ISLAMABAD – Pakistan’s fragile economy is facing a dual challenge of structural weaknesses and intensifying climate risks, with policy uncertainty further deterring much-needed sustainable investments, according to a new joint report by the Association of Chartered Certified Accountants (ACCA) and the Pakistan Business Council (PBC).
The report highlights that despite government commitments to export-led growth and sustainable development, investor confidence remains shaky due to inconsistent policies, regulatory unpredictability, and fragile political conditions. This instability poses a major obstacle to attracting foreign direct investment (FDI) — particularly in green finance, where returns are long-term and investors are wary of heightened risk.
Globally, the scale of the challenge is stark. A 2025 UN report estimated that developing economies face a $4 trillion annual investment gap to achieve the Sustainable Development Goals (SDGs). For Pakistan, this gap equaled 16.1% of GDP in 2023, among the steepest in emerging markets.
Climate vulnerability and rising risks
Pakistan is ranked among the most climate-vulnerable countries worldwide, with its dependence on agriculture and water resources making it especially exposed. Recent catastrophic floods wiped out crops, displaced communities, and worsened food insecurity. The World Bank warns that by 2050, up to 15% of South Asia’s GDP could be at risk from climate-related damages — a trend that could sap Pakistan’s already strained fiscal resources if resilience measures remain inadequate.
Sustainability regulations and corporate challenges
On the corporate front, sustainability is gaining traction. The Securities and Exchange Commission of Pakistan (SECP) has mandated phased adoption of IFRS S1 and S2 sustainability disclosure standards from July 2025, a step meant to improve transparency. However, compliance hurdles remain high.
Small and medium enterprises (SMEs) in particular face steep costs, limited data comparability, and risks of greenwashing — where firms exaggerate environmental claims, eroding investor trust. The report urges stronger independent assurance mechanisms to make disclosures credible.
Green finance initiatives — but limited scale
Pakistan has taken early steps to encourage green finance, including the State Bank’s Green Banking Guidelines (2017) and SECP’s Green Bond Framework (2021). Notable examples include WAPDA’s $500 million Green Eurobond (2021) and the Parwaaz Green Action Bond (2025), which showcased investor appetite for climate-focused projects.
Yet, experts warn these remain isolated cases. Without scaling such instruments and embedding them into mainstream markets, Pakistan risks missing its renewable energy target of 60% by 2030 and its pledge to ban imported coal.
Call to action
The ACCA-PBC report calls for urgent, coordinated reforms to unlock Pakistan’s sustainable investment potential:
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Investors must channel capital into renewable energy, water management, and climate-resilient sectors.
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Businesses should embed sustainability into core strategies rather than treating it as a side initiative.
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Regulators need to strengthen reporting frameworks, provide independent assurance, and offer incentives for green projects.
Without decisive action, experts caution, policy instability and climate vulnerability could continue to stall Pakistan’s transition to a sustainable, resilient economy.