Nepal launches initiative to finance local climate action

KATHMANDU, April 10: An initiative aimed at helping Nepal's local governments respond to the impacts of climate change kicked off in the capital, Kathmandu, today. This marks an important step for joint action to tackle the impacts of climate change in some of Nepal's most vulnerable communities.

The Local Climate Adaptive Living (LoCAL) Facility, developed by the UN Capital Development Fund, supports local governments in financing practical adaptation measures, particularly in areas at high risk of floods, droughts and landslides.

The programme is being led by the Ministry of Forests and Environment in coordination and collaboration with local governments. The LoCAL investments are made possible with support from the governments of Australia and Sweden. The event brought together participants from government, development partners, academia and civil society.

"The Government of Nepal welcomes this initiative, delivered in cooperation with UNCDF and with support from the governments of Australia and Sweden, to increase the climate finance available for adaptation to the impacts of climate change at the community level," said Dr Maheshwar Dhakal, Chief of the Climate Change Management Division at the Ministry of Forests and Environment. "Climate finance must be integrated into and delivered through national planning and budgeting systems, and the LoCAL approach does just that—building capacities where they matter, at the local level."

Nepal is experiencing an increase in climate-related shocks, including water shortages and extreme weather events. Local governments are often the first to respond but face funding constraints and technical limitations that constrain their ability to implement appropriate adaptation measures. The LoCAL Facility is designed to address this gap by channelling finance to local governments, enabling them to invest in areas identified and prioritised in Nepal's National Adaptation Plan (NAP) and Nationally Determined Contributions (NDC 3.0), such as climate-resilient agriculture, water systems and infrastructure that can better withstand extreme weather.

Five rural municipalities—Bijayanagar of Kapilvastu District; Rapti, Rajpur and Gadhawa of Dang District; and Sarumarani of Pyuthan District—have been selected for the first phase of investments. All lie in Lumbini Province, which has been identified for the initial phase. The region is considered a climate “hot spot” due to its high population and significant exposure to a range of climate risks, including floods, drought, rising temperatures and disruptions to agricultural production.

Under the initiative, local governments will receive performance-based climate resilience grants. Resources are allocated according to factors including results achieved, with local governments that perform best receiving larger grants in subsequent funding cycles. The approach aims to strengthen local planning and budgeting systems while improving accountability and results. The five local governments will receive an initial allocation of US$925,000 as part of a broader commitment of up to $1.9 million over two fiscal years for the first phase.

"UN Capital Development Fund is committed to increasing the available finance for investment in adaptation at the community level, where the impacts of climate change are most acutely experienced," said Julien Chevillard, Deputy Resident Representative for the UN Development Programme in Nepal, representing UNCDF. "The LoCAL approach is not just plugging a funding gap; it is providing a systems approach to climate finance delivery and is fully integrated into national budgetary planning."

The current phase of the programme will test the model on a small scale, with the intention of expanding to additional municipalities if successful.

As climate risks intensify, there is an increasing focus on ensuring that funding reaches the local level, where impacts are most directly felt. Programmes like LoCAL are part of a broader shift toward locally led adaptation, which emphasises giving communities and local authorities greater control over how climate finance is used.

"Australia recognises and commends the Government of Nepal's leadership in addressing the challenges of climate change, particularly at the local level where communities face the impacts," said Dylan Jones-Virma, Head of Development Cooperation at the Australian Embassy in Kathmandu. "The LoCAL programme reflects our shared priorities and our partnership to address the effects of climate change and strengthen subnational governance."