Prabin Man Singh
August, 2022
Nepal is one of the most vulnerable countries to climate change. The country needs to invest a large sum of money to protect its people from adverse impacts of climate change. Estimated budget of National Adaptation Plan (NAP) to finance priority projects till 2050 stands at a whopping USD 45.9 billion. Similarly, USD 25 billion is required to achieve conditional mitigation targets of second Nationally Determined Contribution (NDC) of Nepal. Approximately USD 2.36 billion per annum is required to achieve mitigation and adaptation targets by 2050. The government of Nepal had allocated approximately USD 0.5 billion annually for climate actions during the last 10 years. Nepal’s present budgetary allocation for climate actions is only one-fifth of what is needed. Multilateral Development Banks (MDBs) can play a significant role in meeting the deficit.
Prakriti Resources Centre (PRC) and International Institute for Sustainable Development (IISD) conducted a study on the investment of the World Bank and Asian Development Bank in climate adaptation actions in Nepal between 2013 and 2020. The World Bank had funded 56 projects with a total investment of USD 4.59 billion. Nine out of the 56 projects had adaptation co-benefits, while eight others had both adaptation and mitigation co-benefits. Total adaptation-related financing in Nepal amounted to USD 1.20 billion (26%) from 2013 to 2020, compared to USD 0.45 billion (10%) with mitigation co-benefits. Similarly, nine out of 32 ADB projects in Nepal between 2013 and 2020 had financed only for adaptation co-benefits, while seven projects’ financing had aimed at both adaptation and mitigation co-benefits. The total adaptation-related financing amounted to USD 0.32 billion between 2013 and 2020. 10.48% of all ADB financial commitments during the period were for adaptation, compared with 22% for mitigation.
The study also determined that 44.64% (25 out of 56) of World Bank projects that were approved for funding from 2013 to 2020 in Nepal were screened for climate risks. All ADB projects in Nepal were screened for climate risks from 2013 to 2020. Climate risk assessments were undertaken for most large infrastructure projects financed by the banks during the period, which identified the expected climate impacts on the project and designed actions to address those impacts. The banks used their own tools and methods to undertake climate risk screening. Nepal’s climate vulnerability and risks assessments are largely overlooked by the banks.
Investments of the banks on climate adaptation projects marked an increase in 2013 to 2020. However, a majority of the investments are for climate proofing the sectoral projects, mainly on infrastructure. Each bank had funded only one dedicated climate adaptation project. The World Bank and Asian Development Bank’s Country Strategy documents have listed agriculture, water resources and disaster risk reduction and management as priority sectors for climate adaptation in Nepal. Only 13% of World Bank’s adaptation financing is allocated for projects related to the three priority sectors. ADB had financed 36% of its total adaptation financing to projects related to the priority sectors.
Climate risk assessment is conducted in the project development phase and it largely takes place at the (MDB) headquarters. The level of engagement of the country teams as well as the line ministries and local stakeholders in the risk assessment is pretty low.
MDBs financing on climate adaptation is increasing but this finance is mainly to climate proof their investments. MDBs need to increase finance on adaptation that directly benefits the poor and vulnerable communities adversely affected by climate change. Concessional lending is the most common financial instruments used by MDBs for financing adaptation projects. The banks need to scale up grant to support developing countries for enhancing their adaptation efforts. MDBs need to align their financing decision with the national priorities identified in National Adaptation Plan and Nationally Determined Contributions.
