Green Finance and ESG Investing in Pakistan: Growth Forecasts and Risk Analysis

Abstract

This paper examines the growth forecasts and risk analysis for green finance and ESG (environmental, social, and governance) investing in Pakistan as sustainability concerns mount. A review of academic literature explores the link between ESG factors and financial performance, as well as growth projections. Quantitative analysis using simulated data for green bonds, green loans, and ESG equity funds tests hypotheses relating ESG scores to bond yields, default rates, and fund returns. Initial findings show higher ESG scores correlate with lower financing costs and credit risk in debt markets and higher long-term returns in equities. However, Pakistan still lags developed nations significantly in sustainable investing. Challenges include lack of ESG disclosures, common standards, risk quantification models and supporting policy frameworks. More research into appropriate ESG scoring methodologies for Pakistan is recommended. This will support stronger growth forecasts by better capturing sustainability issues relevant to the local context.

Keywords: green finance, ESG investing, sustainability, emerging markets, Pakistan