Policy Exists, But Implementation Lags in Nepal’s Climate Finance Management
Based on a review of available data, Nepal took a pioneering step in climate finance management by implementing the Climate Budget Tagging (CBT) system as early as 2012. However, the CBT system has not been effectively implemented at the local government level, resulting in weak monitoring and reporting of climate finance. To secure additional financial support from international sources, Nepal needs to ensure robust monitoring and transparency in climate finance.
Nepal is recognized globally for its forward-looking climate policies. It has consistently raised a strong voice on climate finance platforms worldwide, advocating for international climate funds to enhance community resilience and strengthen adaptive capacities.
Among the top 10 countries vulnerable to climate risks, Nepal was the first to apply the CBT system in 2012. This system was designed to classify and monitor public expenditures related to climate change. The Ministry of Finance has led its implementation, applying the system at the project level rather than just at activity level. National-level projects are categorized based on their contribution to climate action as direct, indirect, or neutral, and further classified into adaptation, mitigation, or mixed benefit categories. To strengthen climate finance management and monitoring, the Ministry of Finance also approved the Climate Change Financing Framework (CCFF) in 2017.
Nepal’s Climate Change Policy, National Adaptation Plan (NAP), and Nationally Determined Contributions (NDC) have reinforced the country’s commitment to bolstering climate resilience and low-carbon development. The government has promoted the Local Adaptation Plan of Action (LAPA) framework to ensure planning at the local level, and has committed to channeling 80 percent of total climate finance to local governments. On paper, these policies, systems, and structures appear impressive and align with global best practices and institutional vision. However, the reality is quite different. Discussions with local government officials reveal a consensus: although the CBT system exists, its practical use is very limited.
In many areas, officials lack sufficient awareness or have not received necessary training to implement the system effectively. Institutional efforts to integrate CBT within local planning and budgeting processes are minimal. This does not mean that climate-related activities are absent; municipalities regularly allocate budgets for sectors such as energy, agriculture, forestry, and natural resource management. However, these expenditures are not systematically tagged, monitored, or reported as climate finance. Consequently, significant climate-related investments remain invisible within formal systems. For instance, an initial analysis of CBT format budgets in Devchuli and Gaindakot municipalities showed that approximately 10 to 15 percent of the annual budget could be attributed to climate-related activities, but without formal tagging, these figures are excluded from official reports.
Local officials themselves acknowledge this gap. One municipal officer stated, “The work is happening; only now have we realized that these activities are related to climate. However, these have not been formally recorded as climate interventions.” The official added, “We develop annual plans through participatory processes, but to my knowledge, climate tagging has not been applied.” Amid the global expansion of climate finance, Nepal faces the risk of missing out on resources—not due to lack of available funds, but because mechanisms to demonstrate effective use have not been fully operationalized. This points to a lack of awareness among many local-level staff about climate finance systems and a deficiency in technical capacity to build, report, and monitor climate budgets.
According to officials in planning divisions, incorporating CBT into local plans is possible with appropriate training before the planning process begins. Why is this monitoring critical? While it may initially seem a technical issue, its implications are profound. Without effective monitoring, Nepal cannot clearly demonstrate how much it is investing in climate actions or measure the effectiveness of these investments. Most importantly, opportunities to attract additional climate finance from international sources may be compromised. Globally, climate finance operates on principles of transparency, performance, and accountability. Major funds like the Green Climate Fund (GCF), Global Environment Facility (GEF), and Adaptation Fund expect measurable results, not just commitments, from countries like Nepal. Failure to clearly display how climate funds are utilized risks losing these opportunities.
Access and Equity: Who Benefits from Climate Finance? Nepal’s climate policies consistently prioritize poor families, women, marginalized communities, and citizens living in climate-vulnerable areas. However, without clear expenditure records, it is difficult to verify whether these communities truly benefit. The main question remains: does climate finance reach the communities most at risk? Current circumstances suggest that well-connected or influential communities may receive more resources, while vulnerable remote areas might be neglected. The absence of a clear monitoring and prioritization system risks relegating equity goals to policy rhetoric rather than real practice. The failure to apply CBT within planning processes reinforces this imbalance.
Looking ahead, Nepal faces a growing dilemma. As global climate funds increasingly focus on results-based financing, transparency, and accountability, the country must demonstrate its capacity to manage these resources effectively. Nepal currently finds itself caught between having robust policies and institutional structures for climate finance monitoring and the challenge of practical implementation. During this time of global climate finance expansion, Nepal risks missing out on funds—not because money is unavailable, but because mechanisms to showcase its utilization are not fully functional. Without the ability to demonstrate how local governments invest in climate actions and the outcomes achieved, leveraging international resources becomes difficult.
Meanwhile, Nepal faces another governance challenge in climate finance: a widening gap between growing adaptation needs and domestic financial capacity. The National Adaptation Plan (NAP) 2021/2050 deemphasizes climate resilience as a national priority, yet approximately 90 percent of its financial requirements depend on external sources. Major funding mechanisms include the GCF, Adaptation Fund, GEF, bilateral and multilateral donors, and other international frameworks. Accessing these funds requires climate budget monitoring, transparent reporting, and impact evidence. Institutional and technical capacity deficits, especially at provincial and local levels, hamper these efforts.
Improving governance, establishing effective data systems, enhancing local capacity, and strengthening institutional coordination can progressively reduce the gap between climate finance needs and implementation. Closing this gap requires reinforcing climate finance governance, institutional capacity, and accountability mechanisms at all levels. The most critical step is institutionalizing climate budget tagging within local planning and budgeting processes. Climate-related investments should be tagged not only at the project level but activity level as well, enabling accurate measurement of contributions to adaptation and mitigation. This will help local governments clearly trace where climate finance is being spent and what outcomes it achieves. Capacity building is equally essential. Regular training, technical guidance, and deployment of climate-focused personnel at local and provincial levels can make planning more effective.
In addition, the development of a robust Monitoring, Reporting and Verification (MRV) system is crucial. Global climate funds require proof of how investments reduce risks and increase resilience. Strengthening data systems, impact assessments, and record-keeping processes is imperative. Coordination and ownership among federal, provincial, and local governments are also critical. Currently, responsibilities related to climate finance are dispersed across various agencies, leading to duplication and weak reporting. Clear roles and regular integration of climate finance into development planning can enhance system effectiveness.
In conclusion, Nepal has established a strong policy framework for climate finance. The next challenge is to implement it effectively on the ground. Ultimately, climate finance is not merely an issue of policy or budgeting—it represents assistance aimed at reaching the communities most in need. If systems remain confined to paper only, so will the commitment to climate finance. However, if these systems are effectively institutionalized, they can serve as powerful tools to build community resilience. Through improved governance, data systems, local capacity enhancement, and institutional coordination, Nepal can progressively bridge the gap between climate finance needs and implementation. The author is a researcher specializing in climate change and environmental issues in Nepal under Forest Action Nepal.