Empowering Green Finance: Nepal Launches Comprehensive Green Finance Taxonomy to Combat Climate Change and Foster Sustainable Investment

Hari Gopal Risal is an Assistant Professor at Kathmandu University School of Management (KUSOM) and PhD scholar in Green and Sustainable Finance at the University of Strathclyde, United Kingdom.

In our interaction with Mr. Risal, a green and sustainable finance researcher, he shares his thoughts on Nepal’s recently launched Green Finance Taxonomy (GFT). Despite its low carbon (CO₂) emissions and almost self-sufficient status to meet our net-zero target in 2045, Nepal faces the negative consequences of climate change due to the emissions in our neighboring countries. Climate change is a global problem, and everyone is responsible for saving the planet. Nepal’s initiative to launch the GFT is welcoming and appreciable.

It is a comprehensive report and commendable job, a joint effort involving the Nepal Rastra Bank (NRB), the Ministry of Finance (MOF), the Ministry of Forest and Environment (MOFE), the Securities Board of Nepal (SEBON), and the Nepal Insurance Authority (NIA), with technical and financial assistance from the Alliance for Financial Inclusion (AFI).

With its clear strategic goals and environmental objectives, the taxonomy aims to guide and support implementing green finance initiatives in Nepal. It focuses on climate-resilient and environmentally sustainable investments and outlines the principles and procedures for their application. It includes annexes that offer guidance on investment proposal assessment, monitoring, reporting, and supervision formats for taxonomy-aligned investments. It underscores the pivotal role of non-financial disclosure and reporting, ensuring that market participants are well-informed and can effectively communicate the sustainability benefits of their investments.

GFT is intended for use in Nepal’s financial sectors, including banks and financial institutions supervised and regulated by NRB, SEBON, and NIA.

Benefits of the GFT:

1. Preventing ‘greenwashing’ and guiding future policy developments for green projects.
2. Attracting foreign investment and driving official development assistance from ESG-aware countries, DFIs, and impact funds.
3. Aligning and mobilizing resources for low-carbon development and resilience-building activities.
4. Creating green jobs in the financial sector and providing a springboard for more inclusive and green financing policies.

Objectives of the GFT:

1. Providing a common ground rule for classifying activities as “green” across relevant national economic sectors.
2. Ensuring adherence to the taxonomy when proposing credit requests, shares, green bonds, debentures, and insurance schemes.
3. Reporting on the impact of green finance investments to ensure transparency and accountability.
4. Collaborating with regulators to share information and best practices on using the taxonomy and supporting reporting and supervision.

In future iterations, I would recommend building a dedicated website like that of the European Union (EU) and offering progress, factsheets, sectoral breakdowns, and appealing presentations to enhance readability, understanding, and implementation. Overall, it is a milestone in Nepal’s efforts to promote green finance and climate action. It strongly emphasizes collaboration, stakeholder engagement, and transparency in reporting sustainability impacts.