Nepal has committed an ambitious goal to increase forest coverage to 45% by 203 and achieve Net Zero status by 2045[1] in the recently held Conference of the Parties (COP 26), even though the Net Zero target is aimed for 2050 globally. Though Nepal emits only 0.1% of global greenhouse gas emissions, the country’s GHG emissions has increased by 119% from 1971 to 2018[2]. Agriculture is the major contributor of greenhouse gases (GHG) in Nepal with 50%, followed by energy (30%), land-use change and forestry (15%), industrial processes (3.6%), and waste (1.9%)[3]. However, Nepal is at risk of losing 2.2% of its GDP due to climate change by 2050, and warming expected to increase by 1.2°C–4.2°C by 2080 using the highest emission scenario[4].

The rise of Sustainable Investing

With a projected GDP growth rate of 4.2%[1], Nepal needs to emphasize a sustainable investing model in private sector and public sector. Sustainable investing prioritizes companies to have strong environmental, social, and governance framework that can identify, manage, and mitigate negative impacts of the business and build positive impact from the investment. International Financial Institutions require project implementing parties to strictly adhere to their environmental and social risk framework. Likewise, in the private sector, Development Financial Institutions have increased their investments in banks, infrastructure projects, and private equity. It is estimated that approximately USD 902.46 MN has been invested by DFIs from 2014 to 2021[2]. According to a study by Bloomberg, sustainable investing is becoming mainstream with an estimated USD 37.8 trillion in assets under management in 2022[3]. With DFIs presence in Nepal and ongoing efforts to build Environmental, Social, and Governance practices in Nepal and with Nepal Rastra Bank’s guidelines on Environmental and Social Risk Management, there is a heightened opportunity for Nepalese private sectors to attract sustainable investment.

Building an ESG management system

Environmental Social and Governance (ESG) is a holistic and systematic approach to sustainability and enables stakeholders to understand how a company is managing environmental, social, and governance risks and opportunities[4]. Though ESG factors (Figure 1) are crucial considerations for

DFI investments, it is also a strong framework that enables a company to transform towards sustainability.

As such, companies need to have a robust environmental and social management system. This includes sustainability policy, procedures for assessing and managing ESG risks, organizational capacity to manage risks, management and monitoring programs, and systems for stakeholder engagement, grievance mechanism, and information disclosure. Additionally, companies need to set targets and indicators to measure and report ESG matrices. Though there are numerous ESG reporting standards, a company needs to design or select the right indicators considering its E&S risk categorization, audience, and reporting indicators. 

Initiating and Integrating ESG Strategies

  • ESG Assessment: Start out with ESG Risk Assessment for your organization. This will help identify negative environmental and social impacts which results in corrective action plan. ESG assessment also helps identify positive impact opportunities to enhance sustainability practices.
  • Capacity Assessment: The ESG assessment also helps identify resources and capacity required to manage risks and impacts based on the specific industry. This includes ESG staffing, formation of risk committee, capacity development programs, and resource allocation.
  • ESG Management System: Based on the environmental and social risks and impacts, appropriate ESG management system needs to be developed. This highlights how the company will identify risk, management programs to address specific risks, monitoring programs, and reporting system.
  • Stakeholder Engagement: Organization needs to map out its stakeholders and develop a stakeholder management and engagement plan. This also serves as a social risk management tool whereby an organization maps out potential stakeholders, identify their interests and how they might impact the business, and develop engagement strategies accordingly. With a strong stakeholder engagement plan, a grievance mechanism is also required whereby concerned stakeholders have the opportunity to lodge grievances related to the business activities.
  • Transparency and Disclosure: It is important for organization to maintain transparency and disclose key information regarding environmental and social issues and impacts and how the organization is managing them.
  • Monitoring and Improvement: ESG is not a onetime process but ESG risks and impacts need to be assessed and managed in an ongoing basis. Thus, a system is required with the right indicators to monitor ESG performance and make required improvements and remedial actions.
  • ESG Reporting: ESG reporting prioritizes how the organization identifies, mitigates, and manages ESG risks. Additionally, it focuses on how the organization has created value with ESG management system.
  • ESG Strategy: ESG Management System should not be implemented as a standalone system. It needs to be integrated into the organizational strategy and into functional areas.

ESG is not only a risk management and sustainability strategy, but it ultimately enables an organization to drive value for its stakeholders. It helps improve organizational efficiency, create employee and community engagement, avoid legal and reputational risks, and drive growth. ESG will continue to grow and slowly become a legal requirement to move towards a sustainable future. With ongoing efforts of local institutions and international organizations, policy level changes will be made regarding how environmental and social impact assessments are done and managed. Sustainability reporting is being mainstreamed around the globe and it will eventually be mandated as part of financial reporting. Organizations taking leap towards ESG practices and standards will have a competitive advantage.

[1] World Bank

[2] Can DFI investment contribute more towards FDI gaps? Invest for Impact Nepal, 2021

[3] $1.9 bn in global AUM, The Economic Times, 2022 

[4] What is ESG?, CFI, 2023

[1] World Leaders Summit, 2021

[2] State of the climate, UNEP, 2021

[3] Greenhouse gas emissions fact sheet, USAID 2019

[4] Climate Risk Country Profile, ADB and World Bank, 2021

Sandeep Shrestha

Sandeep Shrestha

Sandeep Shrestha is ESG strategist and Founder of Sustainability Solutions. Sustainability Solutions offers ESG and Business Sustainability courses, research, and advisory services.

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