Rashtra Bank's progressive leadership in green finance

Some are regulatory guidelines and some are practices from personal experience. For loan investment, the methods from project selection to evaluation are traditional.

In this situation, Nepal Rastra Bank has recently shown the initiative to make internal resource mobilization green-friendly. Rastra Bank has published the draft of Nepal's 'Nepal Green Finance Taxonomy'. This document is the forerunner of such an initiative that will make Nepal's internal resource mobilization sustainable and green.

is trying to develop regulatory awareness that not only economic production but also the potential risk of climate change and environmental impact should be kept at the center. Green finance classification can be considered as a progressive step towards integrating environmental sustainability in Nepal's financial sector. However, its implementation is equally complex and challenging.

The National Bank is trying to take this initiative under the long-term policy of building a systematic system of classifying assets, projects and economic sectors related to banking investment and making the use of financial resources green sector-friendly after building such a system.

climate change adaptation, climate change It has been tried to create this arrangement based on the main principles such as mitigation, protection and management of natural resources and pollution control.

Nepal Rashtra Bank and the financial sector, this system will include the broader financial sector. This classification can only be made possible by a comprehensive regulatory mechanism including the National Bank, the Securities Board, the Ministry of Finance and the Ministry of Forests and Environment.

The main task of this taxonomy brought by the National Bank is to establish a classification system. What is the nature of which property ? How much carbon emissions are generated by any project? That is, what can be done to make the project sustainable and pollution-free? Assets, projects and areas are identified through the use of comprehensive analysis and science. In this way, mainly after the work of classification, the mobilization of internal financial resources can be focused on sustainable development and environmental protection.

Financial resources play a key role in capital formation and job creation in Nepal. How has the capital being mobilized in this way made the future? A lot of credit has gone to the import of vehicles, but what kind of vehicle has it gone to? The house has been built but what are its emissions? Such things have not been identified yet. After guaranteeing the repayment of the loan, the loan is disbursed through the blanket policy.

If the government takes ownership of this policy put forward by the National Bank and implements it, there are many subsequent challenges. After this classification, a radical change in the banking system is required. Until now, the vast banking workforce, which has been approving loans by understanding only house after house and land after land, car after car, needs to be trained to understand the classification. It seems that time and resources are equally needed to acquaint the entire financial sector mechanism with green finance.

After the approval of this policy and the implementation of the policy, the main thing to pay attention to is to implement it according to the principle. The main obstacle for this is the existing risk identification models. The current investment risk identification model is becoming ineffective. It has to be modified. Modified risk models may place additional financial burden on banks. It is necessary to be aware and careful from now on how to prepare them.

This caution means that there will be a time when we need to implement a framework tomorrow, but we may not be able to implement it even if we want to. So now the National Bank has taken the lead at the right time, but the banks also need to be prepared for this. Along with this policy, banks should not only be instructed but also encouraged to enable and prepare for the implementation of green finance classification. For that, the regulator should be aware and resourceful.

Questions are being raised on the mobilization of financial resources so far. Despite more loans, the desired development has not taken place. No significant contribution has been seen in infrastructure construction, industry and agricultural production. Its main problem is also seen in regulation. As if any bank gave a loan to the agricultural sector, it was all right on paper, but did the loan really go to the place it was supposed to? Has the loan been paid from agricultural production? At least it needed regulation with tracking which didn't happen . So this is the regulatory challenge that comes along with the classification of green finance . Every activity should be monitored through

technique. As any asset is classified in the area of ​​risk but it may be kept as low risk when it is kept as loan protection, its monitoring should be automated. For which regulatory capability should be developed together.

Another problem may arise when the government classifies but the market is not ready for it. For the full implementation of such an important policy priority, the market should be taken care of as well . In order to make the product and the market sustainable and green, the consumer's behavior should be influenced.

In order to be carbon neutral in daily life, the state's policy is also needed to make citizens aware and motivated. The awakening of the market helps in the implementation of such policies . A comprehensive awareness program is also necessary for this. The path to fully integrating green finance into banks' operations is fraught with challenges as well as opportunities. The more simple and easy this matter can be explained, the more support it will help.

From now on, the aspect of climate change should also be considered in projects from individual house construction to public infrastructure construction. From the structure of the physical construction to the chemicals used in it, from the equipment to the construction materials, such structures are The necessary regulations and standards for construction should also be developed accordingly. Accordingly, banking, which is considered to be the center of financial resources, should also be changed accordingly. This work seems to be expensive in terms of cost and a bit long term in terms of time. International organizations, development partners and government agencies play an important role in providing technical and financial assistance to banks.

There is a need to develop a collaborative ecosystem involving government, regulatory bodies, NGOs and the private sector. This ecosystem can provide the necessary support, resources and policy guidance to banks, which will facilitate smooth adoption of the classification.

There may be skepticism among banks, customers and other stakeholders about the effectiveness and benefits of green finance. Address these concerns through transparent communication and communicate the positive impact of green investment. Given the growing global focus on environmental issues, banks must anticipate future regulations and standards in green finance. Early adoption of classifications can provide a competitive advantage in complying with upcoming international environmental regulations.

Many hydropower projects in Nepal were damaged due to floods and landslides during the last rain. Due to this, billions were lost. This damage is not limited to the project but ultimately reaches the bank. The credit investment made by the banks may be affected. But until now, while approving loans in Nepal, such sudden disasters have been kept as risks. Now it seems that the number of such risks may increase. The banking system is under pressure to align its investment strategy with environmental sustainability and upgrade its technological infrastructure.

Barriers can be overcome through collaboration between banks, government agencies, regulatory bodies and international partners. Joint efforts in training, knowledge sharing, and resource mobilization are needed to create a more cohesive and effective approach to classification adoption.

Banks must develop a new framework for evaluating the risks and rewards associated with green investments. Understanding the unique risk profiles of green projects and building appropriate strategies to manage these risks should make green finance an attractive option .

The identification of additional new resources has become imperative through the exploration and deployment of innovative financial instruments such as green bond loans. However, the market for this is not yet mature. In Nepal's banking sector, green finance classification is not only a regulatory requirement, it is also a sign that represents a commitment to a sustainable future.