STATE OF SUSTAINABLE FINANCE IN CENTRAL ASIA

Although Central Asian countries contribute just over 1% to global greenhouse gas emissions, they are among the most vulnerable to climate change. The major adverse effects include the shrinking of glaciers and reduced surface water flow, which pose significant threats to the regional economies, especially for agriculture sector which is essential for both economic stability and food security in Central Asia.

Central Asian countries are a part of the global effort to address climate change. By committing to international agreements to reduce GHG emissions, they have aligned themselves with the global climate agenda. At the national level, they are implementing carbon neutrality strategies and plans for transitioning to a “green” economy. However, achieving these goals demands tremendous financial resources, which could strain government budgets in the region. Therefore, it is essential to attract funding for climate change initiatives and other green and sustainable projects.

The adoption of innovative sustainability-focused financial instruments, such as green bonds, social bonds, sustainability bonds and others, is gaining momentum globally, forming sustainable finance markets. To fully leverage the potential of these instruments and build sustainable finance markets, countries need to establish clear, transparent, and standardised regulatory frameworks along with supportive financial sector infrastructure.

Among Central Asian countries, Kazakhstan has made significant progress in developing its local sustainable finance market. As the first country in the region to adopt green finance standards, Kazakhstan has seen over twenty issuances in the sustainable finance segment.

Meanwhile, in Uzbekistan the government is a proactive user of debt instruments for sustainable development, becoming the first in the region to issue both sovereign bonds for SDGs and sovereign green bonds in recent years. Kyrgyzstan and Tajikistan have also entered the market with their first corporate green bonds. Turkmenistan lacks publicly available information on sustainable bonds issuances. However, the region’s entire sustainable finance market has already exceeded 2 billion USD.

Currently, emerging countries compete fiercely for investment, especially in sustainable projects. To ensure that Central Asia’s green transformation does not become a burden on national budgets, countries must make every effort to further develop sustainable finance markets and implement all available measures that could increase the region’s attractiveness for international investment in sustainable projects.

This report proposes concrete steps to further develop and bridge the gaps in sustainable finance markets of Central Asia, which are built around the following priority areas:

1) Standardize. Policymakers along with investment exchanges in the region should strive for effective development and implementation of local standards for thematic financing that are compatible and aligned with internationally accepted benchmarks, focused not only on mitigation, but adaptation, transition, and social criteria as well. The same actors should strive for aligned guidelines for ESG disclosure that would meet investor requirements.

2) Assess. Policymakers along with data providers (investment exchanges for capital market, regulators for banking sector) should close the gap for reliable regional statistics on sustainable finance which should be high-quality, granular, and timely. The data must be accessible to a broad set of stakeholders.

3) Capacity. Regulators, investment exchanges and financial institutions should consider building educational resources both for retail consumers and corporate sector while regulators should also focus on capacity building targeting the banking sector as well.

4) Encourage. Policymakers should come up with incentives for banks, retail consumers of financial services, and project developers to develop new products (green loans, ESG-bonds, etc).

5) Prioritize. Financial institutions should consider developing climate strategies including potential carbon neutrality goals, setting ambitious green finance targets, identifying potential niches and develop targeted products devoting adequate amounts of financial resources to sustainable finance products.

Please download the report from here:  

STATE OF SUSTAINABLE FINANCE IN CENTRAL ASIA.pdf