GREEN FINANCIAL INSTRUMENTS, AS PART OF THE CAPITAL MARKET, GREATLY EXPAND THE OPPORTUNITIES FOR INVESTORS WHO WANT TO CONTRIBUTE TO THE FIGHT AGAINST CLIMATE CHANGE.
In turn, the demand for the implementation of "green" projects is increasing every year, and the countries of the Eurasian region are not far behind in this matter. This is due, first, to the need to fulfill the obligations of countries under the Paris Agreement and transform their economies towards achieving carbon neutrality and the Sustainable Development Goals. Due to further economic growth in our countries and the growing trend towards decarbonization, the need for such investments will only increase.
As you know, the green theme has long been developing in Western Europe and North America, and now in Southeast Asia, where green finance is becoming the most important tool for attracting investment in sustainable development projects, including green projects.
Following this progressive trend, the Astana International Financial Center began work on the development of a green finance system on its site a few years ago. Thus, on June 1, 2018, the AIFC Green Finance Center (hereinafter referred to as the Center or CTF) was established, which today is already a regional green finance hub, providing a wide range of services to businesses to assist in the use of sustainable financing instruments, including the issuance of green and social bonds.
A lot of work has been done during the work of the Center. In the first year of activity, the Rules for issuing green bonds on the AIFC Exchange AIX were adopted and the First Green Growth Forum (www.ggf.kz) was held, which today is developing as a leading expert platform not only in Kazakhstan but in the entire Eurasian region.
At the same time, work began on building a partnership network, which today includes the Climate Bonds Initiative, International Capital Market Association, EBRD, GIZ, Tsinghua University, relevant UN institutions, the Asian Development Bank, etc. In 2019, the AIFC Exchange joined the BRI Green Investment initiative Principles.
The development and adoption in 2020 of the External Assessment Methodology to confirm the compliance of the issuance of sustainable bonds, as well as green and social loans with international standards and principles, made it possible in the same year to ensure the issuance of the First Green Bonds in Kazakhstan and Central Asia on the AIFC AIX Exchange.
The past year 2021 was a breakthrough year for Kazakhstan in advancing the climate agenda – a new Environmental Code and a set of measures for economic incentives for entrepreneurs in attracting green investments were adopted, the Green Taxonomy of Kazakhstan was approved, and the First Verified Green Loan was issued.
Since June 2021, the AIFC Green Finance Center has become the Regional Office of the Green Investment Principles for the Belt and Road Initiative (GIP) in Central Asia, giving green projects across the region access to GIP’s broad investor base of more than 40 institutions, including international banks interested in investing in green projects.
As you know, the goal of creating an international GIP network was to improve environmental risk management for investments under the Belt and Road Program and, as a regional office, the Center will promote GIP among financial institutions in Central Asia, conduct capacity building activities through the GFLP (Global Green Finance Leadership Program), help develop a database of green projects and scale-up sustainable finance in the region.
In turn, the platform of the International Financial Center, which includes, in addition to the Green Finance Center, the AIFC Exchange AIX, contributes to the promotion of the AIFC as a regional green finance hub not only in Central Asia but throughout the Eurasian region.
Today, thanks to the accumulated experience and competencies, the Green Finance Center is a leading institution in the development of sustainable finance in the region and provides services for attracting investments through green and social bonds/credits, developing strategic documents and policies in the field of sustainable development, verifying projects, and assisting in the search for potential investors.
At the same time, companies of any industry and field of activity, including industrial production, construction, IT, banks and financial organizations, the public sector, and others can become issuers. In turn, the assessment and certification of the project by the AIFC Green Finance Center is possible at any of its stages, both at the stage of pre-project assessment, initiation, planning, at the stage of project execution, and after its completion.
In total, over the period of its activity, the Center facilitated the issuance of seven green and social bonds, as well as one green loan, which attracted investments in the amount of $154.3 million, the total volume of green loans amounted to $66 million, and issued on AIX and KASE green and social bonds – $91.3 million.
At the end of 2021, the Kazakhstan sustainable finance market reached USD 250 million, including the volume of the green finance market approaching USD 184.1 million. More than half, or rather 60% of green bonds and loans in Kazakhstan have been verified by the Green Finance Center.
Among the most significant projects implemented by the Center, it should be noted the issue of the first green coupon bonds in the history of Kazakhstan on the AIFC Exchange, which took place in 2020, becoming a serious step towards the successful implementation of a new instrument on the local capital market.
The placement of coupon bonds was carried out by “Damu” Entrepreneurship Development Fund JSC under an agreement with the United Nations Development Program to reduce the risks of investing in renewable energy. The total amount of the listing of bonds, which investors bought up in the first half-hour, amounted to 500 thousand dollars with a coupon rate of 11.75% and a maturity of three years. The Center provided full consulting support for the project and provided an independent opinion (Second Party Opinion), according to which the issuer will use the funds raised and disclose information about their intended use in accordance with the international Green Bond Principles.
This listing primarily stimulated micro, small, and medium businesses involved in green projects. After the debut issue of green bonds, the number of companies interested in issuing such bonds has noticeably increased.
Thanks to its activity and competencies, the Green Finance Center has become the first and so far the only company in Central Asia included by the International Capital Markets Association (ICMA) in the international register of verifiers of green and social bond issues External Review Service Mapping. In addition, GFC ranks first in the Global Green Finance Index for Eastern Europe and Central Asia.
It is important to note that in Kazakhstan the course towards the intensification of the "green" transition is maintained at the highest level. President of the Republic of Kazakhstan K. Tokayev has repeatedly noted that in the medium term, it is necessary to redouble efforts to achieve deep decarbonization, and in the context of the current crisis associated with the pandemic, moving towards a green transformation of the structure of the economy, green energy is an urgent need. Accordingly, support for environmentally friendly projects needs to be restarted.
In this regard, at present, as an institution for promoting green finance and sustainable development, the AIFC Green Finance Center has begun developing conceptual approaches for the development of green lending, green insurance, and green procurement, as well as environmental education in the republic. In addition, specialists from the Green Finance Center are preparing proposals for the "greening" of urban infrastructure for large cities of Kazakhstan: from "clean" urban transport to "clean" waste processing. All these measures and tools will accelerate Kazakhstan's transition to a circular economy model.
The AIFC is actively involved in the processes of economic integration within the framework of the Eurasian Economic Union. Based on the Green Finance Center, the AIFC Project Office for Interaction with the Eurasian Economic Commission was established, which I am the head of.
It is gratifying that since 2021, environmental issues have become part of the integration agenda within the EAEU, and the Green Finance Center is participating in the process of implementing the agreements of the heads of the EAEU member states, enshrined in the Statement on the Climate Agenda adopted in October last year.
Thus, at the EEC site in November 2021, the Center, together with the EEC, held a seminar on the topic “Sustainable Financing Instruments to Support the Transition of the EAEU Countries to a Green Economy”. The webinar was attended by representatives of international organizations and development banks, such as FC4S, Green Investment Principles for the Belt and Road Initiative, the EDB, representatives of the EAEU member countries, as well as institutions of Kazakhstan involved in the development of the climate agenda.
Although activities towards the climate agenda between the EAEU countries have begun relatively recently, we see great potential in its implementation. In particular, through cooperation, we can ensure the production of components for renewable energy facilities in the EAEU by establishing low-carbon industrial cooperation, developing and implementing technologies for capturing and storing greenhouse gases, promoting environmental and forest-climatic projects, working out the issue of creating a Eurasian Hydrogen Consortium within the EAEU with the purpose of combining the scientific and industrial potential of the Parties and the development of innovative technologies.
Participation in the Eurasian integration project allows our Center to successfully develop cooperation with 56 Green economy representatives of the EAEU countries, including companies from Russia, Kyrgyzstan, and Belarus.
Also last year, a memorandum was signed between the Green Finance Center and the Union of Banks of Kyrgyzstan, and the Center is actively sharing its experience in developing green finance tools.
Quite a lot of interest is also shown by second-tier banks in the region in terms of the development of green products, such as green mortgages, green loans for the corporate and SME sectors, and this cannot but rejoice, since the banking sector occupies a large share of the financial sector in the region. As examples of transformation, one can note Uzpromstroybank (Uzbekistan), which, by the way, at the end of 2020 became the winner of the AIFC Green Finance Awards in the “green bank” category, as well as Dos Credobank (Kyrgyzstan).
In the short term, the countries of the region are faced with the task of consistently implementing the principles of social and responsible business conduct, the so-called ESG principles, where we can also cooperate. Environmental (Ecology) is one of the areas of ESG, where an important role is assigned to the development and application of green finance mechanisms to achieve the goals of reducing the negative impact on the environment.
In this regard, the AIFC Green Finance Center plans during 2022–2024, together with the United Nations Environment Program Finance Initiative (UNEP FI), to develop and implement ESG reporting guidelines for companies listed on the AIX exchange. Voluntary ESG disclosure requirements are expected in the short term and mandatory ESG disclosure requirements in the medium term. At the same time, the ESG reporting structure can be aimed at mandatory disclosure of information by large and public companies based on the “comply or explain” principle.
Within the framework of cooperation with the EAEU countries, we are ready to share experience and provide consulting services in the implementation of the principles of sustainable financing and ESG principles, provide services to support transactions for the issuance of green and social bonds, etc.
At the same time, we are already actively sharing our experience. Thus, to raise awareness of stakeholders about green finance, the Center, together with foreign partners, conducts various events, seminars, and trainings. The annual Green Growth Forum initiated by the Center has now become an authoritative platform for joint discussions with leading industry experts on building a green financial system in Central Asian countries and exchange of experience.
I also want to emphasize that the GFC is consistently building its infrastructure for the subsequent provision of a full cycle of services on sustainable development issues.
Thus, for the purpose of international business acceleration of green and high-tech projects, the Center created the Green Technology Hub (GTH) in 2021, the mission of which is to attract high-class managers and developers from all over the world to Kazakhstan who will be able to implement innovative start-ups or scale their successfully operating companies, the most promising for the local market. The structure and organization of GTH work allow minimizing risks for both investors and start-ups that are expanding their presence in Kazakhstan and the Central Asian region.
In addition, last year, to support the implementation of global initiatives to combat climate change, the Green Finance Center, together with the Corporate Fund "Biodiversity Conservation Fund" and LLP "Green Investment Group", created a non-profit organization "Eurasian Environmental Fund" (Fund) in the jurisdiction of the AIFC.
The main mission of the Fund is to promote the achievement of carbon neutrality in Kazakhstan by increasing the environmental responsibility of business and society. The Fund is engaged in the implementation of green projects in Kazakhstan, increasing the number of green spaces and facilitating the transition to a low-carbon economy. The Fund's strategic partner is the Kazakhstan Association of Regional Environmental Initiatives "ECOJER".
The Fund, together with the Eurasian Bank and the international payment system Mastercard, issued the first eco-card in Kazakhstan. The eco-card, made from recycled plastic, gives everyone the opportunity to support greening and sorting waste in the country. The Bank will send 0.5% bonuses from non-cash transactions for using the Eco-card to the Fund for the implementation of eco-projects in Kazakhstan.
Thus, the AIFC Green Finance Center is currently the largest international green finance hub in the region, has accumulated experience and the necessary competencies and great potential for international development, aimed at the prospect of creating an authoritative ESG community in the region, which will help unite the efforts of our countries in the direction of more green future for our countries.