Financial sector discuss risk management guidelines for environment-friendly banking

IFC – a member of the World Bank Group – and bankers engaged in a stimulating dialogue today towards developing an environmental and social risk management framework that will assist the financial sector assess environmental risks and develop mitigation strategies when taking credit decisions.

The IFC-hosted workshop was part of the first multi-stakeholder consultation towards streamlining and integrating environmental and social risk management processes across the sector. Participants also discussed monitoring and evaluation tools, and the need for training and capacity building to equip bank staff to make these assessments.

Supported by the central bank, the event brought together officials from the central bank, commercial banks, bank and trade associations, National Banking Institute, relevant government ministries, and development partners.

"Business growth and development objectives have to be met while minimising adverse environmental and social impacts," central bank governor Dr Yuba Raj Khatiwada said, adding that the leadership role of central banks is key. "Nepal Rastra Bank will give top priority to environmental and social risk performance improvements in banks and financial institutions."

A robust environmental and social risk management framework helps banks evaluate projects by identifying, managing and mitigating social and environmental risks before confirming to lend. It also helps banks protect themselves from litigation and heavy fines for supporting projects that may have environmentally detrimental outcomes or unethical labor practices.

In Nepal, the initiative will build on experiences and lessons learned from similar interventions in other markets, especially Asia. In the past, IFC and Bangladesh Bank co-developed a national environmental risk management policy and strategy framework, which is now mandatory for Bangladesh’s financial institutions.

"Good environmental and social risk management is good business," IFC resident representative for Nepal Val Bagatsing said, adding that IFC has played an important role in other emerging markets in ensuring sustainability by working closely with central banks in developing guidelines for better risk management in this space and instituting training modules to build capacity.

Globally, IFC sets standards in bringing sustainability to the forefront of the development debate within the financial sector. IFC’s performance standards have evolved into a global environment and social risk management framework for development and private sector banks.