Pakistan's Banks Ignore Climate in Project Financing, FFP Review Finds

KARACHI: Pakistan's major commercial banks have made only limited progress in extending sustainability commitments to the businesses and projects they finance, and banks climate financing Pakistan remains the weakest link in the sector.

The 2025 Benchmark of Bank Sustainability Policies in Pakistan was released by Fair Finance Pakistan (FFP) on the sidelines of the World Bank-IMF Annual Meetings in Bangkok. It evaluated seven of the country's largest banks and found a sharp gap between how they manage their own operations and how they judge the projects they fund.

What the Fair Finance Pakistan assessment found

The review reported positive policy coverage for borrowers and projects at just 13.8 percent for climate change and 26.8 percent for biodiversity. Those numbers sit far below the coverage banks claim for their own operations.

According to the findings, 75.4 percent of policy elements relating to banks' own operations received a positive basic score. For the companies and projects they finance, that figure dropped to only 23.1 percent. The gap suggests green promises stop at the office door.

The assessment was conducted with Lahore University of Management Sciences (Lums) and the research group Profundo. Seven banks were covered: Habib Bank Ltd (HBL), United Bank Ltd (UBL), MCB Bank, the National Bank of Pakistan (NBP), Meezan Bank, Allied Bank (ABL) and Standard Chartered Pakistan (SCBPL).

Eight themes were assessed. Governance-related policies, covering anti-corruption, tax transparency and accountability, performed best with a sector average of 3.39. Social themes averaged 3.14. Environmental policies trailed far behind at 1.40.

The pattern points to a simple reality. Pakistani banks are comfortable with boardroom governance reforms. They are far less comfortable asking hard climate questions of the borrowers who actually use their money.

How the seven banks scored

Allied Bank topped the overall assessment, scoring 41.05 percent of the maximum attainable. Standard Chartered Pakistan came next at 34.28 percent, followed by HBL at 32.90 percent.

Meezan Bank scored 28.96 percent. MCB Bank managed 22.95 percent, United Bank Ltd 18.88 percent and NBP brought up the rear at 16.94 percent. No bank crossed 42 percent, and the spread between the best and worst performers was wide.

The climate-specific numbers were even weaker. Standard Chartered Pakistan recorded the highest climate-change score at 3.63 out of 10, followed by Allied Bank at 1.45 and HBL at 1.37. Every other bank scored below 0.50.

Biodiversity scores showed a similar concentration among a few lenders. Standard Chartered led with 5.31, followed by Allied Bank at 3.05. MCB Bank and the National Bank of Pakistan scored zero.

These scores do not flatter the sector. Even the leader barely reached two-fifths of the maximum. For a country battered by floods, extreme heat and air pollution, the results raise uncomfortable questions about where bank money flows.

The concentration of scores is telling too. Only two banks managed a climate score above 1 out of 10. The rest cluster near zero. That pattern suggests most lenders treat climate as a branding exercise, not a credit discipline. Borrowers with heavy footprints can still walk into a branch and walk out with a loan.

Banks climate financing Pakistan: why the environment lags

Presenting the findings, Lums Professor Emeritus of Economics Dr Abid Aman Burki said environmental policies remained the weakest dimension. Climate and biodiversity scores, he noted, barely moved above one out of 10.

FFP's Country Programme Lead Asim Jaffry said lending decisions shape which industries and projects get built. Those choices carry consequences for air quality, human rights and natural habitats, he argued. Money is never neutral.

The report cautions that the assessment measures the quality and scope of publicly disclosed policies. It does not measure actual environmental or social outcomes on the ground. A bank can look decent on paper and still fund damaging projects.

Even so, the gaps matter. If climate and nature-related risks are absent from financing decisions, they are unlikely to be managed at all. In a country increasingly exposed to floods, extreme heat and choking air, that blind spot carries a cost far beyond balance sheets.

The review also recommends stronger borrower obligations, independent monitoring, greater portfolio-level disclosure and consistent environmental and social safeguards in credit appraisal. The message is clear. Disclosure alone will not cut it.

What the State Bank is doing next

The findings land as the State Bank of Pakistan advances its Green Taxonomy and a climate-related financial-risk framework. These sit alongside existing Green Banking Guidelines and environmental and social risk management requirements.

Bushra Shafique, who heads the SBP's banking policy and regulations department, said banks are being moved from voluntary commitments toward real implementation. Climate risks are expected to feed into governance, strategy and lending decisions over the next three years.

That shift, if it holds, could change the incentives. Right now, a bank can publish a green pledge while its loan book tells a different story. Integrating climate risk into credit appraisal would narrow that gap.

Analysts say the transition will test the regulator's resolve. Banks have lived with voluntary pledges for years. Mandatory rules, backed by the Green Taxonomy and risk frameworks, would force the sector to price climate risk rather than simply admire it.

The stakes are not abstract. Pakistan ranks among the most climate-vulnerable countries in the world. Every season brings a new reminder, from ruined crops to flooded cities. If the financial system keeps ignoring climate in project financing, recovery bills will keep landing on taxpayers instead of polluters.

For now, the benchmark offers a baseline. The next edition will show whether the banks move, or whether Pakistani finance keeps funding a warming world with one eye shut.

Frequently asked questions

What did the Fair Finance Pakistan assessment examine?

The 2025 Benchmark of Bank Sustainability Policies in Pakistan assessed seven major banks across eight sustainability themes. It checked publicly disclosed policies for the banks' own operations and, more importantly, for the companies and projects they finance. The review was released by Fair Finance Pakistan with Lums and Profundo.

Which bank performed best in the assessment?

Allied Bank topped the overall assessment with 41.05 percent of the maximum attainable score. Standard Chartered Pakistan followed at 34.28 percent and HBL at 32.90 percent. Still, no bank crossed the 42 percent mark, which shows even the leaders have far to go.

Why did climate and biodiversity score so low?

Positive policy coverage for borrowers and projects stood at only 13.8 percent for climate change and 26.8 percent for biodiversity. Standard Chartered had the highest climate score at 3.63 out of 10, while most banks scored below 0.50. MCB and NBP scored zero on biodiversity, showing climate concerns rarely reach credit decisions.

Is the State Bank of Pakistan taking action on this?

Yes. The State Bank is advancing its Green Taxonomy and a climate-related financial-risk framework, alongside Green Banking Guidelines. The central bank says it is moving lenders from voluntary commitments toward implementation, with climate risks to be integrated into governance, strategy and lending decisions over the next three years.

Does the report measure actual pollution caused by bank-funded projects?

No. The assessment measures the quality and scope of publicly disclosed policies, not real-world environmental or social outcomes. However, the report notes that weak policies raise concerns about whether climate and nature-related risks are reflected in financing decisions in a country facing floods, extreme heat and air pollution.