Green Tape or Greenwash?

Nepal’s Green Bond Buzz: Not Just a Trend, But a Turning Point?

Over the past few months, green bonds have made quite the entrance in Nepal’s capital markets. The country recently welcomed its first green bond issuances; a public issuance from Nepal Infrastructure Bank and a private issuance to be made by NMB Bank. These exciting developments highlight a growing commitment to sustainable finance and climate-friendly projects. Notably, they come at a time when green bond is dominating the global labelled bond market representing 57% of all such issuances as of December 2024. The question now is whether this marks a fleeting moment of enthusiasm or the beginning of a deeper, lasting shift in Nepal’s financial landscape.

What’s So ‘Green’ About These Bonds Anyway?

At their core, green bonds are your regular debt instruments having usual features of bond such as face value, coupon rate, maturity date, credit risk, etc. But the twist is in the destination of the funds. Unlike regular bonds, the proceeds from green bonds are ring-fenced. They are earmarked exclusively for projects with environmental benefits, for example renewable energy, energy efficiency and climate resilience. 

International guidelines like the Green Bond Principles developed by the International Capital Market Association (ICMA) have set the tone for green bond issuance, and Nepal’s regulations are catching up. The Green Bond Principles of ICMA lay down four key pillars: use of proceeds, project evaluation, management of proceeds, and reporting. They are the backbone of any credible green bond issuance. But how clear is the ‘green’ in Nepal’s context compared to the global standard? That is where the journey gets interesting.

Why the Hype? Chasing Returns or Saving the Planet?

Issuers see green bonds as a way to tap into the large and growing pool of Environmental, Social, and Governance (ESG)- focused investors. This is not merely a trend but a structural shift in global investment behaviour where capital increasingly flows toward projects. Investors, on the other hand, get to align their portfolios with environmental impact without sacrificing returns. It is a win-win at least in theory. 

Nepal’s emerging market is still learning the ropes, with everyone figuring out how to make the best of this green opportunity. For example, banks in Nepal may subscribe to green energy bonds to meet Nepal Rastra Bank’s sectoral credit allocation mandates; a participation that simultaneously meets regulatory compliance and delivers environmental impact.

Playing by the Rules: Nepal’s Legal Toolkit for Green Bonds

Nepal’s legal framework for green bonds builds upon its existing securities law. The Securities Registration and Issue Regulations gives green bonds a green light, provided they get SEBON’s approval. They have opened the door to foreign investors and have committed more detailed guidance through future directives. So far, no detailed directive has been issued, limiting regulators with lack of clarity and issuers navigating a policy landscape which is more aspirational than actionable. 

Meanwhile, Nepal Rastra Bank’s Green Finance Taxonomy (2024) offers non binding guidance, classifying activities based on impact categories into ‘Green’, ‘Amber’, and ‘Red’. Green means good-to-go projects, Amber suggests projects on its way but needs work, and Red is a definite no-go project. The Taxonomy mandates disclosure of where the money is going, independent third-party review of eligibility of project, and impact reporting. But the strength of these rules depends on the enforcement.

Public issuances of green bond still require trustees and credit ratings, which adds a layer of market discipline. But overall, the current framework leans heavily on good intentions and voluntary compliance, rather than enforceable legal obligations.

Green Tape or Greenwash? Where the Rubber Meets the Road

Here is the tough part: Securities Board of Nepal (SEBON) grants approval for the issuance of green bond but lacks legal authority to enforce compliances with ICMA’s principles. Without clear, enforceable standards for project eligibility, fund management, and accountability, the risk of ‘greenwashing’ looms large. To reduce this risk, Nepal needs binding standards requiring clear categories for projects, processes for selection, transparent fund management, and periodic reporting.

While Taxonomy asks for impact reporting, SEBON does not yet have capacity or internal mechanisms to audit or follow up on disclosures. Missing are real penalties for misreporting or deviation from green use-of-proceeds commitments. As a result, our regulatory framework remains aspirational, with an accountability gap that may weaken credibility. Investor-side, the absence of standardised impact metrics, comparable disclosure formats, and public access to reports undermines investor confidence. Without stronger regulatory backing, Nepal risks being seen as applying green tape instead of fostering genuine green finance ambition.

Keeping the Green in Green Bonds

Nepal’s green bond journey so far is encouraging; issuing two inaugural bonds, adopting taxonomy, and mobilising real capital for climate projects. Yet, without legal clarity, effective oversight and incentive structures, ambition risks falling short of delivering measurable impact. The balance between green tape and greenwash will be determined by the strength of Nepal’s regulatory commitment.

With a clear taxonomy, enforceable rules, capacity-building and market incentives, Nepal can transform early enthusiasm into a credible and vibrant green bond market; where ‘green’ truly means green. The next steps will determine whether Nepal’s green bonds become a sustainable finance success story or a cautionary tale of missed green promise.