Inclusive Green Finance is taking root in AFI’s Eastern Europe and Central Asia region

In 2023, Inclusive Green Finance (IGF) was identified for the first time as the most common policy priority among AFI’s Eastern Europe and Central Asia region members. A recent meeting of AFI’s Eastern Europe and Central Asia Policy Initiative heard how AFI members in Armenia, Kazakhstan, Mongolia, North Macedonia, and Uzbekistan are developing and implementing policies, regulations and national strategies which build the resilience of vulnerable populations to the impact of climate change.

Mongolia was one of the first countries to adopt a Green Taxonomy, in 2019. The Taxonomy, which aimed to increase the share of green loans to 10% within the banking sector and 5% in the NBFI sector, focused on four environmental objectives: climate change mitigation and adaptation, pollution prevention, resource conservation and livelihood improvement.

In 2022, Mongolia’s Financial Regulatory Commission (FRC) launched its National Sustainable Finance Roadmap, setting out major green goals for non-banking financial institutions and the broader financial sector. The same year, FRC issued guidance on Environmental and Social Governance (ESG) and Sustainability Reporting, and on ESG Risk Management Regulation.

In 2023, FRC approved a Sustainable Finance Taxonomy​, currently being piloted, which aims to help Mongolia transition to a sustainable, low-carbon, climate-resilient economy.

As a result of these measures, financial service providers in Mongolia implemented a number of IGF products, including herder loans and loans for families, especially in remote areas, to purchase clean heating options, reduce air pollution, and provide environmental and health benefits.

In Armenia, the Central Bank of Armenia (CBA) launched a National Sustainable Finance Roadmap in 2023. Developed through an inclusive, multi-stakeholder process, which included AFI-facilitated peer review, the Roadmap aims to:

• Mobilize capital for green and social investment, including through Green, Blue, Social, Sustainability and Sustainability-linked loans and bonds
• Enhance market development through research and improved data
• Embed sustainable finance into the supervisory framework by incorporating sustainable finance reporting standards into industry guidelines, integrating ESG into corporate governance standards, and introducing ESG disclosures and IGF policies
• Build awareness and knowledge within CBA and across the financial sector.

The Roadmap puts special attention on vulnerable groups, including women and low-income populations. Social bonds are envisaged to facilitate social impact investments for financial inclusion, and the introduction of social products.

Since 2022, the CBA has worked with German Sparkassenstiftung for International Cooperation (DSIK) and Kempten University on developing an ESG and climate-related risk management tool for financial institutions. A full assessment of a credit portfolio’s ESG risks is offered in the form of a heat map analysis, which can be used as a basis for individual risk analysis. The tool, which is described in the CBA’s financial stability report, will be published on the CBE website in September.

In Uzbekistan, the Government committed in 2023 to accelerate the introduction of renewable energy sources and energy-efficient technologies. The Central Bank of Uzbekistan eased macro prudential requirements for issuing green products, and has organized national advertising campaigns and roadshows to promote the uptake of “green energy” products among citizens and businesses.​

CBU has introduced a special refinancing loan mechanism to promote green energy loans by banks, with a focus on financing the installation of solar panels by population and business entities, including micro, small, and medium enterprises. As a result of this activity, the volume of green energy loans increased seven-fold between April 2023 and February 2024. During the same period, the total number of installed solar panels increased by 500%.

The National Bank of the Republic of North Macedonia (NBRNM) has undertaken multiple activities to increase awareness of climate risks, and to promote a green and sustainable economy. In 2023, the NBRNM developed a Medium-term Plan with activities in the area of management of climate-related risks (2023-2025). The same year, the NBRNM adopted Guidelines for managing Climate-related risks by banks.

The Medium-Term Plan includes a roadmap with concrete activities, including the regulatory and supervisory framework, and amendments to applicable legislation. It also provides a first, preliminary overview of the exposure of the country’s banking sector towards climate-related risks. In 2024, the NBRNM published a Green Dashboard that provides a structured framework for reviewing green indicators, covering three main groups: Environment and Energy, Climate Risks, and Green Finance, to support decision-making and promote sustainable finance and green investments.

In Kazakhstan, an Environmental Code was implemented in 2021, which spurred the development of sustainable development instruments, and which introduced a “Green” Project Taxonomy to finance projects in natural resource efficiency, environmental impact reduction, climate change mitigation and climate change adaptation. The ESG bonds sector was created in the listing structure of Kazakhstan Stock Exchange, and in 2022, legislative amendments were adopted that regulate the procedure for issuance, circulation and redemption of ESG bonds.

In March 2023, the Agency for Regulation and Development of Financial Market approved a Roadmap on introduction of ESG principles in regulation of the financial market. Guidelines on Environmental, Social and Corporate Governance Disclosure for Banks and Other Financial Organizations were approved in April 2023, and Guidelines on Environmental and Social Risk Management for Banks and Other Financial Organizations were approved in July 2024. In 2024, the Agency plans to adopt Guidelines for Assessing the Carbon Footprint of Banks’ Loan Portfolios.

“Climate change is being felt most by vulnerable and excluded communities, so it’s great to see AFI members taking an inclusive approach to green finance” said Arif Nasibov, AFI Senior Manager. “The AFI network is committed to using financial inclusion as a way to adapt to, and mitigate, the impact of climate change. The threat may be growing, but so is our knowledge of how to respond.”

AFI’s Inclusive Green Finance Working Group, featuring 64 AFI member institutions, plays a leading role in building awareness and insight of IGF among policy makers and regulators. Supported by a growing number of likeminded funding and technical partners, AFI’s IGF Workstream facilitates the exchange of knowledge, and conducts research and analysis on policies and strategies which can help countries adapt to, and mitigate, the impact of climate change.