25/08/2026
๐๐๐ค๐ข๐ฌ๐ญ๐๐งโ๐ฌ ๐๐ข๐ง๐๐ง๐๐ข๐๐ฅ ๐ฌ๐๐๐ญ๐จ๐ซ ๐ข๐ฌ ๐๐ง๐ญ๐๐ซ๐ข๐ง๐ ๐ ๐ง๐๐ฐ ๐ฉ๐ก๐๐ฌ๐ ๐ข๐ง ๐ก๐จ๐ฐ ๐๐ฅ๐ข๐ฆ๐๐ญ๐ ๐ซ๐ข๐ฌ๐ค ๐ข๐ฌ ๐ฎ๐ง๐๐๐ซ๐ฌ๐ญ๐จ๐จ๐, ๐๐ฌ๐ฌ๐๐ฌ๐ฌ๐๐ ๐๐ง๐ ๐ฆ๐๐ง๐๐ ๐๐.
Pakistan remains highly exposed to climate shocks. Here's how the State Bank of Pakistan (SBP) is embedding climate risk into the country's financial regulatory architecture.
Even for a central bank managing an economy as climate-exposed as Pakistan's, translating the risks of a warming world into concrete, institution-by-institution risk management is a complex regulatory undertaking.
Over the past year, SBP has moved decisively on this front, rolling out a series of frameworks designed to help financial institutions identify, measure and manage the risks that a changing climate poses to their lending portfolios and financial positions more broadly. Together, these measures establish a new layer of climate-related financial risk regulation within Pakistan's financial sector.
Central to this effort is a new climate stress testing regime. Financial institutions are now required to run single-factor climate stress tests using end-December data. Domestic systemically important banks (D-SIBs) face an additional layer: annual macro stress tests, grounded in audited financial statements, that must incorporate climate-related risks into the scenarios and be submitted to the SBP by June 30 of the following year. The central bank has said it will run its own in-house climate stress testing alongside this supervisory process and may follow up directly with institutions on risk mitigation or contingency planning where the results warrant it.
Running in parallel is a broader Regulatory Framework for Effective Management of Climate-related Financial Risks. The framework goes beyond disclosure, requiring institutions to integrate climate-related financial risks into governance, business strategy and risk management. Institutions have been given until mid-2029 to reach full compliance, but the near-term marker is closer: board-approved, time-bound implementation plans are due at the SBP by the end of September 2026.
The SBP has paired these risk-management measures with a tool aimed at the other side of the ledger: green finance. It has advised banks and DFIs to use the newly launched Pakistan Green Taxonomy as a reference guide when formulating and updating their green banking policies. The taxonomy is a classification system developed with technical support from the World Bank and gives institutions a common, science-based definition of what counts as "green," and is intended to support greater transparency and the allocation of capital toward environmentally sustainable activities.
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๐ซ๐๐ฆ๐๐ฐ๐จ๐ซ๐ค ๐๐ง๐๐๐ซ ๐๐ซ๐๐ฌ๐ฌ๐ฎ๐ซ๐
Pakistan's regulatory push is unfolding against a backdrop that leaves little room for delay. The country has recorded well over a hundred extreme weather events in the past quarter-century, including catastrophic floods in 2022 and again in 2025. The IMF/World Bank assessment identifies recurrent floods, intensifying heatwaves and accelerated glacial melt as climate vulnerabilities with implications for Pakistan's macro-fiscal stability. Against that backdrop, SBP's regulatory approach increasingly treats climate risk as a financial-sector risk requiring active identification, assessment and management, rather than as a distant scenario.
That context also shapes the honest limitations of where the framework stands today. Much of the current toolkit, the single-factor stress tests, the taxonomy, the governance requirements, represents a necessary first layer rather than a finished system. The next stage will require increasingly granular data, stronger modelling capabilities and continued engagement between the SBP and the institutions it supervises as implementation progresses.
Even so, the direction of travel is clear. By embedding climate considerations into stress testing, governance and green finance classification simultaneously, these measures signal a shift in the treatment of climate risk within Pakistan's financial sector - from an emerging sustainability consideration toward an increasingly embedded component of financial risk management and supervisory assessment. Getting the details right and continuing to refine them as data and modelling capacity improve, will be essential if these frameworks are to do more than sit on paper.
