The Agency for Regulation and Development of the Financial Market has developed rules for the registration of the issue of green bonds.

The financial sector will play a key role in the implementation of ESG (Environmental, Social and Governance) principles, as it provides financing for the green economy and also has an important lever to stimulate the transformation of the company taking into account the risks of ESG. This was stated by the Chairman of the Agency for Regulation and Development of the Financial Market (ARRFR) Madina Abylkasymova during the online conference "Green financing and debt capital market", the correspondent of the Business Information Center reports Kapital.kz .

The head of the ARRFR noted that currently there is already a high demand in the green bond market, which significantly exceeds the supply of green instruments.

"According to experts, the global volume of green bond issuance is currently estimated at $1.3 trillion. It is expected that sustainable financing instruments that meet the ESG principles will become the main segment of the capital market in the future," Madina Abylkasymova said.

According to her, the legal environment for the issuance of green financing instruments has been formed in Kazakhstan today. In January of this year, a new Environmental Code was adopted, which came into force on July 1. The head of the regulator clarified that within the framework of the Environmental Code, a taxonomy of green projects was introduced for the first time, a legislative definition of green financing was given, including green bonds, green loans and other financial instruments. The taxonomy itself will be approved by the government in the near future, and it will define 8 categories within which all green projects are grouped, she said.

In addition, the Agency for Regulation and Development of the Financial Market has developed rules for the registration of the issue of green bonds, which provide for the disclosure by issuers (their securities issue prospectuses) of information on compliance with the principles of green financing. The regulator has also prepared the necessary amendments for the free issuance and circulation of social and other sustainable bonds. The corresponding resolution is planned to be adopted in September of this year, the Chairman of the Board of the ARRFR explained.

"At the same time, the green finance market in Kazakhstan is currently underdeveloped, last year the Asian Development Bank placed $ 32 million, the Damu Entrepreneurship Development Fund attracted 200 million tenge at the AIX site. I think the early approval of the taxonomy of green projects, the creation of the necessary regulatory framework for the verification process of green projects will give impetus to the development of the green finance market in Kazakhstan," Madina Abylkasymova said.

Another important aspect for the regulator is the analysis and study of the impact of climate risks on financial stability, since climate change will have an increasingly increasing impact on the business model and financial stability, primarily of banks.

"Here we see different channels of influence, including changes in the financial condition of borrowers of banks, companies of the real sector of the economy as a result of the climatic anomalies. There are risks of restricting access to international capital markets if financial institutions do not implement the ESG principles, as well as accounting in rating assessments when evaluating banks' activities," explained the head of the Agency for Regulation and Development of the Financial Market.

In her opinion, regulators should encourage the transition to ESG standards at the system level, creating the necessary methodological basis. In this regard, the ARRFR plans to develop methodological recommendations and guidelines for all participants in the financial sector on disclosure of information on the degree of exposure to ESG risks, as well as the procedure for identifying and assessing the management of these risks. This will allow financial organizations themselves to better assess the impact of climate risks on their activities and identify areas for improvement, Madina Abylkasymova is sure.

Secondly, according to her, it is necessary to develop requirements for improving internal risk management systems taking into account international principles and standards. The main focus will be on integrating the principles and goals of sustainable development into the strategies and business models of financial organizations.

"Thirdly, it will also mean changes to the established requirements for corporate governance. In particular, it will require an increased degree of involvement in the ESG risk management process on the part of the boards of directors and management of financial organizations," the head of the regulator summed up.

At the same time, Madina Abylkasymova drew attention to the fact that some financial organizations have already independently started the process of implementing the ESG principles, including the Kazakhstan Stock Exchange (KASE) and the People's Bank of Kazakhstan (Halyk Bank).

"Our bank, supporting the established global trend, was the first of the Kazakh companies in the banking sector to form non-financial reports on sustainable development (ESG). The Bank has been supporting the principles and developing green financing tools in Kazakhstan for a long time. I believe that this practice should be implemented in all financial organizations, this is an important step towards greater transparency of companies and public awareness," Umut Shayakhmetova, head of Halyk Bank, said during her speech.

She also stressed that financial market participants have the opportunity to influence how quickly and effectively sustainable financing and a generally stable economy of countries will develop.

In turn, the Chairman of the Board of KASE Alina Aldambergen noted that this topic is becoming more and more relevant in the world: if in 2007 the European Investment Bank placed the first issue of such bonds in the amount of about $ 800 million, then by 2020 the issue reached $ 1 trillion. In the first half of this year, the volume of bonds placed amounted to 118 billion dollars.

"Changes in customer preferences in favor of business sustainability have created a whole new capital market. Thus, more than 2.5 thousand investment funds with a portfolio of $ 90 trillion have confirmed their commitment to the principles of responsible investment of the UN and have committed themselves to include ESG factors for investment analysis and decision-making," Alina Aldambergen noted.

At the same time, she informed that KASE is currently working together with the authorized body on the development of conditions for the issue of sustainable development bonds and the establishment of a list of organizations that will be able to conduct an independent examination of the issuer planning to register the issue of green bonds.

"We will focus on international practice, which takes into account the key elements of the principles of green bonds of the International Association of Capital Markets (ICMA) and the standards of climate bonds of the Climate Bond Initiative. The Exchange will also continue to simplify the listing conditions for issuers, we are already working on the possibility of providing benefits for the payment of listing fees for issuers of sustainable development bonds. We will strengthen our efforts to raise awareness and expand the capabilities of the corporate sector in attracting financing for social and green bonds," said the Chairman of the Board of KASE.

To consolidate all of the above, a memorandum was signed between KASE, PwC Kazakhstan and the Agency for Regulation and Development of the Financial Market during the event.

It is expected that the parties to the memorandum will join efforts to promote the principles of sustainable financing in the Kazakh financial market, as well as to support the corporate sector to finance projects in the field of sustainable development. In turn, PwC Kazakhstan will be provided with methodological support and advice on the international practice of creating ESG project financing infrastructure.