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PROSPECTS FOR THE DEVELOPMENT OF GREEN FINANCING
PRACTICES THROUGH THE CAPITAL MARKET OF UZBEKISTAN
Suyunova Mohinur Nizom qizi
English Teacher, International Talent Academy
Email: mohinursuyunova33@gmail.com
Phone: +998977968992
https://doi.org/10.5281/zenodo.16833952
Abstract
The urgency of transitioning toward a green economy has brought to the
fore the role of innovative financial instruments and capital market frameworks.
For Uzbekistan, where economic reforms and sustainable development goals
converge, green financing represents both a necessity and an opportunity. This
article explores the prospects for developing green financing practices through
Uzbekistan's capital market, using insights from international organizations and
national initiatives. It identifies key achievements, institutional gaps, regulatory
needs, and strategic opportunities to mobilize green investments at scale.
Keywords:
Green financing, capital markets, Uzbekistan, green bonds,
sustainable finance, SDGs, green economy
Introduction
The global shift towards sustainable economic development has elevated
green finance as a critical tool in combating climate change and fostering long-
term economic resilience. As countries adopt climate commitments under the
Paris Agreement and the United Nations Sustainable Development Goals (SDGs),
financial systems must adapt to channel capital toward environmentally
sustainable projects. Uzbekistan, a nation undergoing significant economic
liberalization and institutional reform, has expressed strong interest in
sustainable finance. The development of green financing practices through the
country’s capital market is essential to support its environmental goals, expand
investment opportunities, and align with global best practices.
The Context of Green Finance in Uzbekistan
Uzbekistan’s commitment to a green transition has become evident through
its 2019 Strategy for the Transition to a Green Economy and ambitious
renewable energy targets. The government aims to reduce greenhouse gas
emissions and increase the share of renewables in energy production by 2030.
Despite these goals, green financing in Uzbekistan remains limited, with a heavy
reliance on multilateral development banks (MDBs) such as the World Bank and
the Asian Development Bank (ADB) to finance green infrastructure projects.
Local capital markets, although evolving, are not yet fully integrated with green
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finance mechanisms. The European Bank for Reconstruction and Development
(EBRD) has played a major role by financing over 3 GW of renewable energy
projects in Uzbekistan. Additionally, Uzbekistan issued its first SDG bond in
2021, demonstrating an initial but significant step toward integrating
sustainability into sovereign finance (Joint SDG Fund, 2021).
The Role of Capital Markets in Green Financing
Capital markets provide a platform to raise long-term funds from a diverse
pool of investors. Green bonds, sustainability-linked bonds, and green sukuk are
examples of capital market instruments that can direct investments toward
environmentally beneficial projects. For Uzbekistan, enhancing the capital
market's role in green financing could reduce dependency on foreign aid and
increase private sector involvement. The OECD (2023) emphasizes that capital
markets can complement public budgets and bank financing by tapping into
institutional investors seeking ESG (environmental, social, and governance)
compliant assets. Establishing a green bond market in Uzbekistan can help meet
infrastructure financing needs while also attracting foreign capital aligned with
sustainability standards.
Key Achievements and Initiatives
Uzbekistan has undertaken several initiatives to lay the groundwork for
sustainable finance:
SDG Bond Framework: Developed in 2021, this framework enabled the
issuance of a sovereign SDG bond, raising funds for projects in education, clean
water, health, and green transport (Sustainalytics, 2021).
Collaboration with MDBs:The EBRD and other donors have helped finance
renewable energy, including solar and wind power plants, enhancing the
country’s green infrastructure base.
Green Economy Financing Facility (GEFF II):Supported by the EBRD, GEFF
II channels green credit through local banks to businesses and households
investing in energy efficiency and renewable technologies.
These early successes illustrate a growing recognition of green finance's
importance. However, broader market-based instruments such as green bonds
and ESG disclosure standards remain in nascent stages.
Challenges in Developing Green Capital Markets
Despite notable progress in green finance, Uzbekistan faces several
structural and institutional barriers that limit the effective development of green
capital markets:
Lack of Green Taxonomy:
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Uzbekistan currently lacks a national green taxonomy—a standardized
classification of environmentally sustainable economic activities. This gap
creates uncertainty for issuers and investors about what qualifies as a green
asset, leading to concerns over "greenwashing." According to the OECD (2023),
the absence of a taxonomy limits the scalability of green financial products, as
market participants cannot reliably identify or report on green investments.
Regulatory Gaps:
Uzbekistan’s capital market regulations do not mandate ESG disclosure,
third-party verification for green bonds, or sustainability reporting. The Capital
Market Development Agency has initiated discussions on ESG reforms, but no
binding frameworks are currently in place. As a result, only a few companies
voluntarily publish sustainability-related information, making it difficult for
investors to assess environmental risks and compliance.
Investor Awareness and Capacity:
A 2022 survey by the EBRD and IFC found that over 70% of domestic
institutional investors in Uzbekistan had limited or no familiarity with green
finance instruments such as green bonds or ESG funds. Financial institutions
also lack training and tools for assessing environmental risk in investment
portfolios. This low awareness hinders demand for green products and impedes
market development.
Limited Secondary Market Liquidity:
Uzbekistan's secondary capital market remains underdeveloped. As of
2024, the Tashkent Republican Stock Exchange had a total market capitalization
of approximately USD 5 billion, with green or sustainable securities accounting
for less than 1%. Thin trading volumes and limited participation by institutional
investors reduce the attractiveness of long-term securities, including green
bonds, and raise concerns about exit options for investors.
Additional Insight:
According to the Climate Bonds Initiative (2024), countries with successful
green bond markets typically have strong investor demand, clear green
certification processes, and active secondary markets—all of which are
currently weak or missing in Uzbekistan.
International Experience and Lessons for Uzbekistan
Uzbekistan can draw valuable lessons from international experiences
where strategic reforms and innovations in green finance have accelerated
sustainable investments.
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Indonesia:
Indonesia has successfully positioned itself as a leader in sovereign green sukuk
issuance. In 2018, it launched the world’s first sovereign green sukuk worth
$1.25 billion, which was oversubscribed, demonstrating high investor demand.
The proceeds funded projects related to renewable energy, energy efficiency,
climate-resilient agriculture, and sustainable transportation. By 2023, Indonesia
had issued several tranches of green sukuk, totaling over $5 billion, helping to
diversify its investor base and integrate Islamic finance with green objectives.
Kazakhstan:
Kazakhstan established the Astana International Financial Centre (AIFC) in
2018, which includes a dedicated Green Finance Centre (GFC). The GFC provides
certification for green bonds, offers technical assistance to issuers, and promotes
the use of the Kazakhstan Green Taxonomy adopted in 2022. A landmark
achievement was the issuance of Kazakhstan’s first green bond by Damu
Entrepreneurship Development Fund in 2020, worth KZT 200 million, used to
finance environmentally sustainable small business loans.
China:
China has built the world’s largest green bond market, driven by strong
regulatory frameworks and government support. The People’s Bank of China
and the China Securities Regulatory Commission jointly issued green bond
guidelines and mandated ESG disclosures for listed companies starting in 2020.
One notable example is the Bank of China’s multiple green bond issuances across
different currencies—including USD, EUR, and RMB—to fund solar, wind, and
pollution control projects. In 2022 alone, China issued over $100 billion in green
bonds, backed by a well-defined Green Industry Guidance Catalogue.
These examples demonstrate that:
Sovereign green issuances can attract a global and diverse investor base.
Institutional infrastructure such as finance centers and taxonomies are key
to scaling green finance.
Regulatory mandates and clear classification systems are crucial for market
confidence and growth.
Strategic Recommendations
To develop a vibrant green capital market and unlock sustainable
investment opportunities in Uzbekistan, the following strategic actions are
recommended:
Develop a National Green Taxonomy
-a green taxonomy is a classification
system that defines which economic activities are environmentally sustainable.
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Example:
The
European Union
adopted a comprehensive green taxonomy to
guide sustainable investments across its member states. Similarly,
Kazakhstan
introduced a national taxonomy in 2022 through its Green Finance Centre (GFC).
For Uzbekistan:
The government should establish a national taxonomy tailored
to local priorities, such as renewable energy, sustainable agriculture, and water
management. This will reduce confusion for investors and prevent
greenwashing.
Establish a Regulatory Framework for Green Bonds-
green bond
issuance requires a clear regulatory framework to ensure credibility and
investor
trust.
Example:
In
China,
the People’s Bank of China and other authorities have set
mandatory green bond regulations and third-party verification procedures.
For Uzbekistan:
The Capital Market Development Agency should adopt
guidelines for green bond issuance, including requirements for third-party
certification, use-of-proceeds disclosure, and impact reporting.
Incorporate ESG Disclosure Requirements into Financial Reporting
-
mandatory Environmental, Social, and Governance (ESG) reporting enables
investors
to
evaluate
sustainability
risks
and
performance.
Example
:
Singapore
mandates ESG reporting for listed companies on the
Singapore
Exchange,
helping
to
attract
sustainable
investors.
For Uzbekistan:
Regulatory bodies should require ESG disclosures from public
companies and financial institutions to promote transparency and
accountability.
Build Capacity for Green Finance Across Institutions
-education and
training are essential for regulators, banks, issuers, and investors to understand
green financial instruments.
Example:
The
Asian Development Bank (ADB)
supports capacity-building
programs
on
green
finance
across
Asia-Pacific
countries.
For Uzbekistan:
Training sessions, certifications, and technical assistance
should be provided in partnership with institutions like the ADB, OECD, and
EBRD.
Create Incentives for Green Bond Issuance-
financial and regulatory
incentives can stimulate private sector participation in green finance.
Example:
Indonesia
provided tax incentives for its green sukuk bonds,
attracting diverse investor interest.
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For Uzbekistan:
Tax exemptions on green bond returns, reduced listing
fees, or partial government guarantees can encourage more issuers to enter the
market.
Strengthen Secondary Market Infrastructure
- a liquid secondary market
allows investors to buy and sell green bonds easily, increasing market
attractiveness.
Example:
The
Luxembourg Green Exchange (LGX)
offers a dedicated platform
for green securities trading, improving transparency and access.
For Uzbekistan:
The Tashkent Republican Stock Exchange can create a
dedicated green securities segment and encourage participation by institutional
investors.
Foster International Partnerships and Technical Assistance
-
international cooperation is vital for knowledge sharing, investment attraction,
and best practice adoption.
Example:
The
EBRD’s Green Economy Financing Facility (GEFF)
in
Uzbekistan has provided credit lines for green technologies through local banks.
For Uzbekistan:
Continued collaboration with the EBRD, World Bank, IFC, and
OECD can support the development of green financial instruments and
regulatory reforms.
Conclusion
Uzbekistan stands at a critical juncture in aligning its economic
development with environmental sustainability. Capital markets offer a viable
channel for mobilizing the scale of financing needed to support this transition.
While early steps such as the SDG bond issuance and green credit lines mark
progress, sustained efforts are required to build a comprehensive ecosystem for
green financing. By strengthening regulatory frameworks, enhancing investor
engagement, and learning from global best practices, Uzbekistan can unlock the
full potential of its capital market to support a resilient and green future..
References:
1.
OECD (2023). Financing Uzbekistan’s Green Transition: Capital Market
Development and Opportunities for Green Bond Issuance. OECD Publishing.
2.
EBRD (2024). Uzbekistan renewable energy and green finance overview.
https://www.ebrd.com
3.
Joint SDG Fund (2021). Uzbekistan’s First SDG Bond Allocation and Impact
Report. https://www.jointsdgfund.org
4.
Sustainalytics (2021). Republic of Uzbekistan SDG Bond Framework -
Second Party Opinion. https://www.sustainalytics.com
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5.
Climate Bonds Initiative (2024). Green Bond Market Summary.
https://www.climatebonds.net
