Central Bank’s new roadmap to ESG-Driven Finance directing Sri Lanka towards a green path

By Bandula Sirimanna

The Central Bank of Sri Lanka (CB) has unveiled the Sustainable Finance Roadmap 2.0, taking a gigantic stride toward in the country's financial sustainability.

The updated policy proposed for strategic national action on environmental, social, and governance (ESG) aspects into central monetary decision-making, as well as in accordance with international standards of sustainability.

Based on the original roadmap rolled out in 2019, the revised edition introduces evolving global best practices and addresses pressing local concerns, particularly on climate action, social justice, and economic resilience.

The Green Finance Taxonomy continues to be one of the roadmap's most important pillars, another evolved categorising tool that allows financial institutions and policymakers to easily make environmentally sustainable activities stand out.

Updating the initial roadmap launched in 2019, the new version recognises evolving global best practices as well as addressing near-term local needs, foremost among them climate change, social justice, and economic resilience.

The Enhanced Green Finance Taxonomy, a more nuanced classification tool, is at the heart of the new roadmap. It is a more accurate classification tool that allows policymakers and financial institutions to determine clearly environmentally sustainable activity.

The taxonomy ought to enable more efficient green finance flows, encouraging low-cost capital for green investments.

Launching the new roadmap on Monday, CB Governor Nandalal Weerasinghe described it as a significant step towards improving Sri Lanka's financial system resilience and inclusiveness.

He emphasised the need for mainstreaming climate risks into financial decisions and the significance of successful coordination among stakeholders to implement them.

The strategy urges financial institutions to incorporate ESG risk assessment to ensure that the capital is allocated not just based on profitability but also by long-term environmental and social factors

It also suggests the promotion of green financial products like green bonds and loans for unlocking private sector finance to resilient infrastructure and energy. It is viewed as a necessity for aiding Sri Lanka in achieving its target of net-zero emissions by 2050.

World Bank and IFC Sri Lanka Country Manager Gevorg Sargsyan also reaffirmed the roadmap's potential to drive economic growth that is socially inclusive and environmentally sustainable. "Sustainable finance will create jobs and render Sri Lanka investment-ready," he said, reaffirming the IFC's ongoing partnership with the CB in building a sustainable financial system.

Acknowledging that the uptake of sustainable finance at scale requires more than regulation, the roadmap specifically sets out a stakeholder engagement and capacity-building emphasis.

In recognising that more widespread uptake of sustainable finance is more than legislation, the roadmap places a particular emphasis on capacity building and stakeholder engagement.

It proposes specialised training programmes and collaborative platforms for investors, regulators, and financial institutions to build a shared perception of ESG principles and standards of reporting.

Above all, the roadmap is intended to be aligned with international frameworks, which will most likely enhance Sri Lanka's appeal to foreign investors and render its financial sector more competitive globally.