KATHMANDU, Oct 23: Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) to integrate the measures related to tackle issues of climate change in their investment decisions. Stakeholders say this latest measure indicates that the central bank is seeking a key role from the financial sector actors to lead climate action.
Enforcing ‘Nepal Green Finance Taxonomy’, the apex monetary authority has sought to make BFIs issue loans based on the guidelines defined by the taxonomy. “Green finance taxonomy is essential for enhancing sustainable finance, providing a standardized framework to classify economic activities, and mobilizing green investments more effectively,” reads the taxonomy that the NRB issued as a reference document for the BFIs.
Nepal is experiencing an increasingly resource-intensive growth, rapid urbanization, and expanding production activities, resulting in higher demand for energy and infrastructure. Expressing its commitment to fight back the issues of climate change, the country has instituted national and sectoral policies and regulatory frameworks to drive climate action and foster a green economy.
Revised interest rate corridor system introduced
The government in this regard has enforced the Environment Protection Act, National Climate Change Policy, Nationally Determined Contributions, and National Adaptation Plan to contain climate change adaptation and mitigation. As a part of its initiatives, Nepal announced to meet the target of net zero carbon emissions at COP26, the UN Climate Change Conference held in Glasgow, UK in 2021.
It is estimated that Nepal needs about US $77 billion to implement adaptation, mitigation and sustainable development targets by 2030. The NRB has sought to mobilize necessary financial resources via the private sector to achieve a green and climate resilient future.
As the resource requirements are vast and the public sector alone cannot meet the estimated financial needs for climate action targets and green growth aspirations, the private sector can plays a crucial role in bridging the financial resource gaps by enhancing their technical skills and capabilities and directing investments towards ‘green’ initiatives, according to the NRB. “Through these measures, the private sector can complement the government's ongoing efforts on investing in sustainable solutions and forging a greener future.”
NRB Governor Maha Prasad Adhikari said the financial sector actors must take the lead in meeting national climate action targets, reducing waste, preventing pollution, and conserving natural resources by prioritizing sustainability and low-carbon development. He added that the guideline on green taxonomy can serve as a crucial document for the financial sector to facilitate the transition towards a green economy.
According to Adhikari, the taxonomy talks on implementing possible measures to diminish environmental and social risks, attract capital seeking investments aligned with green and ESG criteria, and foster the creation of financial products and services that promote environmentally sustainable investments and projects.
