Introduction The textile industry sits at the heart of Pakistan’s economy. It employs more than 15 million people and makes up nearly two-thirds of the country’s exports. For decades, competitiveness was judged by cost and quality alone. But as the rules of global trade evolve, international buyers and regulators are asking: What is the carbon footprint of the products we import? Europe, Pakistan’s largest market, is leading this shift. New policies such as the Carbon Border Adjustment Mechanism, the Corporate Sustainability Reporting Directive, and forthcoming Digital Product Passports will make emissions and sustainability data central to trade. Even though textiles are not yet directly covered by Carbon Border Adjustment Mechanism, European brands are under pressure to disclose supply-chain emissions. The ability of Pakistan’s textile exporters to show progress on decarbonization will decide who stays in the game. The challenge is that transformation takes capital. Cleaner heat systems, solar power plants, wastewater recycling units, and digital monitoring tools require investment. Many firms, especially small and medium-sized enterprises, struggle with funding such shift. This is where transition finance can play a decisive role. Unlocking Capital with Transition Finance Transition finance is designed for industries willing to move step by step along a Paris-aligned pathway. Financing is tied to credible transition plans, with baselines, milestones, and reporting. For textiles, the recently launched industrial decarbonization roadmap sets these priorities: replace fossil fuel boilers with solar thermal or electric systems; invest in rooftop solar and efficient machinery; modernize wastewater treatment, adopt cleaner chemical processes; and expand circular practices such as recycled fibers. Together, these could reduce emissions by up to half, while also conserving scarce water. But they remain aspirational unless capital flows at scale. Unlocking capital would require transition finance to be structured around three building blocks: Roadmap. Every enterprise can map where its emissions come from and which low-carbon technologies can realistically address them. Ideally, emissions reduction targets need to be in line with sector decarbonization pathways. The identified changes must be incorporated into the business plan of that enterprise. Quick wins, like efficiency upgrades or waste-heat recovery, can be tackled first. More complex shifts, like renewable industrial heat, can be sequenced for later as technologies mature. This phased approach allows firms to plan investments, prioritize steps, and allocate capital wisely. Instrument. The financing tool has to fit the business. Large exporters with ready-to-go projects that meet the eligibility criteria of green bonds or loans might issue such labelled instruments. Smaller firms may prefer flexible instruments like sustainability-linked loans, where borrowing costs fall if emissions targets are met. Blended finance or credit guarantees can be used to de-risk if riskier technologies are involved. Selecting the right instrument ensures capital flows where it has the most impact. Alignment. Finally, credibility matters. Transition targets need to align with science-based pathways, even if that means adopting benchmarks such as a 4.2% annual reduction in direct emissions to stay on track for 1.5°C. Just as important is the narrative: boards, workers, investors, analysts and media have to see that transition is about long-term competitiveness, and not just the short-term financial pain. Leveraging Transition Finance The case for transition finance goes beyond competitiveness. Pakistan is one of the world’s most climate-vulnerable countries. The 2022 floods caused $30 billion in damage, with lasting consequences for households, businesses, and banks. Subsequent years have seen continued flood incidents. At the same time, Pakistan’s greenhouse gas emissions have more than doubled since 2000. The textile industry is not just vulnerable to climate change; it is also a driver of it. This dual exposure makes transition finance a tool for future growth and resilience. What makes the opportunity compelling is many of these investments pay back. Energy efficiency reduces operating costs. Wastewater recycling lowers input needs. Digital monitoring opens premium contracts with global brands. Thus, transition finance helps bring future competitiveness into the present. And the cost of inaction is stark. Exporters that fail to decarbonize risk losing contracts, being locked out of markets, and face rising financing costs as banks adjust to climate risk. By contrast, early movers can secure preferred-supplier status with global brands, capture higher-value orders, and strengthen their resilience against regulatory shifts and climate shocks. But for this to work, all actors must step up. The industry must put forward credible transition plans with measurable milestones. Banks must design products that reward performance, not pledges. Policymakers must align incentives, channel climate finance, and create an enabling environment. When these pieces align, transition finance can turn climate ambition into a growth story. Conclusion Pakistan’s textile industry has been an economic engine. Transition finance offers the chance to make it an engine of sustainable growth. Those who embrace the transition will write the next chapter of the industry’s success, while those who hesitate may find themselves left behind. Resources New Climate Institute. 2024. Decarbonisation and Sustainability in Pakistan’s Textiles Industry: Comparative Regional Performance, EU Policy Readiness, and Strategic Priorities. Commissioned by German Federal Ministry for Economic Cooperation and Development (BMZ). World Bank. 2025. Pakistan Energy Efficiency: Industrial Energy Efficiency and Decarbonization (EE&D). World Bank. Ask the Experts Sobiah Becker Advisor, Pak-German Climate & Energy Partnership, German Agency for International Cooperation (GIZ) Sobiah Becker is a strategic climate and energy advisor who transforms complex sustainability challenges into actionable solutions. She specializes in building high-impact partnerships across public and private sectors to accelerate climate action and drive economic growth within carbon-constrained frameworks. As an experienced facilitator of national and international climate initiatives, Sobiah guides policymakers and business leaders in developing and implementing robust climate adaptation and mitigation strategies. Sourajit Aiyer Technical Expert, Sustainable Finance, German Agency for International Cooperation (GIZ) Sourajit Aiyer is a finance and sustainability professional, having worked in both traditional finance and sustainable finance. Experienced in advisory and training programs across markets and with multiple stakeholders, and in business research, institutional investor relations, and corporate strategy. He has delivered more than 15 guest-lectures across universities, over 20 speaker engagements in industry conferences, a TEDx talk in the UK, three books on Asian economies, and about 170 articles on sustainability, business and finance issues. Leave your question or comment in the section below: View the discussion thread.