COP26: How can global forces help Pakistan’s economy on its decarbonisation journey?

From the left: Minister Malik Amin Aslam, Saif Hameed, Kate Hampton, and Paul Simpson. On-screen, from the left: Saleha Asif and Farrukh Khan. Photo credits: Altruistiq

As world leaders are gathered in Glasgow for the COP26 climate summit, one of the key findings that emerged is that half the world’s fossil fuel assets could become worthless by 2036 under a net zero transition. This drop in demand for fossil fuel will shape the growth of all nations, with countries that are slow to decarbonise likely to suffer but the early movers to profit. For the private sector, this implies that decarbonisation is rapidly becoming the central strategy and organising principle for businesses across the world.

It is imperative for Pakistan’s economy to proactively plan and leap ahead to this opportunity to accelerate its growth. In light of this, the Pakistan Environment Trust held a panel event at the Pakistan pavilion at COP26. The programme was hosted by Talha Khan (Executive Director, Pakistan Environment Trust) in collaboration with the Ministry of Climate Change and with support from Altruistiq, the Pakistan Textile Council, and the British High Commission Pakistan to talk about the economic impact of decarbonisation for emerging economies. The panel was joined by speakers Minister Malik Amin Aslam (SAPM Climate Change, Government of Pakistan), Kate Hampton (CEO, Children’s Investment Fund Foundation), Paul Simpson (CEO, CDP), Farrukh Khan (CEO, PSX), and Saleha Asif (CEO, Pakistan Textile Council) — and moderated by Saif Hameed (Trustee, Pakistan Environment Trust and CEO, Altruistiq).

With Minister Aslam starting off the event by highlighting the need for USD100 Bn for Pakistan to meet its new climate target of halving emissions by 2030, the overall theme of the discussion was pertinent: how can the Pakistan economy unlock the right tools for the transition to a decarbonised state? The 5 important takeaways for businesses are:

  1. Businesses have to be inclusive while planning for decarbonisation to ensure a ‘just transition’.
  2. There is an entire value chain of financing available globally for Pakistan’s transition.
  3. Transparency through disclosure is essential for long-term relationships with investors and buyers.
  4. Capacity building is as crucial as finance for Pakistan’s transition.
  5. The private sector has to collaborate with the government to build an enabling policy environment for climate finance.

Read on below for detailed insights on the takeaways from the discussion.

1. Businesses have to be inclusive while planning for decarbonisation to ensure a ‘just transition’.

The Paris Agreement outlines a ‘just transition’ as a key principle to ensure that the benefits of a zero-carbon transition are shared equitably. This means that no one — whether it is countries, communities, workers, or consumers — should suffer at the cost of decarbonisation. For that reason, global investors are playing a key role in ensuring that climate finance applies the lens for a just transition, emphasising the support for groups who currently depend on fossil fuel-intensive activities. As Kate Hampton, CEO of the 5th largest philanthropy fund, outlined, “We need to support communities that are not well-off but are part of the formal economy. It is crucial from a human development perspective in addition to a climate perspective.”

Key actions for businesses: Plan ahead for decarbonisation, ensure that workers are included in those plans, and invest in their communities. This also includes workers part of the value chain — for example, for the textile industry, it includes agricultural cotton workers and SME suppliers.

“We need to support communities that are not well-off but are part of the formal economy. It is crucial from a human development perspective in addition to a climate perspective.” — Kate Hampton, CEO of Children’s Investment Fund Foundation

2. There is an entire value chain of financing available globally for Pakistan’s transition

The net zero transition in emerging economies requires blended finance solutions from bilateral and multilateral development banks, private sector financing, and philanthropic funds.

I. Development funds

During the panel discussion, Saleha Asif outlined two critical ways Pakistan can utilise development funds in the just transition for Pakistan. First, development banks will allow Pakistan to take advantage of replicable funding models from other emerging economies and apply them to the local context in a shorter amount of time. Second, she predicts that development banks can help hedge the risk involved in investing in emerging economies, where they have the potential to act as the buffer for unsolvable problems such as foreign currency risk and covering the insurance risk in capital.

In that context, the USD100 Bn climate finance available under the Paris Agreement holds a lot of promise for emerging economies like Pakistan — particularly with the development banks’ commitment to the promotion of a just transition. Bangladesh’s textile sector recently received a USD256 M dollars Green Climate Fund grant for the large scale adoption of energy saving technologies and equipment. If businesses in Pakistan collaborate under coalitions and identify similar industry-wide solutions, a large pool of financing can be unlocked for Pakistan’s net zero transition.

II. Private sector financing

The Glasgow Financial Alliance for Net Zero (GFANZ) coalition — a global coalition for financial institutions committed to decarbonisation — announced at COP that it has USD130 Tn dollars worth of net zero-aligned assets. Investors part of that coalition are rapidly looking to divest away from their carbon-intensive portfolios and invest in low-carbon assets — a huge opportunity for businesses in Pakistan to bring in a new pool of financing.

Another major source of private sector financing that Paul Simpson highlighted is multinational companies who are actively investing in their suppliers through capacity building as well as through direct financing to reduce their own Scope 3 emissions (carbon emissions from their value chains). Since Pakistan’s exports make up 10% of its GDP, there are a large number of manufacturing companies that are likely to be early recipients of this support provided they build the right relationships with their buyers through transparency.

III. Philanthropic funds

While the zero-carbon transition is significantly expected to be funded through multilateral, bilateral, and private sector funds, philanthropy will play a role in building the right environment for larger scale climate finance. And while there may be some philanthropic funds willing to take the risk in actual zero-carbon solutions, Kate Hampton outlined that philanthropic funds will likely play a role in preparing project concepts and convening the right actors to mediate the appropriate scale and speed of the rollout of solutions. An example she provided for this was efforts undertaken by the Pakistan Environment Trust’s Net Zero Pakistan coalition — i.e., a convening body playing the role of building transparency and accountability across the system to facilitate further access to other pools of financing.

Key actions for businesses: Collaborate with different stakeholders through platforms such as Net Zero Pakistan to amplify voices and raise finance at scale for capital investments needed for Pakistan’s transition.

3. Transparency through disclosure is essential for long-term relationships with investors and buyers

For investors, there is a lack of trust when it comes to investing in emerging economies, which is why Paul Simpson and Kate Hampton both emphasised the importance of building transparency through disclosure of carbon emissions at the company level. First, disclosure of emissions will generate a vast amount of reliable data and information for the government to identify and design the relevant policy changes needed. Second, the availability of consistent and transparent data gives international buyers the basis to form credible relationships with Pakistani suppliers. And once long-term relationships are established, buyers will be willing to invest in delivering a net zero transition for their value chain.

Key actions for businesses: Measure carbon emissions aligned with methodologies such as the GHG Protocol, and disclose emissions through global platforms such as CDP.

4. Capacity building is as crucial as finance for Pakistan’s transition

Farrukh Khan spoke from the experience of engaging with companies as the CEO of the Pakistan Stock Exchange, “It is not just a question of money, it is the question of having the knowledge base and the tools available locally for those smaller and larger companies to make the shift.”

With the range of new capabilities and skills that will be required to transition Pakistan’s economy, the private sector will need to enhance capacity building efforts for its workers. Working-level professionals of companies require practical workshops to develop know-how on industry-specific zero carbon best practices. The current leadership of companies have to learn to integrate their net zero commitments as the guiding principle for making key business decisions, while current managerial-level cohorts have to be up-skilled on topics that will allow them to deliver on commitments once they take on leadership roles in the future.

It is important to note that while larger companies have the flexibility of deploying international tools for the transition, it will be the SMEs that will be unable to find and afford the right resources to make these shifts. Therefore, consistent with the theme of a just transition, larger Pakistani businesses will also have to extend assistance to SMEs in their value chains — ensuring no one is left behind in the transition.

Key actions for businesses: Invest in two types of capabilities:

  • Management capabilities at the leadership level to integrate decarbonisation as the guiding principle in business strategy.
  • Technical capabilities to build know-how of decarbonisation approaches.

“It is not just a question of money, it is the question of having the knowledge base and the tools available locally for those smaller and larger companies to make the shift.” — Farrukh Khan, CEO of Pakistan Stock Exchange

5. The private sector has to collaborate with the government to build an enabling policy environment for climate finance

Pakistan is competing with other countries for the pool of funds available globally, and ultimately all investors will make their choice to invest based on the country with the best policy infrastructure in place for the transition to a net zero economy. Therefore, along with the efforts on the supply side to gather and attract funds from donors, there is also work needed on the demand side, for businesses to work with the government as well as the communities to set up the right environment and build a strong case for large scale transition. Kate Hampton provided us with the example of South Africa, where the government is working to show donors its plan for decarbonising its distressed national power utility Eskom. Pakistan will similarly need to show deep-seated efforts to stand out from other emerging economies and to really accelerate its transition to a decarbonised state — and these efforts will not be possible without the input and support from the country’s private sector.

Key actions for businesses: Proactively collaborate with the government and civil society through coalitions such as Net Zero Pakistan to identify and improve current policy gaps needed for a green economy.

The Pakistan Environment Trust thanks its co-hosts and speakers for the insightful discussion at COP26. View the full recording of the event here.

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Pakistan Environment Trust

Pakistan Environment Trust

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Mobilising global capital and expertise towards tackling Pakistan’s toughest environmental challenges.