Page 91 - CMA Journal (Nov-Dec 2025)

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Key ROI Components of Green Banking Practices
ROI Metric Definition Financial Impact
Return on ng
Assets (ROA) profitability achieved through environmentally and
rs

Return on Net income as a percentage of shareholders’ equity, ROE by lowering credit risk,
Equity (ROE) s to
concessional funding, and managing environmental risks, thereby
green lending and investments in renewable projects. strengthening asset quality and long-term profitability.
Green Tobin's Q

returns for banks and firms.
Credit Risk / Non- Green financing linked to lower credit risk and reduced NPLs due to
NPL structured risk assessments and project viability filters, improving
Improvement
Risk-adjusted mental risk. Green banking adop
Profit as loans and projects screened for climate and environmental risks
deliver higher expected returns through reduced default probabi

Current Adoption Status, Hopes and Hurdles Future Outlook and Way Forward for

Green banking in Pakistan has evolved steadily over the past Pakistan’s Green Banking
decade, guided by the Green Banking Guidelines issued by the Pakistan’s green
State Bank of Pakistan, which provide a comprehensive banking is evolving Digital & •Online & MMobile
framework for integrating environmental and social risk Sustainabl Banking
from an emerging e Bankiing •Ethical & S Sustainable
management into banking operations. Channeels Banking
policy initiative into
These guidelines require financial institutions to allocate a strategic pillar of • •Green Savings Accoounts
Green
funding to projects that improve carbon efficiency, adopt the financial system. Deposit & • •Green Market-linkeed
Accounts
resource-saving technologies, and reduce environmental With climate financ- Transac on • •Green Checking
Accounts
impacts, while promoting sustainable sectors such as ing needs approach- Accounts
renewable energy, clean transportation, and climate-resilient ing USD 340 billion
agriculture. by 2030, integrating Green • •Green Cer ficates OOf
climate risk into Investment Deposit (CDs)
& Deposit
To implement these directives, the Environmental and Social lending, portfolio Instrument • •Remote Deposit
Capture (RDC)
Risk Management Manual offers standardized tools for risk management, and s
classification, monitoring, and reporting, enabling banks to
capital allocation
Green
track their carbon footprint and assess the environmental Credit && •Green Loanns
will be essential, and • Green Mor rtgages
impact of their lending portfolios. The introduction of the all local banks would Financinng • Green Creddit Cards
Productts
Pakistan Green Taxonomy last month further streamlines be required to
investment by defining eligible green activities, providing mainstream climate
clarity for both local and foreign investors.
considerations in credit and investment decisions to support
In 2024, practical outcomes include the disbursement of over sustainable financial stability.
Rs. 94 billion under the Renewable Energy Refinance Scheme, With recent milestones such as the sovereign Green Sukuk,
supporting more than 4,500 installations generating over 2,000 expanding refinance facilities, and rising ESG recognition
MW, and the issuance of Pakistan’s first sovereign Green Sukuk, reflecting growing market confidence, Pakistan faces several
which raised over Rs. 31 billion to fund major hydropower
strategic imperatives:
projects across Balochistan, Sindh, and Gilgit-Baltistan.
• Climate Disclosure Standards: Pakistan must mandate
These initiatives align with Pakistan’s Third Nationally standardized, sector-wise disclosure of banks’ domestic
Determined Contribution (NDC 3.0) announced in September, loan portfolios and financed emissions, aligned with IMF
which targets a 50% reduction in projected greenhouse gas and PCAF methodologies. This enables accurate
emissions by 2035, including 17% unconditional and 33%
measurement of the Carbon Footprint of Bank Loans
conditional on international support, emphasizing
(CFBL), strengthens climate-risk supervision, and ensures
cross-sectoral climate adaptation in the energy, water, transparent low-carbon credit allocation.
agriculture, and health sectors. Despite these strides, significant
challenges remain, including uneven institutional capacity, a • Green Finance Diversification: Banks should expand
shallow domestic green capital market, inconsistent green financial instruments beyond renewable energy
enforcement of guidelines, and macroeconomic pressures such into electric mobility, climate-smart agriculture, and
as inflation and currency volatility, which are increasing the cost resilient housing, with a focus on financing SMEs for green
of green financing. policy adaptation.
ICMA’s Chartered Management Accountant, Nov-Dec, 2025 89