EMBRACING ESG GUIDELINES IN NEPAL

Adopting Environmental, Social and Governance (ESG) principles in Nepal is essential for fostering sustainable development and improving the country’s global competitiveness. As Nepal continues to face challenges related to climate change, social inequality and political instability, integrating ESG practices offers a holistic approach to tackling these issues while encouraging economic growth.

By embracing environmental sustainability, Nepal can better manage its natural resources, promote clean energy solutions like hydropower, and mitigate the effects of climate change. Incorporating ESG practices into Nepal’s business and political framework is not just about compliance but about creating long-term value for both people and the planet. By adopting these principles, Nepal can pave the way for a more sustainable, equitable and prosperous future.

Business 360 spoke to Sandeep Shrestha, ESG Director & Founder, Sustainability Solutions; Sharad Tegi Tuladhar, Chief Policy, E&S and Climate Project, NMB Bank; Amit Walia, Director of Sales and Marketing, Hyatt Regency; and Sonika Manandhar, Co-Founder and CTO, Aloi, to gain insight into ESG practices in Nepal.

How has the understanding of ESG evolved over the past few years in Nepal? How do you think the integration of ESG factors can enhance long-term business value?

Sandeep Shrestha: There has always been a strong focus on environmental assessment as required by Environmental Protection Rules to ensure projects are financially and environmentally sustainable. Like elsewhere in the world, the social dimension is often missed in impact assessment. Before ESG became prominent, the focus was on Environmental and Social (E&S) with a strong focus on identifying, assessing, managing and monitoring environmental and social risks, impacts and opportunities throughout the business lifecycle. More recently, Environmental, Social and Governance has become prominent. However, depending on sustainability strategy, small ‘g’ can relate to how a company governs its E&S system, or a big ‘G’ that often refers to corporate governance. ESG continues to evolve as there is more pressing emphasis on Business and Human Rights, Gender, Climate Change and Business Integrity. Depending on strategies, companies may integrate these themes under a broader ESG framework or prioritise a thematic system.

The premise of ESG is to identify and manage ESG risks and impacts. With proper risk identification, businesses or projects can take proactive measures to avoid, minimise or reduce their impact, and thus allocate adequate resources and mitigation measures. This also includes robust stakeholder engagement strategies and external communication mechanisms to get feedback from stakeholders on actual or perceived ESG risks. Strong ESG performance translates to reduced disruptions and improved reputation. As such, businesses need to view ESG as a value creation strategy rather than cost. Though there are numerous researches globally on ESG value creation, there isn’t strong evidence of ESG value creation in Nepal.

Sharad Tegi Tuladhar: Nepal’s legal framework has a long history of addressing environmental, social and labour issues. The first Environmental Protection Act was introduced in 1997 and updated in 2019, while the Labour Act of 1992 was revised in 2017. Other significant regulations include the Child Labour Act, 2000, and provisions related to Gender Equality and Non-Discrimination. To further strengthen ESG implementation, Nepal Rastra Bank introduced the Environmental and Social Risk Management Guideline (ESRM) in 2018, with an update in 2022. While these regulations have been in place for long, enforcement across industries has been relatively weak.

The additional indirect control introduced through financial institutions has been an effort to give ESG (Environmental, Social and Governance) implementation the much-needed boost. Yet, achieving robust and effective ESG practices requires stronger commitment and collaboration among all stakeholders.

Integration of ESG factors is very essential for Nepal to align with its Sustainable Development Goals (SDGs), Nationally Determined Contributions (NDC), and National Adaptation Plan (NAP) while fostering global partnerships and economic globalisation. Rising to international ESG standards will position Nepal as a competitive player in global markets, attracting sustainable investments and enabling access to green financing. With the government, private sector and public sector acting as key stakeholders, adherence to ESG principles strengthens governance, enhances socio-environmental outcomes and boosts economic resilience. This approach not only supports Nepal's climate and development commitments but also ensures long-term socio-economic benefits, fostering inclusive growth and building a foundation for sustained global economic integration.

Amit Walia: The understanding of ESG in Nepal has grown significantly, with a greater emphasis on environmental stewardship and community upliftment. At Hyatt Regency Kathmandu, we integrate ESG by focusing on energy efficiency, waste reduction and empowering local communities, aligning with our purpose of care. This integration builds trust, enhances brand value, and ensures sustainable growth. However, the data also reveals that plays a crucial role have the better vigilance for further action, particularly the ‘Eco Track’ upkeep.

Sonika Manandhar: Over the last few years, ESG has moved from being just a buzzword in Nepal to something more tangible. It is exciting to see businesses starting to connect the dots between sustainability and long-term growth. From green energy projects to sustainable agriculture, there is a growing recognition that being environmentally and socially responsible is not just ‘nice to have’ – it is ‘must to have’ for a business to run smartly.

We at NMB Bank evaluate a company’s environmental impact by assessing both positive and negative contributions to the environment, especially given Nepal's status as one of the most climate-vulnerable countries.

Sharad Tegi Tuladhar

Chief Policy, E&S and Climate Project NMB Bank

When companies integrate ESG factors into their operations, it is like future-proofing themselves. For example, in agriculture (with the experience from the work we do at Aloi), adopting climate-resilient practices does not just help the planet – it helps farmers stay in business when the weather gets unpredictable. That is real and long-term value creation.

How do you measure or evaluate a company’s environmental impact, and how important is it in your decision-making? How can organisations balance sustainability goals with financial performance?

Sandeep Shrestha: It is important not only to measure environmental impact but also social impact. E&S impact and decision making really depends on type of business. For example, financial institutions or fund managers conduct ESG due diligence during the investment process which feeds into investment approval process. It provides decision makers with a holistic view of ESG risks and impacts of investment, organisational capacity to manage it, required resources, mitigation measures and ESG covenants and warranties in agreements. However, financial institutions often miss out on conducting capacity assessment and budget allocation for ESG management. With initial due diligence, financial institutions also need to conduct ongoing ESG monitoring and reporting, which needs to be discussed in each board meeting and ensure ESG risks are being managed. On the other hand, there are projects and businesses that incorporate ESG as part of their business model to identify and manage ESG risks and impacts. It is usually financial institutions that mandate ESG assessment for decision making. It is surprising that I have worked with only one client for whom I developed an ESG management system without requirement from their investors.

The best way to balance sustainability goals with financial performance is by integrating sustainability in corporate strategy and policies. Companies will not perform well in sustainability goals, if ESG or sustainable practices are kept in silo. Sustainability needs to be in the business model, KPIs, and considered in all functional units to give that financial value.

Sharad Tegi Tuladhar: We at NMB Bank evaluate a company’s environmental impact by assessing both positive and negative contributions to the environment, especially given Nepal's status as one of the most climate-vulnerable countries. This evaluation includes review of the company’s positive initiatives, such as energy efficiency measures, transitions to renewable energy, emission reductions, and contributions to biodiversity and ecosystem protection, all of which align with Nepal’s broader environmental advocacy. On potential negative impacts, we ensure that the businesses we finance do not cause any significant harm to the people or planet, by applying robust ESG due diligence standards. This involves assessing compliance with regulations, potential environmental and social risks, resource utilisation practices, waste management, etc.

NMB Bank considers sustainable financing as a core strategic priority, thus making contribution to the country’s sustainable development through our investments is a top focus.

Investing in sustainability initiatives drives long-term value creation. While it may require initial investments, it helps minimise risks and opens new opportunities by enhancing reputation, building the confidence of international investors, and attracting global investments. This helps organisations establish a strong presence in international markets, balancing sustainability goals with financial performance.

Amit Walia: We measure our environmental impact using globally recognised metrics like energy and water usage, waste management, and carbon footprint reduction. At Hyatt, these metrics guide decisions to achieve sustainability without compromising financial health. Balancing sustainability with performance requires innovation, such as adopting green technologies and fostering partnerships with eco-friendly vendors by prioritising the vitality of our global community by respecting local natural resources and culture heritage, helping to protect biodiversity and animal welfare.

Sonika Manandhar: Measuring environmental impact does not have to be overly complicated. Start with the basics: How much electricity do you use at home? Check your bills or turn off lights when not needed. Are you throwing away things you could reuse? Try recycling or repurposing old items, try wasting no food at all. Did you walk or ride a bicycle instead of driving? Or maybe try using an electric car instead of a gas-diesel-petrol-powered one.

Balancing sustainability with financial performance is all about shifting your mindset. Instead of thinking, ‘This will cost us’, ask, ‘How will this investment pay off in the long run?’ For example, supporting transport entrepreneurs in adopting electric microvans does not just boost their income – it also helps the country reduce its reliance on imported fossil fuels by using locally generated electricity. Additionally, it lowers air pollution, creating a healthier environment. This is a win-win situation for everyone involved.

What impact does diversity, equity and inclusion (DEI) practices have on a company’s ESG profile?

Sandeep Shrestha: If a company has strong DEI practice, not just in terms of numbers but also in terms of implemented policies and measures, it boosts the company’s culture, workers productivity, and company profile. Furthermore, DEI in senior management and board helps institutionalise ESG. From a market perspective, having a DEI lens can help identify new opportunities and increase customer satisfaction. It also helps a company to better engage with its stakeholders and communities. However, like I mentioned earlier, DEI should not be taken only to boost ESG profile but overall organisational value.

Sharad Tegi Tuladhar: Firstly, diversity, equity and inclusion (DEI) practices play a crucial role in the development process of a country, thus the importance. For this reason, DEI practices have a significant positive impact on a company’s ESG profile, particularly in the context of Nepal's evolving regulatory landscape. Despite some legislative advancements, such as constitutional provisions emphasising social inclusion, significant gaps remain. Limited awareness among the general population about DEI issues, especially concerning marginalised groups, women, castes and indigenous communities, etc. presents challenges. Companies can be a catalyst in addressing these challenges by advocating systemic changes and a cultural shift dismantling biases and inequalities.

Strengthening DEI practices in companies by fostering an inclusive work environment and promoting equal opportunities can not only improve employee satisfaction and productivity but will greatly enhance their company image (not only ESG profile). Further, as companies are gradually starting to implement transparent reporting and disclosures, DEI efforts are essential to align with international ESG standards and build trust among local and international stakeholders.

Amit Walia: Our global initiative for the third pillar has a commitment to ensuring diversity, equity and inclusion through our actions and behaviours, policies and procedures, workplace environment and culture. The ‘Start Here’ commitments outline key DE&I goals around (i) who we employ, develop, and advance, (ii) who we support, and (iii) who we buy from and work with.

Hence, we strengthen our ESG profile by fostering this culture of belonging and innovation. At Hyatt, diversity is a cornerstone of our success, as it drives better decision-making, connects us to diverse guest perspectives, and demonstrates our commitment to social responsibility.

Sonika Manandhar: Diversity, equity and inclusion (DEI) are often overlooked when people talk about ESG, but they are essential. A diverse team brings more perspectives, which leads to better decisions and more creative and inclusive solutions. As someone who works closely with a wide range of people – from transport entrepreneurs to farmers across various sectors like agriculture and technology – I have seen firsthand how diverse teams foster innovation and resilience. When companies treat their employees fairly and cultivate an inclusive culture, it boosts morale and productivity. At Aloi, for example, creating an inclusive environment has been key to the success of our work with coffee and dairy farmers adapting to climate change. And let’s be real – people are watching. A strong commitment to DEI says a lot about a company’s values and priorities, especially as the world becomes more interconnected and aware of the impacts of businesses on both people and the planet.

ESG continues to evolve as there is more pressing emphasis on Business and Human Rights, Gender, Climate Change and Business Integrity. Depending on strategies, companies may integrate these themes under a broader ESG framework or prioritise a thematic system.

Sandeep Shrestha

ESG Director & Founder, Sustainability Solutions

What are some key governance practices you believe are critical for ensuring accountability and transparency in a company? What reporting standards are you currently practicing and also what are the most effective in measuring ESG performance?

Sandeep Shrestha: This can be very contextual depending on small ‘g’ or big ‘G’ of ESG. If it is related to governance of E&S, then key practices are stakeholder mapping, stakeholder engagement, meaningful consultation, and external communication mechanism to transparently disclose how the company manages its E&S risks and impacts in its business activities, applicable E&S standards, E&S policies, and grievance mechanism. Big ‘G’ gets more complex as it encompasses anti bribery and corruption, sanctions, anti-money laundering, and whistleblowing mechanisms. Governance is crucial not only for ESG performance but also for overall organisational improvement.

Recently, I worked on Investing with Integrity II, a toolkit to integrate business integrity and ESG as corruption can undermine ESG performance. Since ESG is a systemic approach, it is important to look at other factors that can impact ESG performance.

There is a plethora of ESG reporting standards and different organisations use standards that are more relevant to their sector or geographic location and others report based on regulatory requirements or investors mandate. Again, adopting reporting standards can be costly and companies will require specialised skills to report ESG performance. I am one of the judges at ESG Investing Awards, and what I prefer is ESG reports that highlight how the company identifies and manages risks, how they perform against their mitigation measures, and case studies and lessons learned. Such reports really add value to organisational growth and disclose their practices to stakeholders.

Sharad Tegi Tuladhar: Ensuring accountability and transparency begins with the top-level commitment – from the board and top management, ensuring effective implementation and oversight. Clearly defined roles and responsibilities, coupled with robust internal controls and risk management systems, are essential. Finally, companies need to foster a corporate culture that prioritises ethical conduct, transparency and accountability. Regulators play a critical role by enhancing monitoring, ensuring compliance with ESG guidelines, and coordinating with stakeholders to create a business case for ESG by providing incentives and new opportunities for the private sector. Finally, companies must adopt a comprehensive and standardised disclosure mechanism, creating a level playing field for all parties.

On reporting standards, apart from Nepal Rastra Bank’s requirements, we at NMB Bank are also following IFC standards and requirements set by our international financing partners for monitoring and reporting ESG performance. We follow the PCAF (Partnership for Carbon Accounting Financials) standards for assessing and disclosing GHG Emissions in our financed portfolio. We plan to follow the TCFD (Task Force on Climate Related Financial Disclosures) in the near future.

Measuring ESG performance effectively involves a combination of several methods. ESG rating and ranking, ESG KPIs, international reporting frameworks, third-party assessment, stakeholders’ feedback and industry benchmarking would be some major tools in practice internationally. Further, for Nepal, gradually aligning to these measurements as well as with national priorities, such as the SDGs, Nationally Determined Contributions (NDCs) and local regulatory guidelines is critical.

Amit Walia: Accountability and transparency require ethical leadership, regular audits and open communication with stakeholders. We follow Hyatt’s Global Corporate Responsibility framework which emphasises responsible business practices and measurable goals. By aligning with Hyatt’s proprietary standards and global best practices, we ensure consistency, clarity and continuous improvement in ESG performance. We even map against the World Resources Institute Aqueduct database and other tools to help understand risk areas. At the local level, we are actively engaging with the communities’ environmental actions, from helping to protect coral reefs to park and beach cleanup initiatives.

Sonika Manandhar: When it comes to governance, I believe transparency and accountability are non-negotiable. At Aloi, we make it a point to communicate openly with our team and stakeholders, ensuring that we are always aligned with our mission and goals.

Last year, with the help of One Young World, we conducted a social impact analysis, which revealed that our Social Return on Investment (SROI) was 1:38. Some key findings related to measuring ESG performance included:

•     Sustainable farming practices: Through the distribution of agricultural loans, we helped mitigate 3.55 tCO2e per farm, contributing to our environmental impact.
•   Electric vehicles financing: We worked with electric vehicles financing, which mitigated 10.95 tCO2 over their operational lifespan, directly supporting our environmental goals.
•   Financial inclusion: We reached over 2,500 people through loans and financial inclusion training, leading to a significant boost in economic value and social empowerment.

For reporting standards, we track and report these outcomes to ensure we are measuring ESG performance effectively. This includes social impact, environmental mitigation and financial inclusion, which together form a comprehensive picture of our progress toward sustainability and positive societal change.

Sandeep Shrestha: Spoiler Alert! Businesses need to brace themselves to integrate ESG in their strategy and practices. With NRB’s ESRM and now with the Green Finance Taxonomy, there is a stronger regulatory push for businesses to adopt ESG. This is in addition to impact assessment required by Ministry of Forests and Environment. IFRS’s Sustainability Standards will eventually make its entry in shaping ESG in NFRS. As mentioned earlier, there is a stronger push for Business and Human Rights as evident from the National Action Plan on BHR. There are also efforts to integrate ESG into capital markets. With the impact of climate change, we will see more climate risk assessment and climate reporting. With the race towards net zero, it also presents companies opportunities to enhance their decarbonisation strategies and tap climate financing. With this, companies also need to integrate just transition in their framework. Gender Lens Investing and Social Investing are also gaining fast momentum focusing on building an inclusive society and marketplace. Along with existing and emerging regulations, there must be capacity building programmes and a stronger mechanism to monitor ESG performance. Nepal needs to build ESG professionals to cater to regulatory requirements and market demand. Kathmandu University’s five-year strategic plan has actions to build ESG in its degree programmes. In 2021, I got to integrate ESG in a course I designed and taught in KU’s Master’s in Sustainable Development programme. Sustainability Solutions continuously provides free ESG sessions to different colleges and youth clubs and we are running a mentorship programme to build sustainability leaders to address emerging risks and trends in ESG.

Sharad Tegi Tuladhar: Emerging trends in ESG are set to significantly shape corporate governance and strategy over the next decade. Integrating climate-related risks into decision-making process, aligning with frameworks like TCFD and adopting net-zero targets is already becoming a priority. Advances in technology will drive data-driven ESG reporting through tools leveraging big data, AI, etc. Social equity is expected to gain more prominence with companies focusing on diversity, equity and inclusion (DEI), labour rights, and community impact. Stricter regulations and evolving investor expectations will push businesses toward rigorous ESG compliance and reporting. Financial alignment with ESG goals through green bonds, ESG-linked loans, and sustainable financing will become a strategic necessity. Companies will also increasingly adopt biodiversity and natural capital accounting to value ecosystems and reduce environmental impacts.

For emerging markets like Nepal, regulation can serve as both a guide and a motivator; encouraging companies to adopt global best practices while addressing local environmental, social and governance challenges. Enhanced compliance will likely increase investor confidence, improve access to sustainable financing, and level the playing field by holding all stakeholders accountable to adopt uniform standards. In the long term, regulation will not only drive governance improvements but also ensure that ESG considerations are embedded in strategic decision-making, fostering resilience and sustainable growth.

At Hyatt, diversity is a cornerstone of our success, as it drives better decision-making, connects us to diverse guest perspectives, and demonstrates our commitment to social responsibility.

Amit Walia

Director of Sales and Marketing
Hyatt Regency Kathmandu

Amit Walia: Emerging trends include increased emphasis on climate risk management, circular economies and integrating AI for ESG reporting. Regulations will demand stricter compliance, pushing organisations to adopt transparent practices.

Sonika Manandhar: Looking ahead, technology will play a key role in driving ESG, especially with blockchain and inclusive fintech enhancing transparency and efficiency. Imagine using Machine Learning models to analyse ESG data and predict risks or opportunities – that is where we are headed. Regulations in terms of ESG will also tighten, which I think is a good thing, even if it makes life harder in the short term. This will benefit companies that adapt early, positioning them for long-term success. For Nepal, this is especially important because we have a chance to lead in areas like sustainable agriculture and agroforestry, but only if businesses and regulators work together.

From green energy projects to sustainable agriculture, there is a growing recognition that being environmentally and socially responsible is not just ‘nice to have’ – it is ‘must to have’ for a business to run smartly.

Sonika Manandhar

Co-Founder and CTO
Aloi

For me, ESG is not just about checking boxes – it is about building a better future for everyone. If we can find ways to align sustainability with profitability, we can create businesses that do not just survive but thrive, all while making a positive impact on the world. That is the kind of future I want to be part of and everybody should too.