Nepal prepares to secure international climate finance for green projects under new framework

KATHMANDU: In a critical move to unlock international climate finance and drive a green and resilient development agenda, the Government of Nepal—through the Ministry of Finance—has prepared a comprehensive draft of the Climate Finance Procedure, 2082 (2025).

The document is now open for feedback from stakeholders, setting the foundation for transparent, accountable, and scalable mobilization of climate finance in Nepal. This procedural framework aims to address rising climate-induced losses and support long-term sustainable development by tapping into both national and international climate funds.

Strategic Policy Backing Climate Action Financing

The Ministry of Finance formulated this extensive procedure under the authority granted by Section 65(2) of the Financial Procedure and Fiscal Accountability Act, 2076. The draft document explicitly recognizes that although Nepal’s contribution to global greenhouse gas emissions is negligible, it faces disproportionate adverse impacts of climate change.

With domestic resources proving insufficient to address growing climate-induced challenges, the government intends to increase access to international climate finance through this procedural architecture. The policy aligns with global principles of climate justice, loss and damage compensation, adaptation, and mitigation, while ensuring national constitutional mandates and provincial/local priorities are respected.

Clear Climate Finance Priority Areas

The Climate Finance Procedure identifies four core priority areas for climate-related financing:

-Loss and damage recovery

-Climate adaptation

-Emission reduction (mitigation)

-Carbon trading and market-based mechanisms

-Projects in these areas will receive preferential treatment for funding and technical support.

-To qualify for financing, projects must align with:

-Nepal’s Constitution

-National laws and international commitments (like the Paris Agreement)

-National and subnational adaptation plans

-Sustainable Development Goals (SDGs)

-Nepal’s Nationally Determined Contributions (NDCs)

Project Prioritization Framework

A robust project prioritization framework is introduced based on 17 evaluation criteria, including:

-Level of climate finance required (especially grant components)

-Policy alignment

-Gender and social inclusion

-Greenhouse gas (GHG) reduction impact

-Disaster vulnerability of project location

-Cost-efficiency and innovation

-Regional balance

-Employment generation

A centralized priority list of projects will be maintained and updated regularly by the Ministry of Finance, and all project proposals will undergo rigorous technical appraisal by a dedicated Technical Committee composed of ministry officials and subject-matter experts.

Access Mechanisms to Climate Funds

Only accredited implementing entities (termed “recognized agencies”) or executing agencies in partnership with them can submit project proposals. Projects can access finance from:

-Global climate funds (like the Green Climate Fund and Adaptation Fund)

-Bilateral or multilateral financial institutions

-Government allocations

-Sovereign and non-sovereign financial mechanisms

Notably, private sector and non-governmental entities can also participate under special provisions, but sovereign guarantees will not be issued by the government for private sector loans.

Furthermore, Nepal’s Digital Platform for Climate Finance will be created to streamline submissions, improve coordination, and maintain transparency in the implementation and monitoring phases.

Procedure for Project Submission and Approval
The procedure outlines a multi-phase process:

-Initial Concept Note (Avadharana Patra)

-Detailed Project Proposal (DPP)

-Review and recommendation by Technical Committee

-Inclusion in the national priority list

-Submission to international climate funds

-Approval and financial agreements

Once approved, climate finance will be disbursed through Nepal’s treasury system or through direct agreements with climate funds. For subnational governments, funds will be released via conditional grants.

Joint Climate Fund for Decentralized Financing

To promote efficiency and avoid duplication, the procedure also proposes a Unified Climate Fund (Sajha Jalabayu Kosh). This consolidated pool will gather financial support from multiple donors and climate finance partners into a single account.

Key features include:

-Transparent digital tracking of fund inflow and outflow

-Disbursement through conditional grants to provinces and local governments

-Prioritization of adaptation projects at the local level

-Use of performance-based indicators and risk assessments for fund allocation

Special Provisions for the Private Sector

Nepal’s Climate Finance Procedure provides clear entry points for private sector participation. It requires:

-Transparent call for proposals

-Project evaluation based on financial health, implementation experience, and ESG standards

-Demonstrated alignment with national climate priorities

-Strong monitoring and reporting mechanisms

-Private firms cannot misuse funds for non-climate purposes. Violations may result in blacklisting or fund recall recommendations to international donors.

Operational Role of Stakeholders
The draft clearly defines responsibilities:

Ministry of Finance will serve as the national focal point, coordinate with international agencies, manage project submissions, and oversee fund disbursements.

Recognized Agencies will facilitate project design, execution, and compliance.

Implementing Entities including federal, provincial, local governments, NGOs, and private companies, will execute projects as per approved guidelines.

Technical Committee will review and evaluate proposals based on predefined indicators.

Transparency, Accountability, and Monitoring

To strengthen public trust and ensure effective outcomes, the procedure mandates:

Public disclosure of all project data through a national digital platform

Mandatory quarterly progress reporting

Independent audits, public hearings, and social audits

Mid-term and final evaluations for every approved project

The Ministry of Finance will also reserve the right to commission third-party audits if irregularities are suspected.

Localized Climate Action with Federalism in Focus
Provinces and local governments are empowered to:

-Propose projects based on local adaptation plans

-Execute interventions through conditional grants

-Coordinate with federal bodies for inter-jurisdictional efforts

-Prioritize community-driven climate resilience projects

Additionally, local governments will be preferred for adaptation projects, with province/federal intervention only when projects span multiple jurisdictions.

NGOs and Civil Society Participation
International and national NGOs can implement projects where:

-They demonstrate greater implementation efficiency than public institutions

-Private sector engagement is not feasible

-Project activities avoid duplication and adhere to geographic exclusivity

-They must comply with laws under the Social Welfare Council and perform at least one public hearing and audit per year.

Challenges and the Way Forward
Despite Nepal’s ambition and climate vulnerability, significant challenges remain:

-Low domestic technical capacity to navigate international climate funds

-Bureaucratic delays

-Coordination difficulties among federal, provincial, and local levels

-Ensuring inclusive participation from marginalized communities

However, the adoption of this draft policy could be a turning point if implemented with political will, institutional collaboration, and donor trust.

Global Significance and Nepal’s Climate Leadership
By institutionalizing this procedure, Nepal aims to:

-Showcase leadership among Least Developed Countries (LDCs)

-Create a replicable model for climate finance governance

-Align domestic actions with global climate goals

As climate change intensifies and international finance becomes more competitive, Nepal’s readiness to mobilize and govern climate resources transparently could attract significant attention from the Green Climate Fund (GCF), Adaptation Fund, UN agencies, bilateral partners, and multilateral development banks.