The Central Bank of Sri Lanka, with support from the International Finance Corporation (IFC) has launched a series of guidelines – known as the Sri Lanka Green Finance Taxonomy – designed to help channel financing for sustainable, environmentally friendly products and services while supporting the country’s climate goals.
The Sri Lanka Green Finance Taxonomy is a critical tool to help investors, companies, and green-bond issuers navigate transition to a low-carbon, climate-resilient, and resource-efficient economy. A classification system, which defines and categorizes economic activities that are environmentally sustainable, taxonomy development is a key action plan outlined in the Sustainable Finance Roadmap for Sri Lanka (2019).
“We are committed towards creating a greener and more sustainable financial system that contributes to a sustainable economy. Today, the Central Bank of Sri Lanka is in the forefront of promoting and developing a holistic strategy towards integrating sustainability into the country’s financial system. This is particularly important in the context of current economic challenges that we face as a country, and during the recovery in the aftermath of the COVID-19 pandemic,” said Dr. P Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka. “With the launch of the Green Finance Taxonomy, we are reaching a key milestone in the journey embarked upon with the launch of the Sustainable Finance Road Map of Sri Lanka in 2019. We envisage that the Green Finance Taxonomy would be a critical tool to guide financial institutions, investors, corporates, and green-bond issuers to navigate the transition to a low-carbon, climate-resilient, and resource-efficient economy.”
Sri Lanka is among one of the most affected countries by extreme weather events. According to the World Bank, the country is expected to see a 1.2 percent annual gross domestic product (GDP) loss by 2050 due to climate change. In response, the first phase of the new document covers three priority areas—climate mitigation, climate adaptation, and ecological conservation and resource efficiency.
The green finance taxonomy will be applicable to all domestic and foreign market participants—offering financial products such as bank lending and debt instruments, among others—large corporations, and national and local government bodies. The document can also be used as a reference by industrial planning authorities while serving as the basis for local governments to support green industries.
“This is an important move. Even as Sri Lanka works to navigate uncertainties in its economic outlook, it must look to achieving a sustainable and low-carbon future. The initial focus will be on industries of high priority, including agriculture, construction, and manufacturing. Most importantly, this will also be a critical enabler for developing the green bond and green lending market,” said Lisa Kaestner, Country Manager for IFC Sri Lanka and Maldives. “As one of IFC’s long-standing partners in Sri Lanka, we acknowledge the Central Bank of Sri Lanka (CBSL) for their steadfast support and commitment in shaping an important national policy that will contribute to a strong sustainable economy for future generations.”
The first national green finance taxonomy to be developed using the International Platform on Sustainable Finance (IPSF) Common Ground Taxonomy on climate change mitigation, it reflects the experience from the European Union and China. The Sri Lanka taxonomy also references IFC’s Blue Finance Guidelines and Climate Smart Agriculture activities.
The work was facilitated through the Sustainable Banking and Finance Network (SBFN) and supported by the IFC Green Bond Technical Assistance Program (GB-TAP). According to the SBFN 3rd Global Progress Report and the accompanying 41 Country Progress Reports (including the Sri Lanka Country Progress Report, April 2022), 16 SBFN countries have introduced or are developing green or sustainability-focused taxonomies. Nine countries – Bangladesh, Brazil, China, Colombia, Indonesia, Kazakhstan, Mongolia, South Africa, and now Sri Lanka – have already published taxonomies for green and sustainable finance.
Combating climate change is a strategic priority for IFC globally. In FY 2021, IFC committed a record $4 billion for climate-related projects across the world, representing 32 percent of IFC’s own account commitments.