The season of smog is upon us and like every year Lahore is maintaining its position among the top three slots in the Global AQI Ranking. Pakistan is facing unprecedented levels of air pollution, which are directly impacting the country’s economic and social sustainability indicators. According to the Pakistan Air Quality Initiative (PAQI), the pollution of PM2.5 increased by 25% in Lahore in 2024 compared to 2023. The average pollution level also went up by 23% as compared to last year. The smog season crippled life in Lahore for nearly six months during 2024-2025, causing the people to breathe air with PM?.? levels at least 20 times higher than WHO recommendations. Air pollution has serious health impacts, shortening the average Pakistani’s life expectancy by approximately 3.3 years. The economic burden of smog in Punjab is significant, costing Pakistan about 5.88% of its GDP annually, which amounts to approximately US $47.8 billion. This cost is driven by healthcare expenses, lost productivity, and disruptions in economic sectors like tourism and agriculture.
The banking industry can use Impact Financing to tackle Pakistan’s air pollution crisis by issuing social & environmental impact loans for various green projects
Under Pakistan’s Constitution, every citizen is entitled to a clean, healthy, and sustainable environment, affirming access to pure air and safe water as fundamental human rights. However, the persistent environmental degradation across the country underscores a troubling gap between constitutional ideals and lived realities. Pakistan needs approximately USD $348 billion to address its climate change challenges between 2023 and 2030. Smog is not merely a health nuisance. It has a substantial economic toll in the form of lost workdays, higher healthcare costs, reduced school attendance, lower labour productivity, and an unattractive investment climate in polluted cities. Tackling the smog crisis requires more than just short-term bans or school vacations. The Environmental Protection Agency (EPA) has to play a proactive role in this regard. The Government of Pakistan, especially the Punjab Government, is taking substantial measures to set us upon the path of environmental sustainability, but this cannot be achieved without public-private-partnership across various economic sectors. The government needs to set up Climate Courts that can deal specifically with cases related to climate change, environmental degradation, and sustainability issues. Such courts can ensure that governments, corporations, and even individuals are held accountable for their actions or inactions that harm the environment or violate environmental rights.
The solution to Pakistan’s air pollution crisis lies in channeling capital towards solutions that reduce emissions and strengthen resilience, and this is where Pakistan’s banking industry comes in. The banking industry has to integrate social and environmental impact alongside financial impact when conducting credit portfolio analysis. This emerging force is called Impact Financing, which refers to financing with the intention of generating quantifiable social and environmental benefits alongside financial returns. Unlike traditional philanthropy, which donates funds without expecting repayment, or conventional investing, which focuses solely on profit, impact financing is a bridge between doing good and doing well. The goal is not just to fund change, but to make change financially sustainable. Impact Finance measures and reports the social or environmental impact so investors know their money is doing measurable good, e.g., tons of avoided CO?, reduction in PM2.5 exposure, or the number of households gaining clean energy access.
Impact financing can be either Social Impact Financing or Environmental Impact Financing, where socially or environmentally sustainable projects are financed through public-private partnerships based on quantifiable social, environmental, and economic returns. Social Impact Bonds and Environmental Impact Bonds are financial instruments used to channel private funding towards socially responsible or eco-friendly projects, and the investors are repaid based on measurable outcomes. The UK’s Peterborough Prison Project was the world’s first Social Impact Bond, launched in 2010. It aimed to reduce reoffending rates among released prisoners. Investors were repaid only if the program successfully lowered crime, which it did.
Globally, environmental impact finance is growing rapidly, with over USD 1.7 trillion worth of Environmental Impact Bonds issued in 2024. The banking industry can use Impact Financing to tackle Pakistan’s air pollution crisis by issuing social & environmental impact loans for various green projects, including but not limited to climate-smart agricultural practices, zig-zag brick kiln technology, green construction, clean mobility industry, green supply chain, green manufacturing, and eco-tourism. Furthermore, integrating the transparent reporting of the Impact Financing measures in the ESG reports will result in building investor confidence and increasing the pace of green & sustainable finance adoption in Pakistan. Lastly, awareness of social and environmental sustainability among all the stakeholders concerned, including the public, is compulsory for the success of any ideology. Money is only as powerful as the problems it helps solve, and it is time our investments reflect that purpose by supporting projects that advance sustainability, ease social and environmental burdens, and give every rupee a responsible meaning.
Dr Syed Asim Ali Bukhari is working as SVP / Unit Head – ESG at The Bank of Punjab, and Dr Syeda Nazish Zahra Bukhari is working as an Assistant Professor at the University of the Punjab.