Towards Green Finance Regime in Nepal

Green financing involves increasing financial flows from public, private, and non-profit sectors to support sustainable development and environmental management. This financial approach can be enhanced through regulatory changes, harmonized public incentives, and alignment with sustainable development goals. Key strategies include investing in clean technologies, sustainable resource management, and green bonds. Green financing aims to mitigate climate risks, support the transition to a low-carbon economy, and fulfill commitments under the Paris Agreement by promoting green investments and influencing policymaking.

International Practices: UK and India

The United Kingdom's Green Finance Strategy, launched in July 2019, comprises three core elements: integrating climate risks into financial decision-making, accelerating finance to meet carbon and environmental targets, and capturing commercial opportunities arising from green finance. The UK issued its first green gilt in 2021, raising ￡10 billion through a 12-year bond, with proceeds allocated to clean transportation, energy efficiency, and climate adaptation projects. This initiative is supported by independent assurance reports and the establishment of a Green Bond Board.

In India, green financing includes investments in renewable energy, climate adaptation, and sustainable management. Masala bonds, introduced by the International Financial Corporation in 2014, are issued in Indian rupees and attract foreign investors. These bonds help raise capital while mitigating exchange rate risks. India's Securities Exchange Board and the Reserve Bank of India have set regulations to streamline this financing mechanism, though further clarity is needed for Nepali corporate entities.

Green Financing in Nepal

Nepal faces challenges in green financing due to a lack of uniform standards and specific regulations. The Nepal Rastra Bank (NRB) has mandated banks to issue green bonds and implement Environmental and Social Risk Management (ESRM) guidelines. However, the legal framework for issuing green bonds, both domestically and internationally, remains underdeveloped. Nepal's Local Currency Law and the Foreign Investment and Technology Transfer Act (FITTA) need refinement to facilitate bond issuance and attract green investments.

Conclusion

Nepal must enhance its green financing framework to align with international practices and address environmental risks. The financial system, dominated by investments in high-risk sectors, requires more robust guidelines and incentives for green investments. Developing uniform standards, improving legal provisions for bond issuance, and incentivizing green sectors will support Nepal's transition to a sustainable economy and fulfill its global commitments to reduce carbon emissions and combat climate change.

Note: This article is from Nepal Infrastructure Summit 2022 Souvenir, for more information visit our page.