Sustainability is becoming a necessity rather than just the aspiration it was a few years ago. It is a shift that comes with a substantial price tag in Sri Lanka. While the long-term benefits of sustainable initiatives are undeniable, the initial investment can be daunting.
In Sri Lanka, solar energy has become an ideal solution to reduce carbon emissions while generating steady income. Yet the high upfront costs remain a major obstacle for many potential adopters. According to Sunterra, a local solar company, installation costs range from nearly 1m Sri Lankan rupees (US$3,300) for a 5kW system to LKR2.75m for a 20kW system. Despite these steep initial expenses, solar systems offer long-term financial rewards.
Through the Net Plus scheme, where all electricity generated is sold to the national grid, solar systems can deliver an annual return on investment of up to 25.93%. For instance, a 10kW system costing LKR1.79m can generate over LKR375,000 annually, achieving a 20.97% return a year, while larger systems provide even higher returns.
Capex hurdle
Not only solar projects, but also wind energy, waste-to-energy plants, energy-efficient buildings and sustainable agriculture come with a huge capex fee. To address the challenge, banks in Sri Lanka are introducing green financing solutions. Lifecycle cost analysis research comparing green and conventional buildings in Sri Lanka highlights that green buildings typically involve around 28% higher initial construction costs than conventional buildings do.
Tailored finance is making renewable energy investments more accessible
The Central Bank of Sri Lanka (CBSL) has been actively promoting sustainable finance to align the country’s financial sector with global environmental, social and governance (ESG) standards. Joining the Sustainable Banking and Finance Network in 2016, CBSL launched a roadmap for sustainable finance in Sri Lanka in 2019 with technical and financial assistance from the International Finance Corporation and the United Nations Development Programme.
In 2022, it introduced the Sri Lanka green finance taxonomy, a classification system to identify environmentally sustainable economic activities, and issued reporting directives for banks and non-bank financial institutions to monitor sustainable financing activities. In 2023, Sri Lanka joined the International Platform for Sustainable Finance.
Green growth
As a result, tailored loans and financing packages are making renewable energy investments such as solar power more accessible to households and businesses. For example, the Bank of Ceylon has been disbursing loans for biogas and solar power plants, as well as electric vehicle leases, to reduce reliance on fossil fuels and combat climate change. In addition to clean energy initiatives, the bank has facilitated LKR478m for sustainable manufacturing and LKR350m for waste management, while promoting responsible e-waste disposal through registered recycling agents.
The first green bond issuance on CSE raised LKR2.5bn and was oversubscribed
Bourse bonds
Green financing in Sri Lanka is not limited to licensed commercial banks as even the Colombo Stock Exchange (CSE) facilitates it via green bonds. The money raised by green bonds funds projects that deliver environmental benefits such as renewable energy, energy efficiency and clean water. The trading and settlement of these bonds follow the same procedures as conventional bonds.
In October 2024, DFCC Bank announced the inaugural issuance of green bonds on CSE. The senior, listed, rated, unsecured, redeemable three-year bonds aimed at raising up to LKR2.5bn and were oversubscribed on the first day.
In a call to Sri Lankan leaders to embrace green financing, CSE chairman Dilshan Wirasekara encourages ‘all companies to seize this opportunity to tap into the global wealth of funds eager to invest in sustainable initiatives, fostering a greener future for our nation.’
Sri Lanka has made notable progress in terms of sustainable initiatives and green financing options. Facilities have expanded, choices have increased, and we are witnessing a growing number of sustainable initiatives being adopted by both corporations and individuals. Even the small solar grids on residential homes are a sign of a shifting trend.
As Sri Lanka has committed to the United Nations’ 2030 Agenda for Sustainable Development, building on momentum and accelerating efforts will be key to the future growth of the nation.
