The intervention supports Sri Lanka’s Nationally Determined Contributions (NDCs) and sustainable finance objectives by developing a Sovereign Green Bond Framework and a Sustainable Bond Framework for financial institutions. These frameworks form the foundation of sustainable finance initiatives, enhancing government and private sector capacity in green taxonomy, driving economic recovery, and advancing sustainability goals.

Sovereign Green Bond Framework Developed: Through the project, a Sovereign Green Bond Framework for the Government of Sri Lanka was developed to provide a critical mechanism for mobilizing international climate finance. This framework, aligned with global best practices, serves as the foundation for innovative financing instruments like debt-for-nature swaps, enabling the restructuring of external debt while channeling funds toward environmental conservation and climate resilience projects.

Sustainable Bond Framework Developed: Additionally, two Sustainable Bond Frameworks were developed for leading private financial institutions – Commercial Bank of Ceylon and National Development Bank PLC, through technical assistance to expand the private sector’s role in advancing sustainability. This framework aligns with international standards and enables the issuance of bonds that finance green and social projects, including sustainable infrastructure.

The project aims to strengthen Sri Lanka’s sustainable finance ecosystem by developing a Sovereign Green Bond Framework to attract international climate finance. Additionally, it seeks to enhance the capacity of private financial institutions to issue thematic bonds, aligned with global standards, to drive investments in green and social projects. By addressing critical climate financing gaps and building institutional capacity, the project supports Sri Lanka’s economic recovery, fosters low-carbon development, and advances the country’s NDCs and long-term sustainability goals.

Sri Lanka faces the challenge of balancing economic recovery with advancing its climate and sustainability goals. The economic crisis in 2022, coupled with global disruptions from COVID-19 and fiscal constraints, limited access to international capital markets and shifted priorities towards addressing immediate economic and humanitarian needs. These factors have created a significant gap in climate financing, which is critical to achieving the country’s Nationally Determined Contributions (NDCs).

Despite these challenges, Sri Lanka has taken steps to promote sustainable finance, such as launching the Green Finance Taxonomy in 2022 as part of its Sustainable Finance Roadmap. However, the lack of a sovereign framework to attract large-scale green investments and limited private sector readiness to engage in thematic financing have restricted progress in bridging these financing gaps.

These initiatives seek to mobilize green investments, facilitate innovative debt restructuring options, and strengthen institutional frameworks for sustainable finance. By creating an enabling environment, the project supports Sri Lanka’s efforts to align economic recovery with its sustainability and low-carbon development objectives.

The project is set to deliver transformative outcomes by:

Strengthening Sri Lanka’s capacity to mobilize sustainable finance for economic recovery and climate resilience. A key result is the establishment of a Sovereign Green Bond Framework, validated through an external review, which will enable the country to access over USD 400 million in green investments. This framework not only aligns with global standards but also lays the foundation for Sri Lanka’s sustainable finance initiatives.

Additionally, the project enhances the capacity of two leading private financial institutions to issue thematic bonds. With technical support, these institutions are anticipated to issue thematic bonds worth USD 50 million each, targeting green and social projects, including renewable energy and sustainable infrastructure.

These outcomes align with Sri Lanka’s Nationally Determined Contributions and sustainable development goals by addressing critical climate financing gaps and fostering economic resilience. The project demonstrates how innovative financial tools can simultaneously drive sustainability and support long-term economic stability.