The Landscape
The Astana International Financial Center is located on the vast steppes of Kazakhstan, the landlocked country in the middle of the Eurasian landmass. How green finance works is, in part and everywhere, a function of the ancient relationship of humans to the land. Some 37% of the Kazakh population is rural; and with urbanization still relatively recent, there remains a strong cultural tie to the nomadic past.
Hilly plateaus and plains account for half the territory, and lowlands another third. The remainder is very high mountains to the east and south. Kazakhstan has a population of 20 million and one of the lowest population densities in the world. In antiquity, nomadic Iranian peoples dominated the territory; Turkic nomads entered the region from the sixth century. In the 13th century, the area was subjugated by the Mongol Empire under Genghis Khan. Two centuries later, the Kazakh khanate dominated most of what is today’s Kazakhstan, and in turn that was progressively absorbed into the Russian Empire, and later the Soviet Union.
Two Ecological Reminders
To the west, in the 1960s the world’s largest freshwater lake by surface area was the Caspian Sea, and the fourth largest was the Aral Sea. While the falling water levels in both drew attention, the focus here is the progressive and near complete disappearance of the Aral Sea in only five decades.
The ecosystems of the Aral Sea and the river deltas feeding into it have been nearly destroyed by salinity dramatically higher than ocean water. The receding sea left huge plains covered with salt and toxic chemicals from weapons testing, industrial projects with plastic and heavy-metal contamination, and runoff of pesticides and fertilizer. The effects have not remained local: the prevailing winds from west to east have scattered dust and fine particles all the way to the Tian Shan mountains on the Chinese border.
In the northeast of Kazakhstan, the Soviet Union conducted 456 nuclear tests at Semipalatinsk from 1949 until 1989, a quarter of the world’s nuclear testing. The Semipalatinsk Test Site saw the detonation of the first Soviet atom bomb and the first air-tested hydrogen bomb. The full impact of radiation exposure was hidden for years.
Kazakhstan gained independence 34 years ago, and the history it has created is its own. Kazakhstan experienced a deep recession in the mid-1990s, with the recovery at the end of that decade reaching GDP growth of 13.50%. From 1999 and for the next 13 years, the growth rate averaged nearly 8%, and then with a more mature economy growth slowed to 5-6% annually. Nominal per capita GDP is estimated at over $14k per year, and adjusted for purchasing power somewhere over $44k per year.
Green Finance Overview
With political independence, economic growth over more than three decades, a changing world and a warming global atmosphere, those two enormous ecological legacies serve as reminders of the need to tend to the environment.
In 2024, the sustainable finance segment in Kazakhstan reached an estimated value of 277.8 billion tenge (approximately $600 million to $650 million USD). This growth was driven by the issuance of green bonds and loans, with significant contributions from multilateral organizations like the Asian Development Bank and the European Bank for Reconstruction and Development. The Asian Infrastructure Investment Bank’s (AIIB) wind power pipeline in Kazakhstan complements the government’s efforts to accelerate green transition and achieve carbon neutrality by 2060. The government has implemented measures to encourage further growth, such as loan subsidies and guarantees for green bonds issued by small and medium-sized enterprises (SMEs).
Green finance instruments include social and sustainability bonds, which fund projects related to renewable energy, energy efficiency, clean transport, and sustainable agriculture. The Astana International Financial Centre (AIFC) Green Finance Center is the promotional hub for these instruments and issuers in the region.[1]
Types of green finance
Green bonds: Green bonds are a basic tool. They can be issued by international financial institutions, government-backed financial institutions, and private companies. AIFC provides external review services to verify that these bonds comply with national and international standards of what “green” means. The proceeds are used for eligible projects as defined in the national taxonomy. Prominent issuers include the Development Bank of Kazakhstan, Damu Entrepreneurship Development Fund, and private financial institutions like Halyk Bank. These bonds are regulated more strictly than traditional bonds to ensure that they serve long-term community development goals.
Green loans: These are provided by banks and development funds to finance green projects, particularly for small and medium-sized enterprises (SMEs) and individuals. The EBRD supports green loans through its Green Economy Financing Facility (GEFF).
Projects Financed by Green Finance [2]
The Kazakh national taxonomy of green projects guides the market. Projects eligible for green finance include:
- Renewable energy, such as wind and solar power plants.
- Energy efficiency improvements in industrial facilities and green buildings.
- Clean transport and infrastructure.
- Sustainable water use, waste management, and pollution control.
- Sustainable agriculture, land management, and forestry.
- Social infrastructure projects such as hospitals and schools.
Where “Green” Matters Stand [3]
Central Asia is undergoing a transformation to address the urgent challenges of climate change. Governments are adopting sustainable practices to improve environmental quality, ensure energy security, and transition to affordable, renewable energy sources. These investments promote long-term environmental and social benefits, contributing not only to the region’s economic growth but also laying the foundation for sustained social and economic well-being. Kazakhstan, the first country in the region to adopt green finance standards, has seen over twenty issues in sustainable finance to date.
Challenges remain. Higher issuance costs and complex certification and reporting requirements can deter potential issuers, particularly those that are less sophisticated or more financially constrained. There is also a lack of standardized metrics, including pricing and transparency in the use of green bond proceeds, leading to concerns over ‘greenwashing’ – a practice where the environmental benefits of projects are misrepresented. This undermines the credibility of the issuer and, potentially, of the larger market. Kazakhstan’s introduction of its national taxonomy helps address this problem. Green finance work is new worldwide and all actors are still feeling their way forward.
Perhaps the ancient nomadic culture will gift the Kazakhs of today with a heightened awareness of the ecological changes impacting their landscape, and so encourage the forces of financial services to care for it.
[1] https://gfc.aifc.kz/en
[2] https://qazaqgreen.com/en.
[3] https://astanatimes.com/2024/10/why-is-sustainable-finance-vital-for-central-asias-growth/