Pakistani Banks Score 23% on Lending Safeguards: What the Fair Finance Benchmark Means for IFRS S2 and SBP Supervision

Pakistani Banks Score 23% on Lending Safeguards: What the Fair Finance Benchmark Means for IFRS S2 and SBP Supervision

Seven of Pakistan’s major commercial banks have strong policies for how they run themselves, and much thinner ones for the companies and projects they finance. That is the headline of the first Pakistan banks sustainability policy benchmark of 2026 on lending and climate. Across the assessed policy elements, 75.4% scored positively for banks’ own operations, against 23.1% for borrowers and financed projects.

Source: The Financial Express, 16 Oct 2026

The report, “Benchmarking the Sustainability Policies of Banks in Pakistan: A Policy Assessment of Seven Major Commercial Banks”, comes from Fair Finance Pakistan with the Lahore University of Management Sciences (LUMS) and research partner Profundo. It was launched in mid-October 2026 on the sidelines of the World Bank-IMF Annual Meetings in Bangkok.

Sources: The Financial Express, 16 Oct 2026, Dawn, 14 Oct 2026

Spectreco, a US-headquartered sustainability technology and advisory company with offices in Atlanta, Lahore, Lisbon, Dubai and Muscat, works with Pakistani lenders on this exact gap. Our reading is simple: the benchmark is less a verdict on any one bank than a map of where the next two years of State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan (SECP) work will land.

On this page

• What did the Fair Finance Pakistan bank benchmark measure?
• How did Pakistani banks score in the 2026 Fair Finance benchmark?
• Own operations vs lending: why the gap matters
• Why do lending policies decide financed emissions?
• What does SBP expect from banks on climate risk?
• How the lending gap shows up in SECP IFRS S2 disclosures
• A five-step policy-to-data path for Pakistani banks
• Frequently asked questions

What Did the Fair Finance Pakistan Bank Benchmark Measure?

Direct answer: The benchmark scored the publicly disclosed 2025 sustainability policies of seven Pakistani commercial banks. It used the Fair Finance Guide International methodology across eight themes. It measured policy strength and coverage, not actual emissions or loan-book outcomes. A low score signals a missing or thin policy, not a bad portfolio.

Seven banks, eight themes

The seven banks are Allied Bank, Standard Chartered Pakistan, Habib Bank Limited (HBL), Meezan Bank, MCB Bank, United Bank Limited (UBL) and National Bank of Pakistan (NBP). The eight themes are:

• Climate change
• Biodiversity
• Human rights
• Labour rights
• Gender equality
• Corruption
• Tax
• Transparency and accountability

Source: The Financial Express, 16 Oct 2026

Two lenses: own operations and financing

The assessment separates policies that govern a bank’s own conduct from policies that apply to the companies and projects it finances. That split produces the report’s most useful number for anyone working on climate disclosure.

How Did Pakistani Banks Score in the 2026 Fair Finance Benchmark?

Direct answer: Overall scores ranged from 41.05% to 16.94% of the maximum. Allied Bank ranked highest, followed by Standard Chartered Pakistan and HBL. No bank passed 42%. Environmental policy was the weakest dimension: climate change averaged 1.12 out of 10 and biodiversity 1.69 out of 10.

Sources: The Financial Express, 16 Oct 2026, Dawn, 14 Oct 2026

What good looks like

Standard Chartered Pakistan posted the highest climate (3.63) and biodiversity (5.31) scores, and Allied Bank led overall. Neither result is a finish line: on a ten-point scale, the best climate score still sits in the bottom half.

The useful lesson is direction. The leaders have written down borrower-facing expectations that the rest of the sector can adopt quickly, and none of the gaps require new technology to close.

Governance and social policies are further ahead

Theme averages tell the same story. Governance themes (anti-corruption, tax transparency and accountability) averaged 3.39, social themes 3.14 and environmental themes 1.40. Positive policy coverage for borrowers and projects reached 13.8% on climate change and 26.8% on biodiversity.

Sources: Dawn, 14 Oct 2026, Energy Update, 14 Oct 2026

Own Operations vs Lending: Why the 75.4% to 23.1% Gap Matters

Pakistani banks have done the visible work. Policies on their own conduct are largely in place, which is why own-operations scoring reached 75.4%.

The harder work sits in credit. A borrower-facing policy decides whether a cement plant’s fuel mix, a textile mill’s water risk or a housing scheme’s flood exposure is ever asked about at origination. At 23.1%, most of those expectations are not yet written into published policy.

Fair Finance Pakistan’s recommendations are practical rather than punitive:

• Stronger environmental and social obligations for borrowers
• Independent monitoring
• Greater disclosure of portfolio-level risks
• Consistent safeguards in credit appraisal

Sources: Dawn, 14 Oct 2026, Energy Update, 14 Oct 2026

Why Do Lending Policies Decide Financed Emissions?

Direct answer: Financed emissions are the greenhouse gas emissions of a bank’s borrowers and investees. They are attributed to the bank by its share of financing. They sit in Scope 3 Category 15. A bank can only measure them well if credit policy requires borrowers to share data. Policy comes first; data follows.

The scale is the reason it matters. CDP found that financial institutions’ financed emissions were on average over 700 times higher than their own direct emissions. A bank with a strong own-operations policy and a weak lending policy has covered the smallest slice of its footprint.

Source: CDP, The Time to Green Finance (April 2021)

Where borrower data is missing, SBP’s framework allows sectoral emission intensities as a proxy, provided proxies are documented, applied conservatively and reviewed. That is a workable start, but a weaker evidence base than borrower-reported data. Our earlier guide on financed emissions for Pakistani banks under SECP IFRS S2 covers the measurement mechanics in detail.

Source: SBP climate-related financial risk framework, Annexure

What Does SBP Expect From Banks on Climate Risk?

Direct answer: SBP expects banks to build climate risk into governance, strategy, risk management and lending decisions. Its December 2025 framework required board-approved implementation plans by 30 September 2026. Full compliance is due by 30 June 2029. Climate stress testing runs alongside it.

The climate-related financial risk framework

SH&SFD Circular No. 07 of 2025, issued on 26 December 2025, sets the Regulatory Framework for Effective Management of Climate-related Financial Risks for banks, development finance institutions (DFIs) and microfinance banks. Its annexure goes straight to the lending gap the benchmark measured:

• Climate due diligence at onboarding and on an ongoing basis, at portfolio, counterparty and transaction level
• Borrower-level emissions data for transition risk, with documented sector intensities where data is missing
• At least annual board reporting on vulnerable sectors and regions, climate-linked non-performing financing, borrower emissions and Pakistan Green Taxonomy mapping
• Identification and management of concentrations by geography, sector and counterparty

Sources: SBP SH&SFD Circular No. 07 of 2025, SBP climate-related financial risk framework, Annexure

The taxonomy link matters for funding as well as supervision, as our analysis of Pakistan’s Green Taxonomy and the cost of capital sets out.

Climate stress testing

FSD Circular No. 01 of 2025 adds climate stress tests: single-factor physical and transition shocks on lending portfolios. The first iteration may be completed by the end of Q3 2026 using December 2025 data. Sample domestic systemically important banks must also include climate risk in their annual macro stress tests.

Source: SBP FSD Circular No. 01 of 2025, Guidelines on Climate Stress Testing

At the benchmark launch, Bushra Shafique, head of SBP’s Banking Policy and Regulations Department, said banks are moving from voluntary commitments to implementation, with stronger, measurable results expected over the next three years. For the wider SBP rulebook, see our guide to SBP green banking and financed emissions.

Source: The Financial Express, 16 Oct 2026

How the Lending Gap Shows Up in SECP IFRS S2 Disclosures

What IFRS S2 asks of commercial banks

SECP adopted IFRS S1 and IFRS S2 for listed companies in phases by size, starting with annual periods beginning on or after 1 July 2025. Auditor assurance on sustainability reporting is required from the second year of reporting. Our SECP IFRS S2 compliance guide covers the phases in full.

Source: SECP press release, 1 Jan 2025

For a bank in commercial banking, the IFRS S2 Category 15 disclosure includes:

• Absolute gross financed emissions, split into Scope 1, 2 and 3, for each industry by asset class
• Gross exposure for each industry by asset class, in the presentation currency
• Coverage of loans, project finance, bonds, equity investments and undrawn loan commitments
• The industry classification system used, and why it suits transition-risk analysis

Source: ISSB, Amendments to IFRS S2 (2025)

Relief buys time, not exemption

IFRS S2 gives relief from Scope 3 disclosure in the first reporting year. The ISSB’s 2025 amendments, effective from 1 January 2027, also let banks exclude derivatives and other non-financed Category 15 emissions such as facilitated emissions. Our breakdown of the IFRS S2 amendments explains the conditions.

Sources: CGMA, When is reporting under IFRS S1 and IFRS S2 required?, ISSB, Amendments to IFRS S2 (2025)

Neither relief removes the loan-book number. Each year a credit policy goes without borrower data requirements is another year of proxy estimates that an assurance provider will test.

A Five-Step Policy-to-Data Path for Pakistani Banks

The benchmark scores policy; supervisors and auditors will test data. This is the sequence that connects the two.

1. Gap-check credit policy against the eight themes. Start with climate change and biodiversity, the lowest-scoring themes, and list which borrower expectations are missing from your environmental and social risk management (ESRM) procedures.
2. Write borrower obligations into credit policy. Require emissions data, physical-risk information and transition plans from in-scope sectors at origination and renewal, with clear thresholds for when each applies.
3. Collect borrower data at origination. Build the fields into credit applications and annual reviews so data arrives with the loan, not in a year-end scramble. Use documented sector intensities where borrowers cannot report yet.
4. Measure financed emissions on a recognised method. Map exposures by industry and asset class, calculate financed emissions with the Partnership for Carbon Accounting Financials (PCAF) Standard, and record data quality so improvement can be tracked.
5. Report once to both regulators. Feed one governed dataset into SBP board reporting, climate stress tests and the SECP IFRS S2 Category 15 disclosure.

Frequently Asked Questions

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Where Spectreco Fits

Spectreco helps Pakistani banks turn lending policy into financed-emissions data. Our advisory team works alongside your risk and sustainability teams to gap-check credit policy against the benchmark themes, design borrower data requirements, and build a financed-emissions baseline that feeds both SBP reporting and your SECP IFRS S2 disclosure.

The Virtual Sustainability Office combines that advisory team with our ESG platform, so the data stays governed after the first report.

Next step: book a bank financed-emissions readiness review through Spectreco’s Climate and Green Finance advisory, or start with Compliance, Reporting and Disclosures if the IFRS S2 disclosure is your priority.

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