Sara Jane Ahmed is the Managing Director and Finance Advisor to the V20 Finance Ministers of the Climate Vulnerable Forum. She is the founder of the Financial Futures Center and a recipient of the Climate Breakthrough Project Award.
The Climate Vulnerable Forum and V20 Finance Ministers (CVF-V20) is a group of 74 climate-vulnerable developing economies, including Nepal, representing 1.74 billion people and contributing to 7.3% of global emissions, with the potential to leapfrog into the global transition towards climate-resilient low-carbon development. The CVF-V20 is currently chaired by H.E. Mia Amor Mottley, Prime Minister of Barbados. Nepal joined the CVF in 2009, during its founding, and was also part of the original 20 countries when the V20 Finance Ministers were founded in 2015.
Global temperatures are rushing past 1.5°C with immediate and long-term implications for climate-vulnerable countries. Extreme events will become more frequent and severe. The 1.5°C breach will force a reassessment of the change that is arriving and that which is yet to come. For Nepal, this reality is already evident in the melting of Himalayan glaciers, erratic monsoons, and the heightened risk of floods and landslides that threaten lives, livelihoods, and hydropower infrastructure.
The CVF-V20 is developing Climate Prosperity Plans(CPPs) that support the implementation of development plans, sector plans, and Nationally Determined Contributions and Long-Term Strategies with the explicit aim of mobilizing resources and fostering collective action through green industrialization, best practices in implementation, and collaborative innovation alongside traditional funding channels. CPPs support climate-vulnerable nations in transforming climate risks into bankable opportunities. More than just a fully costed roadmap for low-carbon and climate-resilient development, a CPP is a multi-phase national investment, technology access, and knowledge transfer strategy that focuses on the convergence of development, climate, and nature. A key driver of growth in the CPPs is MSMEs, the backbone of the economy and resilience, providing livelihoods.
According to the 2024 ADB Asia SME Monitor, in 2023, Nepal had around 592,000 registered MSMEs, representing nearly 99.8% of all business establishments in the country. The majority were small enterprises (about 524,000), alongside approximately 42,000 micro and fewer than 2,100 medium-sized enterprises, not to mention over 23,600 cottage industries. MSMEs provided employment to approximately 11 million people, accounting for about 72.6% of Nepal’s total estimated labor force of 15.2 million in 2023. Additionally, MSMEs experienced a robust growth rate of 6.7%, while employment within this sector grew by just over 3%. Sector-wise, MSMEs were predominantly active in agriculture, forestry, and fisheries (33.6%), manufacturing (20.1%), and tourism (9.7%), underscoring their critical role in driving inclusive growth, sustaining livelihoods, and building resilience across both rural and urban areas.
This underscores the urgent need for resilience, a rapid scale-up of adaptation, pre-arranged financing, health system resilience, water security, and food sovereignty, and powered by renewable energy, and grid-transportation-logistics modernization. It is a mistake to choose one set of actions over another: To realize resilience, modernization of the economy is vital. To modernize the economy, achieving resilience is essential.
Investment and affordable capital are critical for MSMEs to build resilience early. The V20’s 100-banks initiative for example, targets three critical layers to enable this: (1) addressing the base layer of risk through climate-smart lending to Nepalese MSMEs; (2) strengthening local infrastructure and capacity within banks to adapt existing products rather than build from scratch; and (3) developing the data and business case needed to scale with private capital, creating a path from public-good demonstration to private-sector adoption. The Nepal Insurance Authority, aggregators for MSMEs, and domestic financial institutions have an important role to play in enabling this transformation by aligning regulatory frameworks, enhancing risk management tools, and crowding in investment to support MSMEs as engines of growth and resilience.
To build a truly climate-resilient financial ecosystem, we must embrace a layered risk approach.
1. Adaptation: To adapt is to strengthen coastal defenses, climate-proof infrastructure, diversify crops, improve water systems and flood controls, and protect ecosystems. Adaptation lowers the scale of losses faced, but to make it work, access to lower-cost capital is urgently needed.
2. Risk Retention: It is time to set aside funds members control, such as national and local disaster reserves, so that recovery from smaller, more frequent shocks can be rapidly financed.
3. Preparedness and Response: Emergency systems, evacuation plans, early warning systems, and pre-positioned supplies are vital.
4. Risk Transfer: It is time to protect ourselves against catastrophe that involves losses we cannot adequately prepare for, losses we cannot retain, and losses that we currently cannot adapt to. Through tools like insurance, catastrophe drawdown options, regional risk pools, and forecast-based financing, part of the financial burden is shifted from governments, communities, and businesses to insurers, reinsurers, and capital markets. Risk transfer can help us access funding quickly when the worst happens.
By combining adaptation, retention, preparedness, and risk transfer, we can build a more resilient system. Moreover, the V20 Central Banks Working Group, chaired by Central Bank Governor Kevin Greenidge of Barbados, last week discussed the potential of a ‘Lifeline Mechanism to provide balance of payments finance to cushion the impacts of climate shocks—such as tropical cyclones, floods, and droughts—while also mobilizing medium-term investment finance. While still in its early stages, Nepal’s central bank can play an important role by sharing its insights and perspectives as the critical design details are resolved over the next nine months. This will ultimately determine the Lifeline’s usefulness and potential for operationalization.
For Nepal and the CVF-V20, there is a unique opportunity to harness their young demographic profile, technological advancements, and climate action imperatives to shape a future that is both prosperous and resilient. Nepal, as a founding member of the CVF-V20, can position itself as a proactive architect of a new and equitable green economy that leverages its abundant hydropower potential not only to meet domestic needs but also to trade electricity with Bangladesh and cooperate with Bhutan on cross-border energy connectivity.
At the same time, MSMEs, Nepal’s backbone of resilience, stand to benefit from a range of enablers, from greater access to affordable renewable energy to improved finance, technology, and market opportunities, helping to lower costs, enhance productivity, and secure their central role in sustaining livelihoods and inclusive growth.
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