Supporting resilience and inclusion through Green Finance Taxonomy

The Alliance for Financial Inclusion (AFI), a global network of central banks and financial regulatory institutions in 84 developing countries, has supported Nepal’s efforts to shift to a green, resilient, and inclusive development path. 

With the support of Germany’s International Climate Initiative (IKI), AFI member central banks and regulators have been advancing Inclusive Green Finance policies at the global, regional, and national levels through vibrant peer learning facilitated by the AFI network.

Collaborative and peer-supported approach

The Nepalese Central Bank, Nepal Rastra Bank (NRB), has successfully leveraged AFI’s In-Country Implementation facility to elevate its green finance initiatives:

• Capacity Building: NRB hosted an in-country training session and multi-stakeholder workshop on inclusive green finance, engaging both high-level and technical representatives.
• Development of Nepal’s Green Finance Taxonomy: With a grant from AFI, NRB led the development of a comprehensive Green Finance Taxonomy. This critical framework aims to streamline the flow of green investments, supporting the launch of green bonds, enhancing climate risk reporting and identifying capital allocations essential for the financial sector’s sustainability transition. 
• Peer Learning Exchange: The Financial Regulatory Commission of Mongolia hosted the NRB delegation, allowing the representatives from Nepal to gain insights into their pioneering sustainable finance ecosystem and learn how Mongolia’s Green Finance Taxonomy was developed and is being implemented.
• Peer Reviews: The draft of Nepal’s Green Taxonomy received expert feedback through peer reviews facilitated by AFI from esteemed institutions like Bangko Sentral ng Pilipinas and Bank Negara Malaysia, ensuring a robust and globally informed framework.

This collaborative and peer-supported approach not only fosters a deeper understanding and implementation of green finance but also significantly contributes to the global community’s efforts in achieving sustainable economic growth.

Involvement of various stakeholders

Nepal’s Green Finance Taxonomy defines “green” or environmentally sustainable assets, projects and sectors, and provides guidance and incentives to finance green innovations and to green the financial system. It was designed to be inclusive and can be used by small and medium enterprises (SMEs). Resilience was also considered when developing the Taxonomy’. 

To ensure the Taxonomy’s relevance and usefulness for Nepal’s financial sector and the country as a whole, NRB sought input and feedback from a wide range of policymakers, government organisations, financial institutions, businesses, project developers, international organisations, industry experts, and civil society institutions. Representatives from the Securities Board of Nepal, Nepal Insurance Authority, Ministry of Finance, and Ministry of Forests and Environment participated in NRB’s Project Steering and Technical Committees.

The Taxonomy has four core environmental objectives/principles to guide green investment. 

• Climate Change Adaptation 
• Climate Change Mitigation 
• Natural Resource Conservation and Management 
• Pollution Prevention and Control

Raising awareness of the Taxonomy

NRB is now actively raising awareness across Nepal about the taxonomy, which will remain dynamic, taking into account the fast pace of change in climate policies as well as emerging benchmarks to technically measure what can be considered to be green and not green.

AFI’s assistance aligns with, and contributes to, Nepal’s sustainable development agenda, embedded in the Kathmandu Declaration on Green, Resilient, and Inclusive Development, which aims to provide systematic strategies to create long-term green growth, climate action and sustainable development for all.