ECONOMYNEXT – The Sustainable Finance Roadmap 2.0 published by Sri Lanka’s central bank, with the International Finance Cooperation and the European Union, found that financial institutions’ contribution to the country’s sustainability targets remains small.
“There is, therefore, an urgent need to support the financial ecosystem to better align its funding with not only environmental challenges but social challenges faced by Sri Lanka and to scale up its contribution to the sustainable development objectives of the country,” the report said.
Financial institutions must help address Sri Lanka’s environmental and social challenges through adapted financial products, adequate accounting of social and environmental risks in investment decisions and improved market transparency and confidence, it said.
They must foster inclusiveness through support to MSMEs and vulnerable groups (such as youth, elderly, women).
“By channelling resources to any of these areas, the financial sector will directly contribute to address some of the most pressing social and environmental challenges faced by Sri Lanka.
“These new or improved investment areas also provide further diversification opportunities to investors, national or international, eager to support projects driven by social or environmental impact.”
Sustainable finance instruments include:
i) Sustainable loans (green loans), deposits and leasing
ii) Labelled bonds (Green bonds, social bonds, and sustainable bonds constitute the three main families of labelled bonds, also often referred to as sustainable bonds.
iii) Debt-for-nature swaps
iv) De-risking instruments
v) Sustainable insurance
The Roadmap focuses on the actions that are under the mandate of the key financial sector regulators, CBSL said, acknowledging that scaling the contribution of the financial sector to the country’s sustainable development requires a broad multi-stakeholder and multi-sectoral approach.
Sri Lanka is highly vulnerable to climate change and faces several other environmental and social challenges, the Roadmap said, adding that “Addressing these challenges involves considerable investments, which requires a scaling up of the contribution of the commercial financial sector as well as demand-side measures.
The first Roadmap in 2019 sought to address the need for incorporating environmental sustainability into the financial system to mitigate the adverse impacts of climate change by promoting policy cohesiveness across the financial sector regulators.
After this, initiatives such as Sri Lanka Green Finance Taxonomy and the Directions/Guidelines for banking and NBFI sectors, which covered green financing activities, were issued by CBSL.
Addressing climate related risks would help achieve the monetary authority’s dual goals of price stability and financial system stability, CBSL said. (Colombo/May5/2025)
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