AWARENESS, action, the required funding for the said action, implementation, and, finally, the results of the said action — these are all very different things. A case in point is the air pollution in Pakistan. The air we breathe has been foul for decades. Among the earliest measurements of air pollution in Pakistan was a study conducted in Lahore in 1978, cited in the International Journal of Advances in Sustainable Development. The metric used was Suspended Particulate Matter (SPM), a broader measure that predates today’s more precise focus on particulate matter. The study recorded an average SPM concentration of 332μg/m³ in Lahore’s commercial core — an extremely high level of particle pollution by any standard. And, yet, it is only in recent years that the idea of combatting the noxious air we all breathe has come into focus. For many of us, growing up, the extent of our knowledge was limited to ‘plant more trees’.

So, what exactly is wrong with the air we breathe? Before financing questions can be addressed, the pollutants themselves must be understood. As energy expert Ammar Habib Khan explains, it comes down to particles and gases — carbon, nitrogen oxides, or a toxic mix of both — released largely from two sources: industry and mobility. On the mobility side, poor quality fuel combines with aging, inefficient engines that churn out more smoke than power. Tackling this is squarely a regulatory issue. “Private capital will always chase the lowest-cost solution even if that means more pollution,” he points out. Industrial emissions are no different. Cleaner, lower-emission machinery can certainly be financed, but unless the state enforces environmental laws, there is little incentive for industries to switch.

Globally, too, outdoor air pollution has lagged as a priority. Climate change has been the popular currency for some time now, but outdoor air pollution remains massively underfunded compared to other development areas. Between 2018 and 2022, it received only one per cent (1pc) of international development funding, according to the Clean Air Fund. This underfunding persists despite air pollution being the largest environmental threat to public health worldwide, with severe health, climate and economic impacts.

In Pakistan, the problem may have continued to go unnoticed had Lahore’s smog not made an invisible threat visible. That visibility is part of what has spurred action today. In 2025, the World Bank extended a $300 million loan for Punjab’s Clean Air Programme, supporting the province’s Smog Mitigation Action Plan to strengthen air quality management and improve public health.

INCENTIVISING DOMESTIC INDUSTRIES TO FINANCE A PUBLIC GOOD THAT IS NOT EXPECTED TO DIRECTLY ACCRUE BALANCE SHEET BENEFITS IS TRICKY. HOWEVER, IT IS NOT REALLY IMPOSSIBLE BY ANY MEANS.

But the scale of the challenge is enormous. Environmental expert Dr Kulsum Ahmed estimates that 128,000 lives are lost every year in Pakistan due to poor air quality, shaving 4.3 years off the average life expectancy. Air pollution, she stresses, does not discriminate between rich and poor: a recent study shows that the precautions taken by the rich, such as household air purifiers, have not saved them from catching airborne diseases. The very large number of hospitalised cases in Karachi testify to this.

Despite the magnitude of the problem, private finance has barely entered the picture. In 2021, only 5pc of Pakistan’s climate finance came from the private sector — far below the regional and global averages of around 49pc, according to the UN’s 2024 Climate Financing and Policy Recommendations.

This gap reflects not only the neglect of air pollution in global climate finance, but also the specific risks faced by investors in Pakistan: policy uncertainty, shifting subsidies and pricing mechanisms, and high foreign exchange risk given the mismatch between hard-currency investments and local-currency revenues. There is also a lack of education, data and investable use cases to give confidence to potential investors.

At the core lies a deeper paradox: clean air is a public good. There is little incentive for the private sector to finance solutions when benefits are dispersed and non-excludable. Khan argues that private capital can opt for targeted interventions in equipment to minimise pollution footprint, but without stricter fuel standards and tighter controls, technology shifts alone will not suffice. In other words, regulation is the missing piece — a theme that recurs throughout expert opinions.

This regulatory gap is confirmed by the Pakistan Business Council (PBC). For most companies, air quality management begins and ends with compliance, argues one of its reports. The lack of senior management involvement makes it clear that businesses still do not see dirty air as a financial risk. While onsite monitoring is carried out, there is little interest in how operations affect the wider airshed that communities actually breathe.

Nazish Shekha, Head of Initiative, Centre of Excellence in Responsible Business at PBC, highlights the hotspots: “Sometimes, it is as specific as a single roundabout or an intersection with too many traffic signals.” During rush hour, when cars idle longer, air quality dips sharply.

Construction adds another layer.

But beyond identifying causes, the bigger challenge remains structural: why should companies spend money fixing something that does not deliver direct shareholder returns? Yet, the impacts are already creeping into balance sheets — damaged facilities, eroded employee health, disrupted travel, etc. Smog in Punjab has even grounded flights and shut down motorways, delaying both goods and staff.

As urban residents in Pakistan become more aware of air quality through the availability of free data from monitoring platforms and weather updates, the private sector can potentially begin to be held liable for poor air quality onsite and in adjacent neighbourhoods. As a precursor to future financial risks, companies can begin following international guidelines for air quality and advocate for improved management in their supply chains, according to the PBC study.

Furthermore, investors have now become focused on certain aspects of Environmental-Social- Governance (ESG) approach with an increased emphasis on occupational health — not only workplace injuries, but the overall health of employees, both emotional and physical. A World Bank 2021 publication estimates that the global cost of health damages associated with exposure to air pollution is a whopping $8.1 trillion.

A somewhat dated report from the Organisation for Economic Cooperation and Development (OECD) estimates that by 2060, the annual number of lost working days is projected to reach 3.7 billion globally. The 2016 OECD report had estimated the number of lost working days annually was around 1.2bn for the world at the time. In the long run, companies that voluntarily implement measures to improve air quality will benefit from a healthier workforce, according to the PBC report.

Even real estate offers a clue. From a valuation perspective, investment returns are higher on properties surrounded by parks and cleaner air. Subconsciously or not, markets are already signalling that cleaner air carries value, notes the PBC report. The question, then, is how to align public responsibility with private incentives. One way could be for the government to enforce strict regulations, but also reward early compliance. Tax incentives, for instance, could nudge companies to meet air quality benchmarks ahead of schedule — turning regulation into a financing opportunity, rather than just a compliance burden.

The economics make the case clear. A 2011 US Environmental Protection Agency report estimated that every $1 spent on improving air quality yields $30 in monetised benefits, mostly through health improvements. For Pakistan, where the pollution levels are much higher, it is possible the returns are proportionately higher as well. But incentivising domestic industries to finance a public good that will not directly accrue benefits is another story altogether.

There are precedents, though. In Bangladesh, where brick kilns, construction and vehicular emissions mirror Pakistan’s air pollution sources, the World Bank-backed Bangladesh Environmental Sustainability and Transformation (BEST) project is working to gather private capital. Central to this is a $170 million Green Credit Guarantee Fund (CGF), financed by the World Bank, the French Development Agency (AFD), and private-sector contributions (around 70pc). The CGF supports investments in reducing emissions from brick kilns, improving waste management, and promoting rooftop solar.

For Pakistan, a similar model could be transformative. There are financial tools on the table that could help direct more money into clean air projects, but most remain underused. Green bonds, social bonds and results-based financing, for instance, could improve efficiency and draw in long-term private capital if deployed more strategically. As noted by the ‘State of Global Air Quality Funding 2023’ report, by sharing risk across governments, development partners and private investors, these instruments could unlock far greater investment in cleaner air.

Everyone breathes air. And there is a strong economic case for making sure it is clean.

Regulations and incentives can push private sector entities into policing themselves, but the proof is in the pudding — implementation of policies.

Header image: An Anti-Smog Squad (ASS) official looks at an air quality monitoring station installed on the terrace of a university in Lahore on Feb 17, 2025. — AFP

The writer is a member of staff.