Advancing Nepal’s Climate Finance Agenda

Nepal’s vulnerability to climate change demands urgent financial interventions. In response, Nepal Rastra Bank (NRB) has introduced the Nepal Green Finance Taxonomy 2024 (NGFT), a structured framework to channel investments into sustainable sectors such as renewable energy, climate-resilient agriculture, and low-emission infrastructure. As COP29 concludes with a pledge of $300 billion annually for climate action and a goal to scale climate finance to $1.3 trillion per year by 2035, it is critical to assess how frameworks like NGFT can catalyze measurable impacts in developing nations. 

The NGFT establishes principles and classification standards to ensure investments are genuinely sustainable, addressing risks such as greenwashing. It aligns with Nepal’s commitments under the Paris Agreement and complements national strategies like the National Adaptation Plan (NAP) and the Nationally Determined Contributions (NDC) Implementation Plan. However, while the taxonomy provides a blueprint for green finance, its success depends on tackling systemic barriers such as policy gaps, institutional capacity constraints, and weak monitoring systems.

Challenges

These challenges echo concerns raised by Least Developed Countries (LDCs) at COP29, which emphasised the need for financial mechanisms tailored to their vulnerabilities and limited fiscal resources. Although the $300 billion annual commitment includes grants and concessional loans, a significant portion of climate finance will need to come from private sector investments. For Nepal, frameworks like the NGFT are critical for mobilising private capital and attracting international funds.  

While the NGFT offers a strong foundation, its implementation faces significant challenges. The first hurdle lies in addressing policy and regulatory gaps. While the NGFT offers a framework for sustainable investments, it lacks fiscal incentives like tax breaks, subsidies, or credit guarantees, which are crucial for de-risking projects and attracting private capital in a market dominated by traditional financing. Addressing this gap is essential to unlock the full potential of green finance.

Institutional capacity is another major challenge. Many financial institutions in Nepal currently lack the expertise to evaluate, manage, and monitor green projects effectively. Although the NRB has initiated capacity-building programmes, their success depends on accelerated implementation and stronger collaboration with domestic and international stakeholders. Without these efforts, the taxonomy risks remaining a theoretical framework rather than a practical tool for driving transformative change in Nepal’s financial sector.

Equally crucial is the development of robust data and monitoring systems. These systems are essential to measure the environmental and social impacts of green investments and to build investor confidence. The absence of robust monitoring systems limits accountability and makes it harder for Nepal to access global climate finance. Increasingly, international funding sources prioritise projects with clear transparency and measurable outcomes. If stricter criteria are introduced to manage the limited concessional financing under the $300 billion pledge, efficient data collection and monitoring systems will become essential for Nepal to demonstrate eligibility and readiness.

Despite these challenges, the NGFT represents an opportunity to align Nepal’s development with sustainable practices. For instance, the energy sector could see transformative investments in hydropower, solar, and wind energy, reducing the country’s reliance on fossil fuels. To support these investments, financial instruments like green bonds can be scaled up. Issuing green bonds allows Nepal to attract global climate funds and private investors interested in sustainable projects. However, these instruments require a strong regulatory framework and market confidence, which the NGFT can help establish by ensuring transparency and alignment with international standards.

In the realm of climate-resilient infrastructure, the NGFT can drive investments in projects that adapt to climate risks, such as drought-resistant irrigation systems, flood-resilient urban planning, and all-weather roads. Public-private partnerships (PPPs) and blended finance models can play a vital role in these efforts by reducing the financial burden on the government and distributing risk between public and private entities. For instance, Nepal could design PPPs for urban development projects, like sustainable housing and transport systems, that prioritise low-carbon materials and resilient designs. 

Opportunities

As global leaders pledge unprecedented financial commitments, countries like Nepal must position themselves to seize these opportunities. Despite contributing minimally to global emissions, Nepal bears a disproportionate share of climate risks. Supporting nations like Nepal is not only a matter of justice but also a pragmatic step toward global resilience. The NGFT positions Nepal as a credible recipient of international climate finance, particularly from sources like the Green Climate Fund (GCF) and multilateral development banks. To maximize its potential, Nepal must bridge implementation gaps through technical assistance, streamlined access to funds for local actors, and enhanced readiness to meet global funding criteria.

The $300 billion annual pledge from COP29 is a step in the right direction, but the onus lies on Nepal to demonstrate accountability and readiness. With focused efforts on regulatory clarity, institutional capacity-building, and robust data systems, the NGFT can transform from a framework into a force for change. By turning green finance ambitions into measurable outcomes, Nepal can not only advance its own sustainable development but also inspire other LDCs in the global fight against climate change.

(Shakya is a financial specialist keen on energy, infrastructure, and climate action.)