Kathmandu, Nepal, May 28, 2018
—IFC, a member of the World Bank Group, and Nepal Rastra Bank, the central monetary authority, have released the country’s first Environmental and Social Risk Management (ESRM) guidelines for the financial sector.
The guidelines will help financial institutions manage the environment and social risks that could arise from transactions with their clients.
The traditional risks intrinsic to financial institutions pertain to credit and market. But the way their clients/investees manage the environmental and social impact of their operations can also pose substantial risks to financial institutions. If left unmanaged, these risks can adversely impact the financial institution’s reputation, and could even result in costly litigation and loss of revenue, ultimately leading to an increase in non-performing loans.
The ESRM guideline sets standards for the identification, assessment, and management of risks and lists acceptable thresholds of environmental and social performance. It contains general and sector-specific checklists and sector-wise lists of permits and licenses that financial institutions can apply to make their evaluations. Hydropower-related E&S criteria has been given special attention given the country’s reliance on this form of energy. In cases where E&S impact is unavoidable, measures have been suggested to mitigate them to the extent possible.
“Improved E&S risk management practices will help generate business opportunities and boost regional competitiveness of our banks and financial institutions. This will create increased access to financing for businesses with strong environmental and social performance.” said NRB Governor Dr. Chiranjibi Nepal. “Sustainable finance presents a huge opportunity to deliver on the Sustainable Development Goals, to which Nepal is a signatory.”
Nepal Rastra Bank started its journey towards a sustainable banking system in 2014 when it joined IFC-supported Sustainable Banking Network (SBN). The ESRM guidelines have been drafted by experts at IFC and NRB using global standards, including IFC’s Performance Standards and Equator Principles, and finalized through an intense process of consultations with bankers’ associations and development partners.
“High standard of environmental and social risk management by financial institutions is a powerful way to manage business risks, increase market trust, and attract investment, especially towards green financing,” said Wendy Werner, IFC Country Manager for Bangladesh, Bhutan, and Nepal.
The guidelines also provide a reporting template to all banks to report to NRB on sustainability performance. IFC will train officials at Nepal’s financial institutions in assessing and administering the guidelines and evaluating reports.
As part of the Sustainable Banking Network (SBN), IFC has helped several countries including Bangladesh, Indonesia, Mongolia and Vietnam, draft, implement, and strengthen their ESRM guidelines.. These measures have improved the lending portfolio in these countries, reduced risks, and boosted private sector financing and green financing. Nepal Rastra Bank is an active member of the SBN.
About IFC
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. IFC works with more than 2,000 businesses worldwide, using its capital, expertise, and influence to create markets and opportunities in some of the most difficult areas of the world. In FY17, IFC delivered a record $19.3 billion in long-term financing for developing countries, leveraging the power of the private sector to help end poverty and boost shared prosperity. For more information, visit
www.ifc.org
About SBN
The Sustainable Banking Network (SBN) is a knowledge and capacity-building platform of financial regulators, banking associations, and environmental regulators from emerging markets, committed to developing sustainable finance frameworks based on national context and priorities, as well as international good practices. IFC acts as the Secretariat of the Network, playing the role of facilitator and technical adviser to SBN. For more information on the Sustainable Banking Network, visit
www.ifc.org/sbn
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