SBFN Member Since:
2014
Member Organisations
Nepal Rastra Bank
Progress Against Pillars and Sub Pillars
This graphic can also be found within this country’s 2019 Country Progress Report.
Framework Documents
| Country | Policies/ Principles/ Guidelines | Year | Issuer |
|---|---|---|---|
| Nepal | Guideline on Environmental and Social Risk Management (ESRM) for Banks and Financial Institutions | 2022 | Nepal Rastra Bank |
| Nepal | 2020 | Nepal Rastra Bank | |
| Nepal | 2018 | Nepal Rastra Bank | |
| Nepal | 2018 | Nepal Rastra Bank | |
| Nepal | 2017 | Nepal Rastra Bank | |
| Nepal | 2017 | Government of Nepal, National Planning Commission | |
| Nepal | 2016 | Government of Nepal, National Planning Commission |
Strategic Development - Alignment with global E&S standards and best market practices
S1.1 – Does the framework make reference to international E&S targets (SDGs, Paris Agreement, Global Compact)?
No
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S1.2 – Does the framework make reference to established international E&S risk management standards (IFC PSs, EPs)?
Yes
Chapter 2&6
The Guideline requires all B/FIs engaging in the types of transactions mentioned above to develop and implement an Environmental and Social Management System (ESMS) consistent with local environmental and social laws and regulation and overtime with recognized international standards such as IFC’s Performance Standards on Environmental and Social Sustainability and the Equator Principles.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
S1.3 – Does the framework make reference to established international sustainability reporting standards (GRI, SASB)?
No
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S1.4 – Does the framework make reference to established international climate finance reporting standards (TCFD)?
No
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S1.5 – Does the framework ask to make E&S policies, practices and results externally verified (assurance, independent review)?
No
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Strategic Development - Multi-stakeholder collaboration
S2.1 – Does the framework involve interagency collaboration between financial supervisors/regulators, industry association, and FIs?
Yes
S2.2 – Does this collaboration also include other public agencies (e.g., environmental agencies, ministries)?
No
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S2.3 – Does this collaboration also include representatives of civil society (e.g., NGOs, associations, media)?
No
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Strategic Development - Alignment to NDCs and with National or Regional Climate Change Targets
S3.1 – Is the framework aligned with national NDCs or other national and regional policies on climate?
No
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S3.2 – Has the SBN member identified the main climate risks (transition/physical) for their local financial sector?
No
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ESG Integration - Governance of E&S
Role of Governing Bodies on E & S
E1.1 – Does the country policy require one of the FI’s governing bodies (e.g., Board of Directors, Executive Committee, Supervisory Board, etc.) to approve an E&S strategy?
No
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E1.2 – Does the policy require management to report on E&S strategy implementation to the governing bodies?
No
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E1.3 – Does the policy require FI operational bodies to report to the governing bodies (or specific Board committee) on implementation of the E&S strategy?
No
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Organization
E1.4 – Does the framework ask FIs to define E&S roles and responsibilities?
Yes
7.2 (p13)
For an ESMS to function properly, it is essential that roles and responsibilities for implementing procedures and making decisions are clearly defined.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E1.5 – Does the framework highlight the E&S roles of front office staff and second lines of defense (e.g. risk officers and/or compliance officers)?
Yes
7.2 (p13)
Role description of: relationship managers, credit risk managers/officers, legal department and credit authority.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E1.6 – Does the framework ask FIs to define E&S competencies for each role?
No
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E&S Risk Management
E&S Policy
E2.1 – Does the framework ask FIs to formalize an E&S or ESG policy?
Yes
7.1 (p13)
An E&S policy states a B/FI’s vision and mission with respect to the environment, society and contributions to sustainable development. It is a short, written statement, approved and supported by senior management that articulates the B/FI’s commitment to integrating E&S considerations into its business activities as well as contributions to sustainable development. The typical E&S policy may include one or more the following statements and commitments: [list of 7 aspects].
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.2 – Does the framework encourage FIs to go beyond E&S requirements of local laws and regulations?
Yes
2 (p7), 5(p9)
The Guideline requires all B/FIs engaging in the types of transactions mentioned above to develop and implement an ESMS consistent with local environmental and social laws and regulation and overtime with recognized international standards.In order to identify, manage and mitigate E&S risks, all B/FIs engaged in any of the above types of financing are required to develop a robust ESMS, consistent with national laws and international best practice.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.3 – Does the framework ask FIs to set E&S objectives and targets?
Yes
7.1 (p13)
The typical E&S policy may include (…) setting strategic E&S objectives, such as offering new products that address E&S sustainability.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.4 -Does the framework ask FIs to publicly disclose their E&S policy and its governance?
No
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Risk Assessment
E2.5 – Does the framework require FIs to carry out appropriate E&S due diligence at transaction level?
Yes
5 (p9-10), 7.3 (p14)
The transaction types for which the ESRM Guideline is applicable are SME finance, commercial leasing, Term Finance, and project finance.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.6 – Does the framework require FIs to carry out appropriate E&S due diligence at client level?
Yes
5 (p9-10)
For all business purpose loan applications subject to this Guideline, the B/FI must ensure that the activity financed is not on the Exclusion List.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.7 – Does the framework encourage FIs to categorize projects/clients according to their level of E&S risk?
Yes
7 (p12), 7.3 (p14), 7.3.4 (p18)
The effective implementation of a B/FI’s E&S Policy is ensured through a set of detailed E&S Risk Management Procedures for (…) categorizing transactions based on the loan characteristics (e.g. size, type) or their inherent environmental and social risk [and] rating transactions based on the level of their compliance with E&S requirements and magnitude of E&S problems.Upon completion of the ESDD Checklist an E&S risk rating – ESRR (Low, Medium, High) will be generated automatically by the excel-based ESDD Checklist (in a separate annex to the Guideline).
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.8 – For high-risk transactions, does the framework encourage site visits to be organized?
Yes
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E2.9 – In case of negative E&S impacts, does the framework invite FIs to engage with clients to implement mitigation measures?
Yes
7(p11), 7.3.5 (p19)
An ESMS helps a B/FI to (…) require borrowers to implement mitigation measures for identified unacceptable environmental and social risks and/or non-compliance with applicable standards.For MEDIUM and HIGH Risk transactions, there may be identified risks which will have to be mitigated. A corrective action plan can be developed identifying the risk, mitigation measure, timeline for implementation and who should be responsible for implementation.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E&S Covenants
E2.10 – Does the framework ask FIs to incorporate E&S covenants and investment conditions into legal agreements with clients?
Yes
7.3 (p14), 7.3.3 (p16), 7.3.5 (p19)
For HIGH and MEDIUM Risk transaction, a time bound action plan and relevant covenants, addressing required remedial actions by the client, will have to be included in the loan documentation.The objectives of the E&S due diligence are (…) ensure that the loan documentation includes appropriate definitions, covenants, clauses and associated elements to obligate the client to comply with all E&S laws and regulations and remedy areas of non-compliance.For MEDIUM and HIGH Risk transactions, there may be identified risks which will have to be mitigated. A corrective action plan can be developed identifying the risk, mitigation measure, timeline for implementation and who should be responsible for implementation. Transaction specific corrective action plan and covenants can be part of the loan documents.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
Project Supervision & Portfolio Review
E2.11 – Does the framework ask FIs to develop processes to manage E&S risks during supervision?
Yes
7(p12), 7.3 (p14), 7.3.7 (p19)
The effective implementation of a B/FI’s E&S Policy is ensured through a set of detailed E&S Risk Management Procedures for (…) monitoring the client’s environmental and social performance.Review of the proposed actions (if any) to mitigate potential environmental and social issues associated with the project throughout all phases of the project life cycle.B/FI staff should conduct periodic monitoring and review of the all transactions throughout all phases of the project life cycle to ensure that (i) any required actions to mitigate potential environmental and social issues associated with the project are implemented according to schedule, (ii) and the E&S risk profile of the transaction hasn’t increased.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.12 – Does the framework encourage a periodic review of E&S risks at aggregate portfolio level?
Yes
7.3.8 (p19), 9 (p20)
B/FIs should aggregate and continuously monitor and manage its E&S risk profile at the portfolio level.B/FIs should aggregate and continuously monitor and manage their E&S risk profile at the portfolio level.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
Training
E2.13 – Does the framework ask FIs to develop and maintain E&S capacity through regular training?
Yes
7.1 (p13), 8 (p20)
The typical E&S policy may include (…) committing to continually building capacity of its staff to manage E&S risks.Tasks should include a review of the E&S regulations of Nepal, communications and training plan for staff, assigning responsibilities to applicable staff, and review of the ESMS on a periodic basis for continuous improvement.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.14 – Does the framework highlight the training of (i) front office staff, (ii) second lines of defense (risk officers and/or compliance officers), and (iii) E&S experts?
No
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External Communication Mechanism
E2.15 – Does the policy require FIs to establish and maintain an inquiry/complaints/grievance mechanism in relation to E&S or ESG practices?
No
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E & S Reporting
E2.16 – Does the policy require FIs to report regularly on E&S or ESG performance, including publicly, to investors or to regulators?
Yes
7.3 (p14), 7.3.8 (p19)
B/FIs must establish E&S performance reporting procedures for both internal reporting to senior management and external reporting to NRB, shareholders and stakeholders.The B/FIs will be required to report on their sustainability performance both internally to senior management, and externally to NRB on an annual basis (see Annex 11 for a template for reporting to NRB), and annually to shareholders and stakeholders. A B/FI’s ESMS should include periodic reporting on the E&S performance of transactions and measures taken to reduce its overall exposure to E&S risk. B/FIs should aggregate and continuously monitor and manage its E&S risk profile at the portfolio level.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E2.17 – Does the policy make E&S or ESG reporting and disclosure more consistent across financial institutions through principles, guidelines, or templates?
Yes
Annex 11 (p56-57)
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
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E & S Integration - Enforcement
E3.1 – Is the implementation of the framework regularly verified or is information regularly collected from FIs?
Yes
9 (p20)
NRB will require B/FIs to report annually on the: (a) Progress and performance integrating E&S risk management into the credit risk management process for credit activities subject to these Guidelines; (b) ESRM institutional capacity building activities conducted during the year; (c) Procedures for monitoring, evaluating and reporting their compliance with these Guidelines; and (d) E&S risk profile of the portion of the B/FI’s loan portfolio subject to these Guidelines.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
E3.2 – Is there any financial and/or non-financial incentive for establishing ESRM systems?
No
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E3.3 – Are there sanctions/penalties/warnings in case of noncompliance with the framework?
No
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Climate and Green Finance - Products and Services
Defining sustainable assets and financial products
C1.1 – Does the framework provide definitions and examples of green assets?
Yes
Annex 11 (p56-57)
Renewable energy projects; Energy efficiency projects; Effluents (wastewater) treatment plants; Waste recycling and reuse; Water consumption reduction.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
C1.2 – Does the framework provide a comprehensive taxonomy of green assets?
No
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C1.3 – Does the framework provide definitions, examples, or a taxonomy of social and/or sustainable assets?
No
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C1.4 – Besides debt products (loans, bonds), does the framework provide definitions and examples of different types of sustainable finance products/services (e.g., saving accounts, means of payment, insurance, private equity, etc.)?
No
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Green Finance Product Guidelines
C1.5 – Does the framework provide guidelines for green loan/green credit or other green financial assets (excluding green bonds)?
No
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C1.6 – Does the framework provide guidelines for issuance of green bonds?
No
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C1.7 – Does the framework refer to existing standards (e.g., ICMA’s Green Bond Principles or CBI’s Climate Bonds Standard)?
No
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C1.8 – Does the framework recommend external party verification (e.g., second party opinion, assurance, certification)?
No
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Climate and Green Finance - Climate and Green Investment Reporting
Tracking and Disclosure of Climate & Green Finance
C2.1 – Does the framework ask FIs to report on climate/green finance flows (quantitatively or qualitatively)?
Yes
Annex 11 (p56-57)
No. of transactions beneficial to E&S improvements: Renewable energy projects; Energy efficiency projects; Effluents (wastewater) treatment plants; Waste recycling and reuse; Water consumption reduction.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
C2.2 – Does the framework ask FIs to report on climate risk exposure at portfolio level?
No
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C2.3 – Does the framework encourage FIs to report publicly on their green finance activities (i.e. not only to the regulator)?
Yes
7.3.8 (p19)
The B/FIs will be required to report on their sustainability performance both internally to senior management, and externally to NRB on an annual basis (see Annex 11 for a template for reporting to NRB), and annually to shareholders and stakeholders. A B/FI’s ESMS should include periodic reporting on the E&S performance of transactions and measures taken to reduce its overall exposure to E&S risk. B/FIs should aggregate and continuously monitor and manage its E&S risk profile at the portfolio level.
Guideline on Environmental and Social Risk Management for Banks and Financial Institutions (NRB, 2018)
Climate and Green Finance - Measurement
Calculation of Environmental Benefits
C3.1 – Does the framework ask FIs to calculate the environmental benefits of their investments? (e.g., CO2 emission reduction, water saving, etc.)
No
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C3.2 – Does the framework provide a taxonomy of potential environmental impacts?
No
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C3.3 – Does the framework provide methodologies, tools, and/or templates to measure and report these impacts?
No
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Climate Risk Exposure Assessment
C3.4 – Does the framework ask FIs to monitor climate risk exposure at portfolio level?
No
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C3.5 – Does the framework refer to specific climate risk exposure methodologies (e.g., climate scenario analysis, climate risk stress testing, calculation of carbon risk exposure, tracking of energy efficiency for real estate portfolio)?
No
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C3.6 – Does the framework encourage FIs to take mitigating steps on these risks?
No
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Climate and Green Finance - Incentives
Financial and Non-Financial Incentives
C4.1 – Does the framework provide any type of incentives for green financial products and services?
No
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C4.2 – More specifically, does the framework introduce financial incentives on green products and services?
No
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