THE catastrophic floods of 2022, which submerged a third of Pakistan and caused $30 billion in economic losses, laid bare the harsh reality of climate change in emerging markets.

The disaster displaced 33 million people, wiped out 10pc of GDP, and devastated millions of acres of farmland, triggering soaring food insecurity and inflation. Pakistan’s already fragile economy was pushed to the brink as its farms flooded, its infrastructure crumbled and the public sector struggled to respond to crisis calls from every direction.

Admittedly, this was the country’s biggest climate catastrophe, and it required massive relief and rehabilitation efforts from a cash-strapped government that did not have the resources to respond. And, yet, this was not a crisis created by those who were suffering its consequences.

Even though Pakistan accounts for less than one per cent of global emissions, it has already sustained climate-related damages of billions of dollars and is expected to lose over 6pc of its GDP annually due to climate-related damages, like floods, heatwaves and reduced agricultural productivity. As United Nations Secretary-General António Guterres bluntly put it: “Pakistan is a double victim — of climate chaos and of an outdated, unjust global financial system that blocks middle-income countries from accessing the resources they need for adaptation and resilience.”

Pakistan requires an estimated $40-50 billion annually for meeting its climate adaptation and mitigation needs. Yet, despite being one of the most climate-vulnerable countries in the world, it only receives $1.5-2 billion annually from international climate funds, multilateral development banks, and bilateral sources combined. Key sources include the Green Climate Fund (GCF), the Global Environment Facility (GEF), and the World Bank’s climate investment funds.

In the case of GCF, which remains the largest climate fund in the world, Pakistan has only secured $250 million to date, contrasting sharply with India’s $782 million and Bangladesh’s $441 million, highlighting a significant mismatch that threatens to undermine its resilience against future shocks.

While the much-discussed Loss and Damage Fund offered a glimmer of hope for vulnerable nations, the complex mechanics of accessing climate finance — from project preparation to implementation — remain a significant hurdle for frontier markets, like Pakistan.

Trillions of dollars in climate finance are theoretically available, with multilateral banks, sovereign funds, and private investors pledging record amounts towards mitigation and adaptation. The global green finance market crossed $1.5 trillion in 2023, and institutions, such as the International Monetary Fund (IMF) and the World Bank, along with various other climate funds, have ramped up commitments. Yet, for emerging markets like Pakistan, accessing these funds remains a struggle.

Pakistan requires an estimated $40-50 billion annually for meeting its climate adaptation and mitigation needs. But it currently receives only $1.5-2 billion from international climate funds. In the words of UN chief, Pakistan is a victim as much of climate chaos as of an unjust global financial system that blocks middle-income countries from accessing the resources they need for adaptation and resilience.

Complex approval and accreditation processes, stringent credit ratings, and high borrowing costs often mean that even climate-focused capital flows disproportionately to lower-risk, higher-return projects in more developed economies compared to going where it is most needed.

Meanwhile, billions in pledged funds sit unused, stalled by operational inefficiencies and a lack of viable financial instruments tailored to the needs of climate-vulnerable nations. Without structural reforms to unlock these funds, climate finance risks becoming more about commitments than impact.

As the world continues to suffer from the consequences of climate change, there is increasing acknowledgement, echoed at the last half-a-dozen UNFCCC annual climate meetings, that more needs to be done to support vulnerable countries, like Pakistan. Practitioners are aware that systems take time to shift, but as various stakeholders wait to see what the most recent change in US climate policy can predict for climate finance, it is also abundantly clear that we just do not have the time.

Even today, Pakistan continues to grapple with record temperatures against a backdrop of rolling economic crises, and urgent questions remain about how to respond to these threats when traditional funding markets invariably remain out of reach.

The data paint a stark picture. Since June 2023, each consecutive month has broken global temperature records dating back to 1850, with the past decade (2014-24) marking the warmest period in recorded history. During this period, Pakistan has also consistently ranked among the world’s ten most climate-vulnerable nations with devastating consequences on the ground. Temperatures in major cities regularly surpass 45°C, with unpredictable rainfall, droughts, landslides, and devastating extreme weather events severely impacting agricultural yields and water tables.

The economic implications of Pakistan’s climate vulnerability are particularly acute in its agricultural sector, which underpins both food security, employment and export earnings. Contributing 24pc to GDP, the sector provides critical inputs to manufacturing and textile, that in turn account for 75pc of export revenues.

Further, almost half the labour force is employed in agriculture and a vast majority of rural households entirely depend on it for their livelihoods. As such, the impact of climate on agriculture is well worth discussing in some detail, as climate shocks to the sector send shockwaves through the entire economy, compounding existing fragilities and deepening instability. And what makes things much worse is that the system is already stretched extremely thin.

As context, Pakistan’s agricultural sector is not only fragmented, but also deeply inefficient. Farming remains largely reliant on outdated techniques, exposing producers to unpredictable weather, disease outbreaks, and price volatility. These structural weaknesses have left Pakistan’s agricultural productivity trailing global standards — output per hectare for key commodities, such as wheat, cotton and rice, is 30-50pc lower than the world average.

For smallholder farmers, who cultivate 90pc of farms and half the country’s arable land, productivity is even more constrained, lagging by an additional 30pc. It is no surprise then that even though Pakistan ranks as the world’s eighth-largest wheat producer, its yield of 2.9 tonnes per hectare stands in sharp contrast to that of Ireland, which is the 60th largest producer, having a yield 72% higher.

The structural inefficiencies plaguing the agricultural sector create a vicious cycle of vulnerability for its farmers. The fragmented value chain compounds these challenges. Multiple intermediaries — from commission agents to wholesalers — extract margins at each step, driving up consumer prices while depressing farmer income. Accordingly, Pakistani rice farmers capture just 35pc of retail prices, compared to 65pc for their counterparts in India and Bangladesh.

In short, deep-rooted market distortions, limited access to weather advisory services, and outdated farming techniques have eroded productivity. Low yields, high post-harvest losses, and razor-thin margins create a self-reinforcing ‘poverty trap’, where farmers lack the capital to invest in modern farming and climate adaptation, leaving them ever more exposed to weather shocks. Decades of underinvestment in capacity-building and systemic resilience have only compounded this fragility — turning agriculture into a sector entirely unprepared for escalating climate threats.

This not only affects farmer income, but cuts across to increasing food insecurity in a context where 90 million people are already food-insecure and 38pc of children under five years of age are stunted. Also affected are areas like water shortage, rural-to-urban migration, current account imbalances, and the socio-economic fabric.

Clearly, Pakistan and other climate-vulnerable agrarian economies need to urgently invest in climate adaptation solutions to build resilience at a macro level. Given the limitations of available funding, it is also abundantly clear that there needs to be a real focus on project development. Private-sector investments in climate-focused agribusinesses present a commercially viable opportunity to address adaptation challenges, and do not require navigating potentially complex public-sector processes to get started. However, securing funding that aligns with the long-term nature of climate projects is essential.

Given the scale of the problem, Pakistan needs to develop a multi-stakeholder approach with private and public sector engagement. Accordingly, keeping the agriculture sector in mind, but extending to a broader focus on financial solutions, a few recommendations seem appropriate:

Bankable Projects: Efforts should be made to come up with projects that may attract investment, and leverage climate finance efficiently. Even if unlimited funding were to become available (and it is not going to be the case), we need to develop high-quality, commercially viable projects with robust IRRs and realistic risk/return profiles.

Financial Innovation: Utilise blended finance models and other innovative financial mechanisms to de-risk investments, attract private capital to higher-risk but impactful projects, and expand access to finance for smallholder farmers and early-stage innovators. Instruments such as sovereign green bonds can be used to offer alternative ways to mobilize funds while aligning incentives with sustainability goals. At the same time, parametric insurance and catastrophe bonds could provide financial buffers against climate disasters, reducing the strain on public finances.

Fintech-driven solutions, including digital lending for smallholder farmers and carbon credit markets, can further expand access to climate finance. However, for these innovations to succeed, Pakistan must develop a stronger regulatory framework, deepen capital markets, and enhance institutional capacity to scale investable climate projects.

Impact-Focused Grant: Acting as a catalyst for further private sector engagement and unlocking the potential for transformative solutions. This includes results-based financing, including carbon credits and impact bonds, concessional loans with forgiveness clauses, quasi-equity with no/low expected returns, and debt swaps for climate goals.

The Right Investment: Pakistan has struggled to develop stable, high-quality institutions and mechanisms that are specifically dedicated to climate finance, which makes it difficult to effectively access, manage and implement climate funds. The lack of institutional capacity and technical expertise results in limitations on project development, and a low base of high-quality, bankable climate project proposals that meet international standards and funding requirements.

Better coordination is needed between various government departments, as well as between federal and provincial levels, to present a unified approach to climate finance. Lack of clarity on key priorities and stakeholders can further delay funding decisions. In addition, frequent changes in government and policy directions can also create further uncertainty for international donors and investors, potentially limiting long-term commitments.

Developing and attracting specialized knowledge in climate finance, technology, and policy is crucial. We can learn from other developing countries, like Bangladesh and Chile, that are highly vulnerable to climate change have developed regulatory roadmaps and mechanisms for building capacity for national climate resilient development.

At this point, Pakistan urgently needs to foster a vibrant climate ecosystem by connecting early-stage innovators with established players, facilitating knowledge sharing, engaging experienced climate investors with corporates and experts to provide technical support and enable technology transfer to local climate solutions. The focus should be on collaboration, and mentorship to drive innovation and scale impactful solutions.

Additionally, offering technical assistance to help public institutions integrate climate risk considerations into development planning and policymaking can enhance the ability of government agencies to develop robust, climate-resilient projects that meet international funding standards for grant-based loans and concessional financing.

Private-Sector Engagement: With fiscal constraints and rising debt levels, Pakistan cannot afford to rely solely on public funds to finance its climate response. Private sector engagement is critical to mobilising large-scale investment in climate resilience and low-carbon development.

Creating an enabling regulatory environment — through targeted incentives such as tax breaks for green investments and mandatory climate risk disclosures — would help attract capital to climate-related projects. Blended finance models and public-private partnerships can further de-risk investments, ensuring both financial returns and equitable climate action. Beyond funding, private sector participation brings technological innovation, efficiency, and expertise, fostering solutions that are both economically viable and sustainable.

A paradigm shift is needed — one that prioritizes financial innovation, institutional reform, and private-sector engagement. Pakistan must urgently build a pipeline of bankable, climate-resilient projects that can attract both concessional and commercial capital, particularly in the agriculture sector.

At the same time, global financial institutions also need to reform their frameworks to ensure that climate-vulnerable nations can access financing on equitable terms. Without real reform, the gap between climate pledges and disbursements will keep increasing, turning climate finance into little more than empty promises at annual COP gatherings.

Pakistan’s ability to navigate this crisis will entirely depend on bold policy reform, strategic long-term investment in climate adaptation, and a multi-stakeholder approach that brings together the public and private sector. Indeed, the scale of the challenge is immense — but the cost of doing nothing is far worse.

The writer is the Regional Managing Director, Acumen.