CLIMATE ADAPTATION IN NEPALI BUSINESS PRACTICES KEY TO FUTURE GROWTH

 As the frequency and intensity of climate-induced risks are increasing, the entire development orientation has been triangulated to the prevention, mitigation and adaptation techniques under the GRID (Green, Resilient and Inclusive Development) framework.

Not only for projects tailormade by the government and funded by development partners or from the government’s own (internal) resources, the lenders particularly development finance institutions (DFIs), banks and financial institutions (BFIs), equity investors and venture capital have started implementing standards to prevent, mitigate and adapt to climate induced shocks.

Until just a few years back, technical feasibility and economic/financial viability and returns against investment were considered paramount factors to take investment decisions in development projects. But in recent years, climate induced disaster risks analysis has started playing a dominant role in decision-making by development partners.

Normally, a project should be technically, environmentally and socially (E&S) feasible and serve the economic and financial returns against the investment. Further, projects should have less disaster impact and climate risks should be properly mitigated, according to Manjeet Dhakal, Head of LDC Support Team and Director, Climate Analytics South Asia Office of Climate Analytics.

Not only development projects, climate change risk prevention, mitigation and adaptation compliance are being introduced in the private sector through regulators and lenders gradually. Climate compliance audit of public companies as part of their voluntary disclosure has already come into practice as their commitment towards sustainable development and responsibility towards planet.

Regulators have provided broad guidelines so far. Further, the National Adaptation Plan (2021-50) released by the government sets out priority programmes in nine thematic sectors outlined in the National Climate Change Policy (2019).

The programmes include adaptation actions that are best able to address climate vulnerabilities and risks in the short (2025), medium (2030), and long-term (2050); as well as adaptation actions that contribute to the achievement of national economic and development priorities. Various agencies are involved and different mechanisms are set up for the implementation of National Adaptation Plan (NAP).

There are multiple plans and guidelines in place to set standards for businesses at the national and international level. At the national level along with the NAP, there is National Climate Change Policy (2019) already in place.

In addition, Nepal Rastra Bank has recently unveiled ‘Nepal Green Finance Taxonomy’ for consultation following the issuance of Guidelines on Environmental and Social Risk Management for Banks and Financial Institutions 2022.

‘Green Taxonomy’ is a classification system used to categorise and characterise environmentally sustainable economic activities and investments. It is used to assist investors, businesses and policymakers in identifying and promoting activities that have a sustainable impact.

Compliance

Nepal has practiced environmental impact assessments (EIA) since 1997 following the enforcement of the Environment Protection Act, 1996. Environmental and social safeguards have been implemented to mitigate the impacts on the environment due to development projects.

Climate change risks are more severe for a mountainous country like Nepal as it has posed threats of multiple hazards including melting of the Himalayan glaciers, avalanches, floods/inundation, droughts, erratic monsoon, landslides and soil erosion, among others. Along with hazards, climate change has adverse impacts on crop patterns, hydrology, change in biodiversity and loss of spices, among others.

Considering the excessive exploitation of nature and environment, and carbon and greenhouse gas emissions from activities that are carried out to make human life easier, there have been commitments made by nations to bring down carbon emissions in the global forum of the United Nations Climate Change Conferences, which are more action oriented following the Paris Agreement in 2015. Nepal has expressed commitment to achieve net zero emissions in COP26 held in Glasgow in 2021.

To address climate impacts, private sector companies are allowed to adjust their CSR (corporate social responsibility) related expenses in the environment conservation activities. However, prevention, mitigation and adaptation measures for minimising climate change impacts may no longer remain as voluntary compliance. The regulatory bodies have signalled that they will gradually start enforcing mandatory compliances to minimise climate change impacts. The mandatory compliances can be enforced based on the indicators to measure the impacts of climate change from the business activity of the particular sector, according to experts. “The indicators can be developed on the basis of environment and social guidelines, climate related financial disclosures, human rights, mitigation and adaptation initiatives (including emission control, waste management) CSR inclusion and empowerment, transitional pathways among others,” as per National Disaster Risk Reduction and Management Authority.

Businesses will need to invest in compliance measures to adhere to regulations, which could include implementing cleaner production technologies, waste treatment facilities or adopting renewable energy sources.

Opportunities

The major investments for lowering climate change impacts should be made in clean energy that has provided an opportunity for the private sector to invest in clean energy. Clean energy, which Nepal has abundant potential for has enormous market potential in the country and also in the regional market, mainly in India and Bangladesh.

Nepal has inked a pact with southern neighbour India to export 10,000 MW of clean energy in the next 10 years. Very recently, Nepal Electricity Authority (NEA) and Bangladesh Power Development Board (BPDB) reached an agreement on the tariff for the electricity to be exported from Nepal in the future. It is said that the agreed-upon selling rate for electricity is between 6.25 US cents to 6.50 US cents per unit. There are preparations to finalise the trinational electricity trading among Nepal, India and Bangladesh.

This has in fact created a huge business opportunity for investment in clean transport, clean cooking solutions, green investments in tourism including eco-tourism, resilient urban infrastructure, ICT and low carbon technologies, among others, that minimise carbon footprints.

Further, supply chain management is another key area that needs to be addressed with sustainability practices, sourcing materials from environmentally responsible sources, or implementing measures to reduce transportation-related emissions.

Climate change compliances have been bringing a huge paradigm shift in the operations of private businesses as they need to be climate responsive and adopt value-based practices and not only be driven by profit generating motives.

Businesses leveraged by clean energy, clean production technologies will have better prospects in the coming days. There is an urgent call for excessive exposure of businesses to carbon emissions to be overhauled to make them adopt climate friendly technologies and inputs.

Further, the availability of funds in the form of equity and loans from venture equity funds and development finance institutions, particularly from international financing sources for climate responsive businesses has provided room for those aspirants to embrace entrepreneurship and scale up businesses.

Development partners are also preparing to expand financing from their private sector window. Arnaud Cauchois, Country Director of Asian Development Bank to Nepal, shared that ADB has been laying high emphasis on mobilising climate finance in its developing member countries, through sovereign and non-sovereign operations. ADB aims to deliver $100 billion in climate finance by 2030.

“All ADB operations will be fully aligned with the Paris Agreement by 2025. Countries like Nepal will be prioritised in receiving climate finance resources, including non-sovereign transactions. In recent years, ADB has introduced a dedicated concessional resource pool to promote private sector engagement, through local-currency solutions, blended finance and loan guarantee solution,” he said, adding, “Private businesses in Nepal that are oriented towards climate mitigation and adaption can utilise these resources.”

Cauchois further shared that ADB also aims to deploy resources from different global and regional climate funds that support renewal energy and energy efficiency initiatives in Nepal that will be deployed through working partner financial institutions and provided with technical assistance to build their capacity on assessing and measuring the positive impact on climate from that intervention.

Challenges

There is a raft of challenges for the private sector to be efficient, competitive and inject capital to transform/revamp their age-old settings of businesses into the new settings as demanded by green initiatives. “There should be a smooth transitional path without disrupting the existing economic activities and businesses, they should voluntarily move forward to climate responsive technologies lowering emissions,” according to Nawal Kishor Sah Sudi, Minister of Forests and Environment. “Nepal’s share in global carbon emissions is less than 0.06%. This is why we have time to orient our businesses gradually to green initiatives instead of disrupting their smooth transition,” he further explained.