing tal performance (SBP, 2025). Measurable screening criteria and
to implement carbon pricing instruments (World Bank, 2023). performance standards are being established for seven major
Pakistan’s vulnerability to the effects of climate change and sectors: energy, agriculture, manufacturing, transportation,
its obligations under the Sustainable Development Goals construction, water and ICT (ISSI, 2025).
and Nationally Determined Contributions make the This taxonomy is a first step in integrating sustainability and
adaptation of these frameworks even more urgent. An climate risk into Pakistan’s financial system. It would
important step in bringing financial industry practice into improve Pakistan’s preparedness for carbon markets and
line with Pakistan Vision 2030’s sustainable development sustainable finance reporting in accordance with
and climate goals is the National Green Taxonomy, which international norms, help mobilize green capital and
was started by the State Bank of Pakistan and the Securities connect investment flows with SDGs and NDCs.
and Exchange Commission of Pakistan.
The Carbon Market Framework
This article offers policy recommendations to hasten
Pakistan’s shift to sustainable finance by analyzing the A carbon market is a policy-driven system that gives carbon
country’s progress in creating a National Green Taxonomy emissions a monetary value, enabling nations, businesses or
and assessing its preparedness for integration into the organizations to effectively meet climate goals by
carbon market. purchasing and selling carbon credits. It functions through
two main mechanisms: voluntary carbon markets (VCMs),
Understanding National Green Taxonomy where organizations offset their emissions through
A national Green Taxonomy is a systematic framework of approved projects like reforestation or renewable energy,
classification that establishes what economic activities are and compliance markets, which are set up under regulatory
considered environmentally sustainable. It reduces frameworks like the EU Emissions Trading System (EU ETS)
greenwashing and improves the integrity of sustainable (World Bank, 2024). Globally, carbon markets are
finance by giving banks, investors, and regulators a uniform acknowledged as economical instruments to stimulate
framework for identifying, tracking, and reporting green innovation, encourage emission reductions and raise
investments (OECD, 2024). The EU’s Green Taxonomy, China’s private funds for low carbon development (UNDP, 2025).
Green Bond Catalogue and the ASEAN Taxonomy for As part of its obligations under the Paris Agreement and
Sustainable Finance are a few examples of the global Nationally Determined Contributions (NDCs), Pakistan has
taxonomies that direct financial flows toward climate started getting ready for the carbon markets in recent years.
resilient projects (EU Commission, 2023; ASEAN, 2024).
ICMA’s Chartered Management Accountant, Nov-Dec 2025