From Disruptions to Opportunities: Failing and Emerging Businesses Under Climate-Induced Droughts

How NatCat drought modelling (SSP245 & SSP585) reveals risks and unveils opportunities for Pakistan’s water, food, and energy sectors.
(Originally published on Medium)

Pakistan, being one of the most affected countries from climate change, has experienced drought as one of the most prevalent threats to its economy, livelihoods, and resilience. From falling groundwater levels in Balochistan to crop failures in Punjab and water scarcity in Karachi, the signs are clear: we are in a new era of climate-induced hydrometeorological drought. But in every disruption lies opportunity. By leveraging the advanced National Catastrophe (NatCat) Model, businesses can shift from passive risk exposure to proactive resilience-building. This blog explores how drought, induced by global warming and the greenhouse effect, is not only reshaping the business landscape in Pakistan but also giving rise to new climate-smart markets, technologies, and financial instruments.

What the NatCat Model Is

The National Catastrophe (NatCat) Model is a probabilistic catastrophe risk modelling platform developed under the leadership of the National Disaster Risk Management Fund (NDRMF) of Pakistan and in partnership with SUPARCO. It provides a scientific and data-driven foundation to assess and quantify disaster risks, particularly from climate-induced and geophysical natural hazards such as floods and earthquakes. Designed as a probabilistic risk assessment and loss estimation tool, it enables decision-makers to make informed choices about disaster risk reduction (DRR), climate adaptation investments, and disaster risk financing (DRF).
The model simulates potential hazard events of varying magnitudes and frequencies (e.g., frequent 5-year to rare 500-year return periods), overlays them with exposure datasets (public infrastructure, population, economic assets), and calculates expected damages and losses using tailored vulnerability functions. The output includes indicators such as Expected Annual Loss (EAL), Probable Maximum Loss (PML), and scenario-based loss distributions.

NatCat Model Peril for drought

Drought hazard in the NATCAT Model is modelled under the IPCC's SSP245 (moderate emission) and SSP585 (high emission) scenarios for the near (2011-2040), mid (2041-2070), and far future (2071-2100) periods.
Precipitation (PR) for the Standardized Precipitation Index (SPI) (from CMIP6) is calculated for meteorological drought, and streamflow (Q) from the Federal Flood Commission (FFC) is calculated for hydrological droughts. These calculations are performed for Rabi (Wheat) and Kharif (Rice, Cotton, Sugarcane) crops across all agro-ecological zones of Pakistan. Drought's Severity and Dry events occurrence (%) based on SIX Months SPI for the Near, Mid, and Far Future SSP scenarios.

Drought hazard inundation

Figures 1 and 2 show the Hyder-meteorological Drought Severity for the Rabi (Wheat) Crop for the Near (2011-2040) period under the IPCC SSP245 (moderate emission) and SSP585 (high emission) climate change scenarios, respectively. This indicates that a hydro-meteorological drought is not imminent, but is already present, becoming even more severe for the mid (2041-2070) and far future (2071-2100) periods. The frequency of drought events is also higher in the southwest for SPI under SSP585. The Spatial SPI time series analysis indicated that severely (−1.5≥SPI>−2.0) and arid events (−2.0≥SPI) will occur more in the south southwest of the country under SSP245 and SSP585.

Figure 1: Extremely drought-prone areas (in red) for Rabi (Wheat) crops under SSP245 (moderate emission) climate change scenario for the Near (2011-2040) period (Source: NATCAT Model, NDRMF, Pakistan)

Climate-induced drought exposure, vulnerability and losses
The Rainfed-based AEZs of Barani Land, Cholistan Desert, Rod-i-Kohi, Sand Desert (A), Suleman Piedmont, and Irrigated AEZs of Arid Irrigated, Cotton mix-cropping, Cotton-Sugarcane, Mix Cropping, Semi-Desert Irrigated, Southern Irrigated Plain may be more vulnerable and face serious crop yield loss for future scenarios. More than PKR 2,000,000 million loss is expected even under the SSP245 CC scenario for the Near (2011-2040) period, which will increase for the SSP585 scenario and the far periods, particularly cropland exposure peaks in the 2040–2060 period.

Figure 2: Extremely drought-prone areas (in red) for Rabi (Wheat) crops under SSP585 (high emission) climate change scenario for the Near (2011-2040) period. (Source: NATCAT Model, NDRMF, Pakistan)

*Failing Businesses from Climate-Induced Droughts *

1. Agriculture and Agribusiness -The Processing mills (textile, wheat flour, and sugar mills) in Baharpur, Layya, Shaiwal, Oakara, and Qasoor districts in Punjab, as well as in Mirpur, Badin, and Hyderabad districts in Sindh, will face raw material shortages. Consequently, highly inflated input costs result in reduced profits, asset devaluation, and credit risks. The livestock sector in Baluchistan province will remain at high risk due to the high occurrence of hydro-meteorological drought in a significant part of the province in the near and mid-term periods, causing fodder deficits and livestock mortality. The livestock sector contributes around 40% of Balochistan's provincial GDP, comprising Rs 20 billion annually. Rice and cotton export businesses are expected to incur losses in the southern Punjab districts.
2. Water and Energy Sector - Reduced inflows into Tarbela, Mangla, and other dams cut hydropower generation. The depletion of groundwater in Lahore continues to pressure WASA (water body) for water supply and higher water tariffs. The textile, tanneries, beverages, and fertiliser sectors in the city will face production downtimes due to water cuts. Existing infrastructure in Lahore is not built for long-term water stress.
3. Finance and Insurance Sector - Small farmers and SMEs in the high-occurrence drought districts (see Figures 1 and 2) fail to repay loans after harvest failures. Absence of drought-index insurance increases financial exposure. Banks shall be equipped to factor physical climate risk from droughts into loan books.

Emerging businesses from Climate-Induced Droughts

1. Agri tech (Smart Irrigation & Farm Digitization) Businesses – Extremely high potential for local production and scaling of drip irrigation and sprinkler systems. Startups with climate-smart scheduling services and crop diversification consulting services for farmers via mobile platforms. The research centres (e.g., NIBGE, PARC) can establish incubators for such startups. Startups like Pak AgriTech, Ricult, and Agrimall can develop extension services that offer early warnings and advice via mobile apps, as well as Digital twin farms that simulate P-ET, soil health, and yield outcomes.
2. Weather Intelligence & Risk Analytics – Companies like NDRMF, Weatherwale, etc, may develop software as a Service (SaaS) platforms offering drought forecasting and risk dashboards for Financial institutions (ZTBL, SBP) and Corporate agriculture ventures.
3. Water Reuse, Desalination, and Harvesting – There is enormous potential for private sector (small to medium size companies) to establish Urban rainwater harvesting systems (especially in Karachi, Lahore, Islamabad), Greywater recycling units for hotels and industrial zones adopting the business models like EPC contractors, urban utilities, municipal PPPs. Engineering, procurement, and construction (EPC) services in climate-proofing (e.g., check dams, tube well retrofits, lined canals, solar-powered pumps)
4. Climate Insurance & Financial Innovation - InsurTech startups, microfinance institutions (e.g., Kashf, NRSP) in collaborations with NDRMF and UNDP can offer Drought-indexed microinsurance for smallholder farmers, Risk pooling schemes with blended finance from private & donor sources, Climate credit scoring models for SMEs, etc.
5. Green Infrastructure & Urban Resilience - Consulting firms for urban planners in water-smart cities (Lahore, Faisalabad, Rawalpindi, Gwadar, Quetta). Small to medium businesses for Cool roofing, green spaces, and evapotranspiration-friendly design

Final Thoughts

Drought will remain a persistent climate-induced hydro-meteorological hazard in the near and far future in Pakistan. Many businesses in the country need to reform their business models in view of this persistent phenomenon, to remain profitable with the least disruptions in their supply lines and services. This, however, creates immense space for new businesses, including Smart Irrigation & Farm Digitisation, software as a Service (SaaS) platforms, Urban rainwater harvesting systems, etc. Above all, disaster risk financing (DRF) instruments in Pakistan will emerge with crop insurance, drought-index micro-insurance, etc. NDRMF and NATCAT can provide consistent support in developing new products and services in this regard.