In a commendable move, Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) to integrate climate change measures into their investment decisions. The latest measure indicates that the central bank is seeking a key role for financial sector actors to lead climate action. By enforcing the 'Nepal Green Finance Taxonomy', the apex monetary authority aims to ensure that BFIs issue loans based on the guidelines defined by the taxonomy. According to what the regulatory body calls a ‘reference’ document issued to the BFIs, the NRB states that green finance taxonomy is essential for enhancing sustainable finance, providing a standardized framework to classify economic activities, and mobilizing green investments more effectively. Although not mandatory, this recommendation from the country's central bank is a positive beginning. It will significantly contribute to developing climate disaster-resilient infrastructure in addition to mobilizing scarce resources in effective ways. Since the government measures alone are insufficient, the central bank's policy direction will eventually shape private sector investments in the fight against climate change. These measures are expected to help Nepal – one of the most vulnerable countries in terms of the risks associated with climate change – better prepare itself to tackle the adverse impacts of climate change in the long run.
Nepal is experiencing increasingly resource-intensive growth, rapid urbanization, and expanding production activities, resulting in higher demand for energy and infrastructure. As part of its commitment to addressing climate change, the country has formulated national and sectoral policies and regulatory frameworks to drive climate action and foster a green economy. The government, in this regard, has implemented the Environment Protection Act along with the National Climate Change Policy, the Nationally Determined Contributions, and the National Adaptation Plan to support climate change adaptation and mitigation measures. At COP-26, the UN Climate Change Conference held in Glasgow, UK, in 2021, Nepal announced its target of achieving net zero carbon emissions by 2045. It is estimated that Nepal will need about USD 77 billion to meet its adaptation, mitigation, and sustainable development targets by 2030. The NRB’s latest directive can be seen as an attempt to mobilize necessary financial resources via the private sector to achieve a green and climate-resilient future.
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As the resource requirements are vast and the public sector alone cannot meet the estimated financial needs for climate action and green growth, the private sector can play a crucial role in bridging the financial resource gaps. By enhancing their technical skills and capabilities and directing investments toward green initiatives, the private sector can complement the government's ongoing efforts to invest in sustainable solutions and build a greener future. As underscored by NRB Governor Mahaprasad Adhikari, Nepal’s 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. The directives on green taxonomy can serve as a crucial document for the financial sector, facilitating the transition towards a green economy by implementing measures to reduce environmental and social risks, attract capital for investments aligned with green and ESG criteria, and promote the creation of financial products and services that support environmentally sustainable investments and projects. While the NRB deserves appreciation for this forward-thinking policy on green finance taxonomy, each line ministry and the government collectively take proactive steps to ensure the successful implementation of the policy.
