Tashkent, Uzbekistan (UzDaily.com) – The rapid degradation of natural ecosystems is a problem that must be addressed through joint efforts. For Central Asian countries, the consequences of climate change primarily affect water resources. For example, the ecosystem of Lake Balkhash, one of the largest lake ecosystems on the planet, is undergoing processes similar to the desiccation of the Aral Sea and the Caspian Sea.

According to the World Bank, the global economy could lose US$2.7 trillion by 2030 if certain ecosystem services (such as pollination, carbon sequestration and storage, fisheries, and timber provision) cease to function. In low-income countries, GDP could decrease by an average of 10% per year, with losses being more significant in countries particularly dependent on ecosystem services.

More than half of global production depends on natural resources. This implies that if "natural capital" were not accounted for, most industries would be unprofitable. Consequently, the relevance of sustainable financing, which includes green and social financing, is significantly increasing worldwide and in the region.

Daniar Kelbetov, Chairman of the Board of Directors of the Green Finance Centre (GFC) of the Astana International Financial Center (AIFC), shared insights with UzDaily on the state of sustainable financing.

Daniar, can you explain how green financing emerged?

Climate change was recognized by the United Nations as "one of the most serious challenges of our time" in the early 1990s. In 2007, the UN Intergovernmental Panel on Climate Change published a report establishing the link between global warming and human activity. It was determined that the financial sector plays a key role in redirecting capital to combat climate change, specifically for mitigation and adaptation efforts.

Considering the risks associated with climate change, financial organizations such as the World Bank, Swedish pension funds, and banks collaborated with climate change experts to develop approaches to using debt financing as a solution. This cooperation led to the creation of criteria to confirm the positive environmental impact of the attracted investments.

In 2007–2008, the European Investment Bank and the World Bank successfully issued the first green bonds globally, laying the foundation for the green finance market. This issuance also introduced the independent evaluation tool for green bonds in the form of a second opinion. Thus, green bonds emerged as the financial sector’s response to the global climate change problem.

Today, international organizations such as the International Capital Market Association (ICMA) and the Climate Bonds Initiative (CBI) have developed principles and standards for issuing green bonds. It is recommended that green bond issuers obtain an independent second opinion to confirm compliance with these principles and standards.

The first green bond issuance in Kazakhstan and Central Asia occurred in August 2020. How has the sustainable finance market developed in Kazakhstan over these four years?

To answer this question, it’s necessary to start with the Paris Agreement, an international treaty adopted by 196 Parties at the 21st Conference of the Parties to the UN Framework Convention on Climate Change in 2015. The goal of this agreement is to keep the global average temperature increase below 2°C and significantly reduce global greenhouse gas emissions.

Today, 137 countries have set carbon neutrality goals. Carbon neutrality means achieving zero carbon dioxide emissions to limit global warming to 2°C. Achieving these goals requires preserving the environment and resources, defined as sustainable development, based on principles of environmental care (Environment), social responsibility (Social), and effective corporate governance (Governance), known as ESG.

Consequently, the concept of sustainable or ESG financing emerged, which includes financial products supporting projects with a positive environmental impact (green bonds), impact on various social groups (social bonds), and products promoting both environmental protection and social welfare (sustainable development bonds).

Kazakhstan has announced its intention to achieve carbon neutrality by 2060. In this context, the AIFC considers sustainable and climate finance as a strategic development direction. This direction is managed by the GFC, the only company in the CIS region accredited by CBI and recognized by ICMA as an external assessment provider. The GFC conducts external assessments in the form of second opinions, determining the project’s compliance with international and local sustainable financing standards.

The GFC developed Kazakhstan’s national "green" taxonomy, an integral tool for the green finance ecosystem for project identification, verification, and reporting, as well as implementing incentive measures for subsidizing interest on green bank loans and green bonds under the national financial support program. The CGF acts as a bridge helping investments and projects transition to the "green" side.

According to CGF estimates, the total market for labeled sustainable finance instruments in Kazakhstan reached US$1.2 billion by the end of 2023, with most comprising transition and green financing instruments. Today, about 60% of green bonds and loans in Kazakhstan have received external assessments from the GFC.

How is green finance developing in Central Asia and in Uzbekistan specifically? What role do the AIFC and the GFC play in the region?

At the regional level, the GFC serves as a methodological center for sustainable finance in Central Asia, establishing the necessary foundation for sustainable finance growth and recognition. Significant examples include developing the first sustainable finance taxonomy project for Kyrgyzstan in 2022 and adopting the Model Green Taxonomy for the Eurasian Economic Union (EAEU) in 2022.

Regionally, the GFC supported the issuance of the first social bonds (issuer: Asia Bank, 2022) and the first green bonds (Dos-Credobank, 2023) in Kyrgyzstan (the first issuance of green bonds in Kyrgyzstan amounted to about US$963,000).

We are pleased to be part of the development of the green finance market in Uzbekistan, particularly in the corporate sector, where the state typically dominates. Uzbekistan is the only country in the region that has already issued sovereign SDG (Sustainable Development Goals) bonds and sovereign green bonds. Notably, Uzbekistan recently adopted a national Green Taxonomy, classifying economic activities, projects, and assets that contribute to sustainable development and reduce environmental impact.

In July 2021, the AIFC Green Finance Awards honored Uzpromstroybank, one of Uzbekistan’s largest banks, with a range of green financial products, as the "Best Green Bank," a notable example of transforming a financial institution into a green bank.

The GFC is currently working with Uzbek partners on a broader range of sustainable development financial instruments, including social sukuk. Green bonds by the Uzbekistan Mortgage Refinance Company are expected to be issued soon.

In December 2023,  Uzbek company, with the support of the Uzbekistan Direct Investment Fund and the GFC, successfully conducted the debut issuance of corporate green bonds in Uzbekistan. The funds, amounting to about US$4 million, are allocated to financing eco-friendly technologies in the construction of a resort.

Since May 2021, the GFC has expanded its role as the regional office for the Green Investment Principles (GIP) under the Belt and Road Initiative. As a GIP regional office, the GFC actively assists banks in adopting environmentally friendly practices aligned with ESG principles to enhance their sustainability and attract international investors, facilitating global market investments. Additionally, the center provides regional green projects access to international capital markets. Currently, GIP members in Central Asia include the AIX exchange, Dos-Credobank, the Damu Fund, the Development Bank of Kazakhstan, the Eurasian Development Bank as an observer, and the Green Investment Group as a supporting organization.

In your opinion, what is needed for the active development of the green finance market in the region?

Central Asia faces a significant investment gap for transitioning to a low-carbon economy. The region (including Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) needs US$20 billion in investments for renewable energy sources and the modernization of national and regional grids by 2030, according to World Bank estimates in 2023. At the 27th and 28th UN Climate Change Conferences, the Presidents of Kazakhstan and Uzbekistan proposed joint climate action initiatives, including hosting a Regional Climate Summit under UN auspices in Kazakhstan in 2026.

At COP28, Central Asian countries presented a unified regional position on the most pressing global climate issues, adopting a joint approach: "Five countries - one region - one voice."

Considering the vast green investment needs in the context of interdependent water and energy systems and the challenge of transforming energy-intensive economies, the next step in developing green finance in the region could involve discussing the creation of a regional green finance mechanism (GFM).

Most GFMs established in developing economies are supported by the Green Climate Fund (GFC) and national bodies as shareholders and expertise providers. An example is the Mongolian Green Finance Corporation (MGFC), which introduced a GFM established by commercial banks and the GFC to support Mongolia’s green transition, successfully attracting US$50 million to date.

Issuing sovereign green bonds is a promising direction for most countries in the region to develop local green finance markets. The aforementioned sovereign green bonds of Uzbekistan can serve as an example for other Central Asian governments needing additional financing for low-carbon economic development.

Additionally, Kazakhstan’s President Kassym-Jomart Tokayev proposed at the VIII Summit of the Turkic Council in November 2021 to develop a green capital market using the AIFC platform.

The GFC actively collaborates with governmental bodies and stakeholders responsible for developing green and sustainable finance in member and observer countries of the Organization of Turkic States (OTS) to create the Turkic Green Finance Council.

Establishing such a council will facilitate the development of the regional green finance market.

In conclusion, if the above-mentioned mechanisms for developing sustainable green finance are implemented by our countries, we will achieve significant results in preserving the environment and resources.