Sustainable to the core: Banking for a More Resilient Sri Lanka

In 1997, the world made a promise in Kyoto to reduce greenhouse gas (GHG) emissions. In Paris, nearly two decades later, it made that promise again with greater ambition. Yet global carbon emissions continued to rise.

The consequences of those failures are not evenly distributed. Sri Lanka contributes less than 0.1% of global GHG emissions, yet we remain among the countries most vulnerable to climate shocks.

What was once considered models and projections, is now lived reality for our nation. In late November 2025, Cyclone Ditwah affected more than 2.1 million people across almost every district, claimed over 630 lives, and caused an estimated USD 4.1 billion in damages.

For an economy already recovering from historic fiscal strain, the shock was immense. Even as that recovery continues, the next phase of risk is already emerging. 2026 is forecast to be among the hottest years on record for the region, with a “Super El Niño” expected to intensify pressures on water, agriculture, energy and livelihoods.

For Sri Lankan banks too, the materiality of climate change is no longer open to debate. Sustainability cannot be treated as a peripheral programme, compliance requirement or a branding exercise. It must be recognised for what it is: a core strategic imperative shaping how banks lend, manage risks, support clients and contribute to national resilience.

More than a mandate: why sustainability now sits at the heart of banking

Global issuance of green, social, sustainability and sustainability-linked bonds has grown rapidly, but raising capital is only part of the story. The more consequential question is how institutions deploy it, and whether sustainability is meaningfully embedded into decision-making.

The issue is especially significant for banks, whose largest environmental footprint lies not in direct operations, but in lending portfolios. The real impact for banks flows from the sectors we finance, activities we enable and the incentives we create for our clients to adopt more resilient and responsible practices.

 Over decades, HNB has supported MSMEs — many of them women-led — to formalise, scale up and integrate into broader value chains, with several evolving into sustainable enterprises that generate income and employment at the grassroots level. These examples illustrate how targeted financial support can contribute to broader economic resilience

This makes sustainability a core function of banking, supporting businesses’ transition into a low carbon economy, enabling sectors to adapt to climate realities, and strengthening the resilience of communities and the wider economy. 

Governance is what makes sustainability real

Embedding sustainability requires governance anchored at board level and integrated across the organisation to translate direction into action. This is critical as sustainability cannot sit as a parallel workstream or be confined to CSR and reporting. It must influence how capital is allocated, how risks are assessed, and how performance is ultimately measured. 

Across the industry, this shift is being supported through the Sri Lanka Banks’ Association’s Sustainable Banking Initiative (SLSBI) established in 2015, which has brought banks together around common principles, and capacity-building to integrate environmental and social considerations into core banking decisions. This collective approach is helping to create a more consistent and disciplined foundation for sustainable finance across the sector.

These industry efforts are further reinforced by national regulatory direction, particularly through the Central Bank of Sri Lanka’s Sustainable Finance Roadmap 2.0 and the Green Finance Taxonomy, which provide a structured framework for integrating climate risk, financing green activities and strengthening disclosures across the financial system. Together, these initiatives are helping align the sector with both global standards and national priorities.

At HNB, these considerations are reflected in policy, portfolio choices as well as scaling of our green finance activities. The Bank’s decision to exclude coal financing in addition to the list of other restricted activities underscores the commitment to a low carbon future.  This is complemented by the increasing lending, aligned with the CBSL Green Finance Taxonomy and the successful issuance of a Rs. 10 billion Sustainability Bond, towards financing green and social priorities.

Beyond the operational: sustainability that works for customers and communities

At its most meaningful level, sustainability in banking must translate into stronger financial inclusion, more resilient livelihoods and greater economic participation. For HNB, this begins with expanding access to finance and market opportunity for micro, small and medium enterprises (MSMEs), which form the backbone of Sri Lanka’s economy.

Over decades, HNB has supported MSMEs — many of them women-led — to formalise, scale up and integrate into broader value chains, with several evolving into sustainable enterprises that generate income and employment at the grassroots level. These examples illustrate how targeted financial support can contribute to broader economic resilience.

Inclusion, however, goes beyond access to finance. It also requires the ability to use financial services effectively. At HNB, investments in financial literacy and capacity-building—delivered through trained field officers and structured programmes—are helping individuals and small businesses become more productive, resilient and bankable.

This approach extends to sectors such as agriculture, where climate vulnerability and income instability are closely linked. Initiatives such as HNB’s Saru Sara programme, promote more efficient and climate-resilient farming practices.

The work that remains

Much has been started, but much more remains to be done for HNB, the banking sector, and for Sri Lanka as a whole.

One of the most immediate challenges across the industry, is the availability and quality of decision-useful data. Effective risk analysis, portfolio alignment, financed emissions baseline, scenario assessments and sustainability disclosures all require more reliable climate data and stronger client-level information across the industry. Strengthening these information foundations will be critical to improving risk assessment and enabling more informed capital allocation across the sector.

Alongside this, accelerating the transition to a low-carbon economy requires sustained focus. Decarbonisation cannot be approached only as exclusion. It must also involve engaging clients, supporting sector specific transition pathways and financing credible transitions in industries that remain vital to growth and employment. This requires more sophisticated products, stronger advisory support and a clearer understanding of what transition looks like in a Sri Lankan context.

Equally important is the need to strengthen adaptation and resilience. For countries like Sri Lanka, climate change is not a distant risk but an economic reality. Floods, droughts, heat stress, food insecurity and livelihood disruption are challenges the nation must actively adapt to. Banks therefore have a vital role to play—not only in financing mitigation, but in supporting resilience across agriculture, MSMEs, infrastructure and vulnerable communities.

As global sustainability standards become more demanding, smaller businesses and supply chains risk being left behind unless they are supported early. Export readiness, traceability, environmental compliance and social safeguards are increasingly commercial prerequisites. This gap urgently needs to be bridged, so that sustainability does not become a barrier to participation, but rather a pathway to competitiveness.

Ultimately, the future of banking in Sri Lanka will be shaped by how decisively the sector responds to this moment. The costs of inaction will not be measured only in emissions, but in disrupted livelihoods, impaired assets and rising systemic risk. The financial sector has both responsibility and the opportunity to respond. If we get this right, sustainability will not be an added feature of banking. It will define the next chapter of it.