EXPECTATION AND REALITY

The main objective of the recently concluded SOR29 Climate Conference in Baku was to secure an agreement on increased climate finance from developed countries. Alongside this, numerous related topics were discussed, including the critical aspect of the "green" agenda: the involvement of financial organisations themselves—international financial institutions, private banks, insurance firms, investment companies, and others—in implementing global environmental initiatives.

The Azerbaijani delegation announced several ambitious decisions and programmes during the Finance Day at COP29.

Global Initiatives

"Climate change poses a serious risk to the economic and financial stability of nations," stated Bo Lee, Deputy Executive Director of the International Monetary Fund (IMF), at the session The Global Financial System: Expanding Financing for Climate Action. He highlighted that the IMF Board of Directors approved its first climate strategy three years ago, reaffirming the Fund's readiness to offer loans to help member countries tackle the long-term challenges of this agenda. "Over the past two years, we have approved financing for 20 countries and raised $48 billion to support nations, particularly those with low incomes," he noted.

However, Bo Lee clarified that unlike the World Bank, the IMF does not fund specific projects. Instead, it provides loans to state budgets, channelling funds to support relevant reforms.

Irene Heemskerk, Head of the European Central Bank's (ECB) Climate Change Centre, underscored the financial sector's pivotal role in combating climate change. She explained that the ECB aims to advance green finance and facilitate the transition to a carbon-neutral economy. The bank promotes green bonds and ensures financial markets align with climate objectives. "The Network for Greening the Financial System (NGFS) is essential in this regard. We endorse its initiatives and closely monitor the financial sector's activities to drive proactive and sustainable climate action," she remarked.

The European Investment Bank (EIB), with support from other European financial development agencies, the European Bank for Reconstruction and Development (EBRD), and the European Commission, plans to launch a global initiative on green bonds. EIB Vice President Ambrois Fayol shared, "We have established a €1 billion fund sourced from public institutions. This fund will facilitate the issuance of green bonds, which we anticipate will help finance projects in regions where significant progress in this area has yet to be achieved." 

Asian Development Bank (ADB) Vice President for South, Central, and West Asia, Yingming Yang, confirmed the ADB's commitment to assisting developing countries in strengthening climate-resilient and climate-responsive financial systems. "We employ traditional lending through financial intermediaries to aid banks in institutionalising climate finance systems, thus boosting loans for climate projects," he elaborated.

Azerbaijani Banks Support Green Initiatives

Azerbaijan's financial sector is one of the most adaptive to contemporary challenges and innovations. Financial market participants and the regulator presented concrete solutions and initiatives at SOR29. Notably, just days before the Climate Conference, the Central Bank of Azerbaijan (CBA) approved the Green Taxonomy, a classification system that defines types of green activities, their subspecies, and criteria for sector-specific technical divisions. "The Green Taxonomy reflects Azerbaijan's high-level political commitment to green finance and will serve as a cornerstone for the country's green energy transition," said CBA Chairman Taleh Kazimov at the session "Global Financial System: Expanding Finance for Climate Action." 

Kazimov pointed to global initiatives supporting the harmonisation of sustainable finance taxonomies. "The G20 Sustainable Finance Working Group has developed voluntary principles to align sustainable finance frameworks. Additionally, the International Platform for Sustainable Finance (IPSF) has analysed commonalities and differences across taxonomies. Today, I am honoured to announce that the CBA, in collaboration with the International Finance Corporation (IFC), the Sustainable Banking and Finance Network (SBFN), IPSF, and UNDP, has developed a roadmap to enhance the interoperability and comparability of sustainable financial taxonomies," he stated.

As explained by CBA Director General Shahin Mahmudzade, taxonomies vary by country, necessitating the roadmap for mutual harmonisation. "This roadmap, endorsed by over 110 countries, outlines activities across five key areas. It has already been approved, and results will be discussed at COP30 in Brazil, with potential additional phases thereafter," he noted. Mahmudzade also revealed that the CBA has initiated stress testing for Environmental, Social, and Governance (ESG) risks, which will become mandatory in the coming years. ESG risks will gradually be integrated into green loans, bonds, and the national taxonomy.

The regulator anticipates Azerbaijan's banking sector will "green" approximately 10% of its loan portfolio within six years. "We are also exploring the incorporation of green monetary policies and the introduction of mandatory green insurance products," Mahmudzade added.

A strong commitment from Azerbaijani banks supports these efforts. Azerbaijan Banks Association (ABA) President Zakir Nuriyev announced a ₼2 billion commitment by the banking sector for climate change-related projects. "These funds will be directed towards sustainable and green initiatives," he emphasised, highlighting a rise in banks disclosing climate risk information per CBA guidelines. Azerbaijani banks have already implemented key initiatives under the Sustainable Finance Roadmap 2023–2026, including integrating principles of sustainable and green finance into strategies, risk management, and operational processes.

Nuriyev elaborated on future green banking plans, which include innovative banking products like green loans, sustainability-oriented loans, and environmentally conscious investment opportunities. "These measures aim to foster a low-carbon, sustainable economy in Azerbaijan by promoting environmentally responsible business practices," he affirmed.

In conclusion, Azerbaijan's financial, particularly banking, sector continues to lead in implementing tangible steps aligned with the global agenda. Market participants are expected to report on the initial results of these frameworks soon, further advancing the "greening" of the economy.