Yulanda Chung is a member of the Board of Trustees at Climate Bonds Initiative (CBI) and a former Managing Director at DBS, Singapore, as well as Head of Sustainability at Standard Chartered Bank (UK & Singapore). She visited Kathmandu in the last week of September to participate in the “Seminar on Integrating Climate Finance & Green Finance Taxonomy in the Banking Industry of Nepal”, jointly organised by the Nepal Bankers’ Association and Invest for Impact Nepal. In an interview with Pawan Pandey of New Business Age, Chung talked about the challenges and opportunities for Nepal’s banking sector in adopting climate finance and implementing a green finance taxonomy. Excerpts:

What do you consider the biggest challenges for Nepali bankers in adopting climate finance and implementing a green finance taxonomy?

One of the biggest challenges, not only for Nepali bankers but for the global banking industry, is the availability of data. To integrate climate finance effectively, banks need to understand the emissions profiles of their clients. This means that clients must begin measuring the emissions from their operations, allowing banks to attribute a portion of the clients' emissions to their own based on the financing provided. For example, if you are financing a manufacturing factory that uses a diesel generator in addition to the grid, certain emissions will result. The customer will then be expected to measure these emissions. Since this practice is not yet widespread in Nepal, the availability of emissions data will be a challenge.

Another challenge for Nepali banks will be educating their customers. Banks need to explain the purpose of climate finance, which will require continuous customer education. This is to ensure that customers understand why banks are now asking for information beyond just their financial performance during credit assessments.

Likewise, adopting green solutions to combat climate change can be more expensive and may not yet be commercially scalable in emerging markets. In such cases, banks cannot realistically force customers to make the switch.

How can Nepal learn from other countries that have successfully integrated green finance and taxonomy into their banking sectors? Are there any specific models or frameworks that can be applied here?

When I reviewed the environmental and social risk management guidelines issued in 2018 and revised in 2022, as well as the taxonomy currently under consultation, my impression was that both documents are very well written and already incorporate international best practices. In a way, both the risk management and green finance taxonomy documents have leapfrogged ahead, benefiting from lessons learned elsewhere, as they were developed with the assistance of multilateral development banks with experience in other jurisdictions. What I find useful when applying this in Nepal’s context is to emphasise adaptation over mitigation. In terms of climate change, mitigation focuses on reducing or avoiding emissions, while adaptation ensures that economic activities adjust to the changing climate. In Nepal’s case, since its energy mix is already quite clean — nearly 100% of its electricity production comes from renewables, primarily hydropower — there is less room for mitigation compared to countries relying on fossil fuels. Therefore, for Nepal, it is important to approach the taxonomy and the Environmental and Social Risk Management (ESRM) guidelines with adaptation as the dominant focus.

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Should certain development projects proceed for economic benefits despite their vulnerability to climate risks?

I believe it does not have to be a binary choice between economic growth and sustainability. We can adopt green solutions that are both economically and financially sustainable. When considering economic growth, we should aim for a model that allows for a low-carbon trajectory. It is not necessary to choose between economic growth and pollution; instead, we can recognise that while the pace of change may be slower due to growth priorities, it should still move toward cleaner production and energy use.

Nepal should embrace circular production — transforming waste into resources — rather than adhering to the traditional linear model, where materials are extracted, used and then discarded as waste. By bypassing this outdated approach, Nepal can leap into a more sustainable future.

Given Nepal’s relatively nascent green financial ecosystem, what capacity-building measures are necessary to ensure that banks and regulators are well-equipped to manage the complexities of climate finance?

I am encouraged to hear that the Nepal Bankers Association (NBA) will be establishing a sustainable finance desk. When regulators begin implementing the guidelines and expect banks to follow suit, banks will realise that while attending lectures and seminars is valuable, the true essence of learning comes from practical experience. As they start operationalising the guidelines with support from a sustainable finance desk, this hands-on approach will lead to the most effective capacity building.

What roles do our central bank, and finance ministry need to play in the successful adoption of green finance practices?

Leadership must come from the top, and when regulators set expectations, the industry will follow. The directive from the NBA and the Nepal Rastra Bank (NRB) is clear for industry practitioners, particularly bank CEOs: they must meet these expectations because regulators will be monitoring their progress. This leadership is essential in conveying the importance of these practices.

Additionally, the regulator’s call for the industry to improve and adopt green finance practices helps create a level playing field. Instead of just two or three out of the 20 NBA member banks engaging in sustainable practices, all banks will be required to ask clients the same set of questions and request additional information. This ensures that banks choosing to adopt sustainable practices are not penalised for doing so. The finance ministry will play a similar supportive role in this process.

What innovative financial instruments can Nepali banks introduce to enhance investments in renewable energy and climate-resilient infrastructure?

Blended finance is an approach that combines public or philanthropic development capital with commercial capital to create lower financing costs for customers. This allows borrowers to access cheaper funding sources. I believe this is a highly innovative and applicable strategy for economic actors in Nepal, as they may not yet be able to afford certain green solutions, or the interest rate environment may not be favourable for making capital investment decisions related to green equipment or practices. Development finance institutions (DFIs) already operating in Nepal can play a significant role in facilitating this blended finance.

Another innovative option is the potential for banks to issue green bonds to tap into international capital markets. Following the official launch of the taxonomy, they will be well-positioned to attract institutional capital, expanding their funding sources beyond the local capital pool.

How can Nepali banks align their ESG frameworks with global standards while also addressing local environmental and social priorities?

Banks in more developed markets, such as North America and Europe, have had many more years of experience with ESG frameworks. Therefore, it is not a fair comparison to expect a beginner like the Nepali banking industry to be at the same level. To answer the question of alignment, I would say that if the banking industry can diligently operationalise the ESRM and the Green Finance Taxonomy Guidance — adhering to the expected disclosure metrics and monitoring their progress over time — that alone would represent best practices.

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What role should private sector finance policy play in driving climate-related investments in Nepal, particularly in light of the country’s commitment to achieving net zero emissions by 2045?

Nepali banks and other financial institutions already function as financial intermediaries. They collect deposits from retail investors and customers, then utilise that pooled capital for financing. Through their financing — whether for trade, leasing equipment, specific projects, or the growth of private companies — they contribute to economic growth as intermediaries. Therefore, I believe that the private sector and the capital directed by banks should seriously consider aligning with the taxonomy. As more capital flows into green activities, private companies will realise that if they want to borrow from banks, they need to manage their pollution, reduce emissions and lower water usage. Banks will start considering these factors alongside traditional financial ratios. When banks collectively direct capital toward green initiatives, the economy will receive a clear signal. Companies will recognise that green practices are in demand, and adopting these practices will grant them access to capital. This shift in focus will ultimately drive companies to change their behaviours to align with green financing.

You have said that simply aiming for net zero emissions by 2045 is not sufficient; Nepal also needs to establish interim goals. Should banks also set interim goals related to sustainable finance in alignment with the country's objectives?

I believe it would be very prudent for banks to set interim targets and report their annual performance. While these targets do not necessarily need to align with national climate pledges, they should consider the state of economic development for the companies involved. Given that Nepal's energy mix is already quite clean, companies should focus on equipping themselves and their fixed assets — such as equipment, buildings and factories — to adapt to potential climate impacts. For instance, if heavier monsoons are expected or if monsoons are shifting to different times, agricultural and food production companies need to strategise how to adapt. Understanding and responding to these changes is crucial. Therefore, I believe that, in this context, adaptation is likely more important than mitigation.

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How can banks ensure transparency and accountability in tracking climate finance and reporting progress under the Green Finance Taxonomy?

Ensuring transparency and accountability involves several key components. First and foremost is governance. It is essential to have the senior leadership of the bank on board, with the board of directors actively supporting the implementation of sustainable finance initiatives. Next, banks need to establish clear metrics and targets to measure their progress and understand why these metrics are important. Just as senior management monitors non-performing loans (NPLs) every quarter, tracks annual loan growth and oversees sectoral credit limits regularly, they can apply the same diligence to sustainable finance metrics. By having robust governance structures and clearly defined metrics and targets, banks can effectively track climate finance and report on their progress under the Green Finance Taxonomy.

How prepared is the Nepali banking sector to adopt and implement Green Finance Taxonomies?

The Nepali banking sector stands at a pivotal moment. On paper, it has access to two well-crafted sets of guidelines—one for environmental and social risk management and the other for Green Finance Taxonomy. The key challenge now is operationalising these guidelines effectively. While macroeconomic factors, such as interest rates and trends in non-performing loans (NPLs), may influence the sustainable finance landscape, the successful implementation of these guidelines will enable banks to assess performance beyond traditional financial metrics.

In sustainable finance, we believe that companies operating sustainably will ultimately achieve better results, as reflected in their balance sheets, cash flow statements and income statements. Therefore, the perception that sustainable finance might compromise credit quality should be reconsidered; a sustainable company is, by nature, a well-managed company.

(This interview was originally published in November 2024 issue of the New Business Age Magazine. The headline in the online version has been changed for clarity.)