Nepal and other lower income countries expand climate risk regulation

February 15, 2022|Written by Graham Caswell|Nepal Rastra Bank, Bank of Mauritius, Central Bank of Kenya

The Nepalese central bank has issued new requirements for banks and other financial institutions to assess climate risks before providing loans. Released on Sunday, the guidelines include a comprehensive checklist to assist banks in integrating climate considerations into their risk management practices and are the latest in a series of climate measures introduced by central banks and financial regulators in low and medium-income countries.

Nepalese banks will be required to check if loan applicants have procedures for measuring and disclosing greenhouse gas emissions and clients with more than 25,000 tonnes of annual CO2 emissions will need an emission reduction plan. Banks will also have to check if project sites fall within areas prone to floods, landslides and other physical climate effects.

“One of the conditions of the World Bank to approve development policy credit to the government was that the central bank needs to introduce such guidelines,” said Narayan Prasad Pokharel, deputy spokesperson at the Nepal Rastra Bank.

“In previous guidelines, we had asked the banking institutions to look into environmental risks before lending,” added Kiran Pandit, director of banking regulation. “Now we have asked them to look into subtle climate risks as well.”

The move is the latest in a series of steps to manage climate-related risks taken by central banks and financial regulators in countries with emerging economies. Both the Central Bank of Kenya and the Nairobi Securities Exchange have recently released climate-related guidance, while the Bank of Mauritius has published draft guidelines it expects to become mandatory.

Central banks and financial regulators in Rwanda, Egypt, Ghana, Morocco, Nigeria, South Africa and Zimbabwe have also implemented climate-related regulation or guidance, or are discussing doing so in the near future.

Moody’s rating agency has estimated that the 49 banks it rates across 14 African countries have extended almost $218bn in credit to climate-sensitive sectors, the equivalent of nearly 29% of their total loans.

This page was last updated February 15, 2022

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