Ayesha Saba

The International Finance Corporation (IFC), a member of the World Bank Group, is nudging central banks around the world, including the State Bank of Pakistan, to finance green initiatives and expand green banking opportunities to minimise the adverse impacts of climate change.

Talking to WealthPK, Ahmad Faraz, an assistant professor at the Pakistan Institute of Development Economics, Islamabad, pointed out that the green banking concept emerged in the last decade to make up for the adverse impact financial institutions had been putting on the climate. However, he said adoption of green banking practices in developing economies, especially in Pakistan, were scarce.

“The SBP in collaboration with IFC has launched the Environmental and Social Risk Management (ESRM) Implementation Manual for banks and development finance institutions (DFIs),” he said, explaining that the manual has put more emphasis on social and climate risks that are becoming relevant and crucial for Pakistan.

Ahmad Faraz pointed out that Pakistan faced several challenges in adopting and implementing such practices, including low customer awareness of green banking, high investment costs, and technical challenges. “To promote green banking in Pakistan, there is a need for a comprehensive regulatory framework that mandates banks to adopt green banking practices, along with capacity building initiatives to enhance the knowledge and skills of bank personnel in environmental risk management,” he said.

Talking to the WealthPK, Muhammad Daniyal, an official at an MCB branch in Islamabad, said that green banking, known as sustainable banking or ethical banking, was a concept that promoted environmentally responsible practices in the financial sector. “It involves incorporating environmental considerations into banking operations, investments, and lending practices to support sustainable development and mitigate effects of climate change.”

He said that SBP had taken some important measures in the past few years to promote green banking and sustainable initiatives in Pakistan. “Pakistan’s banking sector has also embraced a number of green initiatives such as installing solar-powered ATMs and using solar power as an alternative energy source in rural and distant locations,” he added.

The MCB official said many banks had begun providing incentives for environment-friendly initiatives in industries to reduce carbon emissions and effectively employ renewable energy for sustainability. Some banks have started offering green financing products, such as green loans for renewable energy projects, energy-efficient equipment and sustainable agriculture.

Credit: Independent News Pakistan-WealthPk