Studies and practices on commons have demonstrated that local institutions can develop institutional arrangements to manage resources such as forests and water and can ensure benefit sharing mechanisms in a sustainable and equitable way. The characters, functions and roles of local institutions required to manage commons are well studied and translated in practice. Few researchers have reported on the role of local institutions in adaptation to climate change and variability with little known about key characters and functions reqUired. This article is based on a case study research in the mountains of Nepal following a mixed method approach including in-depth interviews of various stakeholders, focus group discussions and household survey with rural community members of different well-being groups affiliated with Community Forest User Groups (CFUGs). The research examines the impacts of climate change on livelihoods of poor and potential of local institutions to enable local communities in individual and collective actions for climate change adaptation in the mountains of Nepal. The research further explores the mandate, role, functions and capacity of the CFUG, as one of the major local institutions in Nepal, and presents key characters and functions required to facilitate climate change adaptation. The research reveals that secure rights over resources, enhanced capacity, improved governance and support mechanisms, and a critical mass of poor as key factors to optimize the role of CFUG in pro-poor adaptation in the context of climate change and variability. The article stimulates a discussion around changing role of local institutions for pro-poor adaptation in the context of ongoing power relations and social hierarchy in Nepal.