Assessing Climate Transition Maturity of Nepali Commercial Banks

Challenge

As one of the world’s most climate-vulnerable nations, Nepal stands at the frontline of the climate crisis, and physical risks are translating into mounting credit risk for the banking sector. Recent extreme weather events have underscored the importance of the banking sector integrating climate considerations into credit assessments and proactively working with the real economy to catalyse investments into resilience and sustainable growth.

Solution

SLR supported Invest for Impact Nepal (IIN) and the Nepal Bankers’ Association (NBA) on the landmark report Assessing Climate Transition Maturity of Nepali Commercial Banks, which examines how Nepal’s commercial banking sector is beginning to integrate climate-related risks and opportunities into their strategies, risk management, governance and target-setting, and how prepared they are to finance a low‑carbon, climate‑resilient future.

SLR led the research to develop the maturity assessment, guided banks through the assessment, and analysed the findings. The maturity assessment was developed by leveraging international reference frameworks, including the Task Force on Climate-related Financial Disclosures (TCFD), Transition Plan Taskforce (TPT), Nepal Rastra Bank’s (NRB) Environmental and Social Risk Management (ESRM) Guidelines and the Nepal Green Finance Taxonomy. Banks were assessed across five maturity levels, from novice to transformative.

Impact

The assessment provided Nepal’s first broad look at how ready commercial banks are for climate transition. It showed that while the sector is still in its early stages, there is growing ambition to integrate climate considerations and work with the private sector to implement adaptation measures and reduce greenhouse gas emissions. The research found that while NRB’s ESRM Guidelines give a foundation, the sector needs to go further in identifying and assessing climate risk as part of credit appraisal, particularly in climate-vulnerable sectors such as hydropower and agriculture. For the banking sector, being able to connect climate risk to credit risk through forward-looking risk assessments and tracking of historical trends will unlock more accurate pricing of risk, stronger portfolio resilience, and new avenues for climate aligned lending and investment.

The finance and regulators, industry bodies and development finance institutions working in-country have a critical role to play in creating an enabling policy environment, supporting resilience and green finance, and strengthening market-wide capacity. The Central Bank (NRB) highlighted the value of the assessment in informing supervisory engagement and supporting broader sector-wide discussions on climate risk.