The Missing Link in Nepal’s Green Finance

Recent floods in Rasuwa destroyed the Miteri Bridge, the main passage between Nepal and China, impacting numerous communities and tragically displacing and killing dozens. At the same time, Madhesh Province was declared a disaster-crisis zone due to a severe dry spell that has limited agricultural production during what is normally a peak planting season.

 

While one region is suffering because of too much water, the other is dying from too little. This is the harsh reality of climate change in Nepal—a reality that will escalate into a full-blown crisis without targeted adaptation and mitigation strategies.

 

Effective climate action, however, requires significant investments. To effectively address climate impacts, it is estimated that Nepal needs $47.4 billion between 2021 and 2050. Of this, the country can only contribute $1.5 billion, or 3%, due to fiscal pressures from competing priorities like infrastructure investment, debt servicing and underperforming revenue collection. This leaves 97% of the required funding dependent on international financing. Counterintuitively, foreign direct investment (FDI) in Nepal has been steadily decreasing. In 2019, FDI inflow was around $185 million. In 2024, it had fallen sharply to $57 million or around 0.13% of the GDP. For comparison, Bhutan’s FDI inflow has risen to $100 million in 2024, from the miniscule $3 million in 2019, demonstrating a 33 times growth. Moreover, Nepal receives the least FDI, as an absolute value and share of GDP, in all of Developing Asia (excluding Afghanistan), despite the region being the highest recipient of FDI globally.

 

Although Nepal urgently needs external investment to build a sustainable, climate-resilient economy, FDI inflow is steadily declining, shrinking the capital available each year. The problem goes deeper than funding—it lies in the lack of robust climate data and standards.

 

Nepal’s green finance bottleneck is not just about capital; it is about the absence of credible and accessible climate, environmental and social data. Investors in climate finance—often impact investors and Development Finance Institutions (DFIs)—demand greater transparency, reporting, monitoring and measurable outcomes than typical investors. Without reliable baselines, risk assessments and social inclusion metrics, Nepal cannot design data-driven green projects or policies. This undermines its eligibility for global climate funds and investor confidence. This data deficit leads to missed funding opportunities, poorly targeted regulations and ultimately limits adaptive capacity, leaving the country vulnerable despite urgent needs. Therefore, strengthening Nepal’s open climate data infrastructure is not optional. It is foundational. Without it, Nepal cannot unlock green finance or implement effective green policies.

 

Nepal must access the data before it can access the dollar.

 

The Importance of Data Infrastructure

 

When developmental progress is analyzed, infrastructure is often the crucial topic of concern. However, the focus is often limited to physical infrastructure such as roads, power lines and other tangible assets. In today’s digital world, data itself serves as a vital intangible form of infrastructure, making digital investment as essential as physical.

 

This necessity is amplified when it comes to green finance and projects. Climate data is especially important for two main reasons: international funding requires data-backed and data-justified projects, and green policies must be data-driven to ensure they achieve the intended outcomes. International green finance demands evidence-based proof of risks, impacts and social inclusion to approve funding. Without accurate data, projects cannot be properly designed, justified or aligned with international standards. Moreover, investors require reliable data to assess risks and returns and build confidence in projects. Without proper data and baseline standards, it is impossible to verify whether a project is genuinely delivering positive climate and social impacts.

 

Additionally, green policymaking relies heavily on data to avoid contradictory or ineffective regulations. Since green policies aim to create a more sustainable economy and deter non-green and ESG non-compliant outcomes, it is important to make decisions based on data analysis. Without it, there is no certainty that policies will achieve their intended goals or that the right targets are being addressed in a beneficial or achievable manner.

 

Critical Climate Information in Nepal: Missing or Outdated

Despite advances in technology and data collection, Nepal still faces major climate data gaps. Environmental reports are often outdated, incomplete or conducted insufficiently. For example, GHG emissions inventories still rely on 2011 data, with no recent or year-on-year sectoral breakdowns, making accurate trend analysis impossible. Under the Paris Agreement and UNFCCC, countries are ideally expected to submit annual GHG inventories, while for developing countries, it is common to report every 2–4 years through their Biennial Update Reports (BURs). Nepal’s inventory, however, is now 14 years old, placing it far behind even the baseline UNFCCC reporting cycle. While some institutions and researchers have attempted to estimate emissions, systematic annual or biannual government-collected emission monitoring is far more reliable and urgently needed.

 

Another example is Environmental Impact Assessments (EIAs) for hydropower projects, which are often treated as procedural checklists rather than foundational analyses. In practice, they are completed to meet regulatory requirements, with minimal use in shaping project design or mitigating environmental risks, undermining their intended purpose as a core tool for informed decision-making.

 

Similar to GHG emission, air quality monitoring and National Ambient Air Quality Standards (NAAQS) are obsolete. These standards were set in 2012 and have not been updated since. Numerous maximum concentrations exceed global recommendations. For example, the 24-hour PM2.5 limit, the most critical pollutant for public health, is 40 μg/m³, while the WHO guideline is 15 μg/m³, highlighting lax and insufficient standards. Moreover, in 2021, it was found that the 24-hour annual average was 69.6 μg/m³, well above the already lax standards, indicating poor monitoring.

 

Additionally, there are gaps in meteorological stations and in the collection of data on temperature, precipitation, snowfall, wind and other variables. A major issue is the geographical distribution of these stations. High-altitude regions, which are now highly vulnerable to flooding and experience increasingly erratic weather patterns, suffer from an insufficient number of weather stations. For example, out of 282 stations (this may not include all stations, but those with data available online), only 15 are located above 3,000 meters. Moreover, only 4 of the 15 are in the far western regions, while the remaining 11 are all within the Upper Gandaki region. Furthermore, data from these stations often contain gaps, with many entries in both environmental statistics reports and real-time data streams marked as 'NA'. Lastly, many stations still rely on outdated technology. For example, they use manual observations and logging. Outdated flood forecasting systems provide another example: they are less accurate than modern alternatives and often fail to disseminate information widely.

 

Data on climate impacts’ social dimensions, gender, disability and inclusion (GEDSI), is scarce, with no national database tracking disproportionate risks to vulnerable groups or community livelihoods. The majority of livelihood impacts are analyzed at the provincial and household levels, with little to no attention given to specific vulnerable communities or demographic groups. This is mainly due to the underrepresentation of women and vulnerable groups in policymaking and relevant sectors, such as energy.

 

Lastly, Nepal has never conducted National Climate Change Assessments (NCCA), comprehensive studies that analyze climate impacts, risks and future outlooks. Conducted every 5–10 years in countries prioritizing climate resilience, NCCAs help policymakers, communities, and the private sector identify vulnerabilities, guide investments, align strategies, and build overall climate resilience.

 

Data Gaps as a Barrier to International Climate Funding

 

These data gaps do more than hinder scientific analysis; they directly impact international funding inflow. International climate funds, such as Green Climate Fund, Global Environment Facility, etc, strictly require projects to conduct thorough climate risk assessments, analyze environmental and social impact metrics, and complete GEDSI and ESG assessments, among other requirements. With project impacts often prioritized, clear data and standards are essential to show well-targeted and valuable results. Without credible, up-to-date data, projects in need of investments cannot meet eligibility or compete with other international projects. Moreover, even after funding is received, climate finance and impact investors require rigorous tracking and monitoring. Without accurate data and robust Measurement, Reporting, and Verification (MRV) systems, this becomes difficult, often deterring investments or preventing follow-on funding that projects frequently need.

 

Instead, to meet these requirements, projects in Nepal often need to outsource data collection and analysis, which can be costly. If Nepal had robust standards and publicly available data, projects and companies could conduct their own analyses and would likely already be doing so to comply with national requirements. Strong environmental and social standards would boost investor confidence by demonstrating Nepal’s commitment to green projects and ensuring measurable outcomes.

 

Additionally, the lack of data and standards hinders effective policymaking. Green policies must set clear goals that drive the economy toward sustainability. Data is essential to define these goals and chart the best path forward while standards ensure progress is tracked and maintained. Without data-backed policies, an unstable environment is created, which at best achieves no progress and at worst pushes the economy further from sustainability.

 

A clear example of this is EV tax rates. While low import taxes boosted adoption and reduced fossil fuel use, the policy lacks safeguards and overlooks potential externalities. Overconsumption now risks turning Nepal into a dumping ground for outdated models, while short battery lifespans could trigger loan defaults and strain banks. Local experts warn that without clear standards, rapid EV expansion may create long-term financial and operation problems. Frequent shifts in EV tax and loan policies have further impacted investor confidence, created uncertainty and undermined stable growth. These risks are compounded by weak regulations, limited technician training and inadequate infrastructure underscoring the urgent need for stronger, more consistent policies to guide sustainable expansion.

 

Another example involves dry-season hydropower requirements. Current policy mandates either 15% minimum generation from Poush (mid-Dec to mid-Jan) to Chaitra (mid-March to mid-April) or 30% from December to Mangsir 16 to Jestha 15 to ensure energy security. While currently feasible, these targets risk becoming unrealistic as winters grow drier due to climate change. Nepal’s hydropower relies on two sources — about 32% from glacial and snowmelt and 68% from rainfall. But since winters experience minimal rain, winter river flow depends mainly on glacier melt. However, rising temperatures are rapidly shrinking Himalayan glaciers, reducing dry-season flows and eroding the baseline these requirements are set on. If these requirements are not aligned with climate change realities, developers could be penalized for factors beyond their control, which may deter investment in the sector. Going forward, minimum generation policies must be based on climate data and revised proactively to avoid overestimating supply, straining plants, and triggering seasonal shortages.

 

Data Caveats: Why Proper Data Analysis Matters

 

Although the data itself is important, it does not always provide a complete or accurate picture. If the focus is misplaced or the data is one-dimensional, key elements may be overlooked, leading to misinterpretation. This is why analysis is equally important. While most climate data is quantitative, adding qualitative context and expertise helps ensure a more accurate understanding.

 

The importance of comprehensive data and analysis is highlighted by the case of electric stove-top projects. These projects promote adoption and usage of electric stoves, generating carbon offsets that are sold as credits. While seemingly beneficial, researchers of University of California, Berkeley found that these projects produced on average nine times more carbon credits than the actual emissions reductions achieved. As a result, carbon credits were sold without real offsets, resulting in no actual emissions reductions.

 

The issue stemmed from how carbon offset data was calculated. For example, adoption rates were measured using one-time surveys asking households if they had used clean stove-tops in the past month or week. However, deeper analysis revealed households often used both fuelwood and clean stoves simultaneously, rather than exclusively adopting clean stove-tops. Additionally, carbon credit counting is often subject to double counting, where the same carbon reduction is claimed by multiple parties. For example, I-RECs certify that a certain amount of renewable electricity was generated, but double counting can occur if the electricity generator claims the renewable production for its own reporting while also selling the same I-REC to a corporate buyer, or if both the buyer and the host country claim the same generation toward their renewable energy targets. With adequate data systems, double counting and other factors that undermine genuine carbon reductions can be avoided.

 

Similarly, data misrepresentation is evident in Nepal. One example is Nepal’s ranking in the Climate Risk Index, published by GermanWatch, which fell from 10th in 2021 to 69th in 2025. Paradoxically, climate volatility, extreme disasters, and related damages and diseases have increased, with floods doubling in recent years. Experts point out that Nepal lacks a comprehensive system to document loss and damage, leading to discrepancies between lived experiences and reported data. Since international indexes rely on available information, accurate assessments require data systems that are both comprehensive and regularly updated.

 

Way Forward

 

Improving Nepal’s climate data is crucial not only to attract international funding but also to guide the economy toward genuine sustainability. Key recommendations to strengthen Nepal’s data infrastructure include developing robust systems for greenhouse gas (GHG) inventories, climate risk mapping, gender equality and social inclusion (GEDSI) metrics, and livelihood vulnerability profiles. The Ministry of Environment, Climate Change and Forestry (MoECF) should lead the effort, in close collaboration with the Ministry of Finance, Ministry of Energy, Irrigation and Water Resources, Department of Hydrology and Meteorology (DHM), and the National Planning Commission (NPC).

 

Specific actions include institutionalizing annual National Climate Change Assessments (NCCAs) aligned with IPCC guidelines, and creating interoperable, open-access data platforms for policymakers, investors and civil society. Legal frameworks could mandate climate and social impact reporting for all green projects, similar to India’s Environment Management Framework or the EU’s Corporate Sustainability Reporting Directive (CSRD), ensuring consistent, high-quality reporting.

 

Similarly, technologies and systems could include expansion of satellite-based monitoring for emissions and land-use changes, increased number of automated hydrometeorological stations, widespread use of IoT-enabled water and air quality sensors, and user-friendly and up-to-date GIS-based climate risk dashboards, supported by cloud data storage for real-time analysis. Additionally, the government can partner with private companies, academia, think tanks and civil society, requiring green projects to collect specific climate and social data, which can feed into a centralized, publicly accessible database.

 

Only by strengthening Nepal’s climate database, can the nation truly unlock the funding and strategies needed to protect communities from worsening floods, crippling droughts and an uncertain future.

 

This opinion article was originally published in September 2025 issue of New Business Age Magazine.