CBSL to develop green finance taxonomy
The Central Bank of Sri Lanka (CBSL) is now in the process of developing a green finance taxonomy that will provide the framework for investment analysis for the banking sector when funding green projects.
Sri Lanka has already recognized that carbon-intensive economic growth is no longer a route for sustainable development and is gradually shifting towards more low carbon energy sources, CBSL Deputy Governor K M M Siriwardana told an expert panel discussion held on ‘Achieving Low Carbon Development Targets In The Power Sector’.
Since Sri Lanka is a net importer of petroleum products, the shift towards renewable energy sources is crucial to its external sector pressure, especially in an environment where global petroleum prices are escalating while developing Sri Lanka’s hydropower generation through projects such as Uma Oya, Morogolla etc.
The government is also promoting other low carbon energy sources such as solar and wind power.
“However transitioning power generation into low carbon energy sources will not be an easy path. Although Sri Lanka has been relying on hydropower as a renewable energy source, regular drought conditions that we have been experiencing in the recent past have made hydropower a less reliable energy source, other low carbon energy projects such as solar generally require higher capital than gas or coal power plants.”
Siriwardana further said that this increases the difficulty of accessing affordable financing for non-renewable energy projects.
Siriwardana said low carbon energy sources will not only enable Sri Lanka to reduce carbon emissions but also will reduce Sri Lanka’s expenditure on imported fossil fuels allowing significant savings that can be delivered towards other development goals
“ It will also reduce Sri Lanka’s vulnerability to external commodity price shocks like the one that we are currently experiencing. Considering the massive investment needs, renewable power projects, the financial system of the country has a major role to play in the low carbon development parts of Sri Lanka.
Therefore our financial system also needs to be reformed to create incentives for the private sector to make investments in low carbon energy projects. The financial institutions are giving due consideration to climate risks and social and environmental costs of energy projects and we can create incentives for the private sector to invest in sustainable energy projects instead of high carbon emissions projects.”
Siriwardana added that financial system reforms will however require actions by all relevant stakeholders such as banks, institutional investors, security markets, rating agencies, regulatory bodies as well as the Central Bank.
The CBSL joined the sustainable banking network in 2016, with the aim of the priority leadership for the process of greening the domestic financial system, the CBSL developed the sustainable finance roadmap in 2016 to guide Sri Lanka’s sustainable finance journey.