Potential for implementation of ESG practices in financial sector

More and more financial institutions in Kazakhstan are implementing the practice of preparing the ESG reporting and a system for management of environmental and social risks. Today, these measures are voluntary. However, it is planned that in the coming years they will become mandatory at the request of the financial regulator.

For Kazakhstan, it is an opportunity to increase investment attractiveness and support financial stability. Chairperson of the Agency for Regulation and Development of the Financial Market Madina Abylkassymova and Head of the International Finance Corporation IFC (World Bank Group) in Kazakhstan Khashimov Zafar spoke about how financial institutions are preparing for the upcoming changes and what opportunities are opening up for the financial sector.

– Madina Yerassylovna, in one of your interviews you have mentioned that development of the financial market based on principles of sustainable development is one of the Agency's priorities. How do you assess importance of the ESG agenda for Kazakhstan in the current economic conditions?

– Indeed, along with enhancement of stability, stimulation of economic financing, increased availability of financial services, and introduction of innovations, one of the Agency's priority tasks is implementation of ESG practices.

Given Kazakhstan's climate commitments, such as achieving the carbon neutrality and joining the Global Initiative on Methane Emissions Reduction, financial institutions play an important role in directing the capital to environmentally and socially responsible projects.

Moreover, the ESG principles remain a significant criterion to make investment decisions. This opens up new opportunities for financial institutions that are actively implementing ESG approaches to raise capital. For emerging markets such as Kazakhstan, such integration becomes especially important, as it helps building confidence in the financial system and stimulates innovation.

– Zafar Rassulovich, how is the ESG agenda developing in the global financial sector, and how do you think its implementation is progressing in Kazakhstan?

– The ESG agenda is an important part of the global financial sector and a strategic necessity for companies and financial institutions. Growing awareness of climate and social risks, tightening regulation and stakeholder expectations make ESG an integral factor in sustainable development.

International investors demand transparency in this area, and regulators are introducing mandatory ESG reporting standards. Kazakhstan, with its strategic potential in Central Asia, is taking significant steps to implement ESG principles, consolidating its status as a key player in the region.

It is truly important that Kazakhstan has become the first country in Central Asia to enshrine ESG principles for the financial sector at the regulatory level. The Agency presented the Guidelines for Disclosing ESG Information and Managing Environmental and Social Risks, opening up opportunities for a gradual transition to mandatory data disclosure.

To prepare the financial sector, training programs are conducted with involvement of international experts. Such consistent efforts help improve market transparency and simplify an access to international financing.

– Madina Yerassylovna, how do you assess the desire of the country's financial organizations to implement sustainable development standards and disclose non-financial information today?

– Financial organizations of Kazakhstan are gradually demonstrating a desire to implement sustainable development standards, and ESG is becoming an important part of their strategic approach. Organizations realize that integration of the ESG practices opens up new opportunities to attract investment, increase customer confidence and consolidate their positions in the market.

Cooperation with the regulator and other market participants helps create necessary conditions for effective implementation of the ESG principles. However, key factor remains willingness of the financial organizations themselves to adapt to new requirements and implement sustainable practices in their activities.

In 2023-2024, the Agency, with support of the IFC, developed a Roadmap for raising awareness of the financial sector in the ESG and sustainable financing. Training seminars, round table discussions and other events designed to develop expert potential were held. Leading international experts and consulting companies were involved in the work, including KPMG, E&Y, PwC, Morrow Sodali and the Central Asian Institute of Environmental Research. The training covered key ESG aspects such as reporting, disclosure standards, climate and ESG risk management, and climate stress testing. These efforts contribute to formation of a culture in which sustainable development becomes an integral part of corporate governance.

Currently, the Agency continues to develop activities to support the financial sector in advancing the sustainable development agenda.

– Zafar Rassulovich, how can Kazakhstan's ESG initiatives affect the inflow of international investment and what additional steps are needed to enhance confidence in global markets?

– Foreign investment plays an important role in economic development, contributing to modernization of the infrastructure, job creation, and introduction of advanced technologies. To successfully attract them, the country needs to meet the growing demands of the global market, where ESG factors, as we noted earlier, are becoming key to investment decisions.

Along with other countries, Kazakhstan needs to adapt to the global “green transition,” which requires not only a strategic rethinking of economic development, but also enhanced integration of the ESG principles in the financial and corporate sectors. The financial sector plays a crucial role in this process, directing capital to projects that meet the principles of sustainable development, thereby facilitating the transition to a more environmentally friendly and socially oriented economy.

Supported by extensive efforts already done in the ESG regulation, in order to further build confidence of international investors, it is important to ensure transparency of reporting, introduce independent data verification, develop sustainable finance market, and take into account best international practices in corporate governance. These steps will not only attract long-term capital, but also strengthen the country's position in the global financial market.

IFC pro-actively promotes ESG principles in the country, helping implement advanced international governance standards, develop the sustainable finance market, and create new tools to attract investment in environmentally and socially responsible projects.

Our organization supports issue of green bonds and implements educational programs for businesses and financial sector designed to improve ESG competencies. We will continue to provide support in these areas to accelerate the ESG transformation of the country and strengthen its position in the global economy of the future.

– Madina Yerassylovna, what are the Agency's further plans in terms of development of the ESG agenda?

– In the future, we plan to continue efforts on development of comprehensive strategy for sustainable financing with focus on creating conditions for effective integration of sustainable practices in the financial sector. These efforts also include updating the guidance on disclosure of information on sustainable development and climate change, subject to international standards IFRS S1 and S2. We are confident that this update will improve climate risk management and increase transparency in the financial sector.

Moreover, our efforts include development of a methodology for carbon accounting, which will help more accurately measure and manage carbon emissions. This step is important to support sustainable and environmentally responsible development, which is in line with our overall strategy towards a sustainable economy.

Overall, our approach to develop the ESG agenda is based on the desire to maintain a balance between sustainable financial practices and innovative solutions that contribute to long-term economic growth. We understand importance of efforts in this direction and are confident that through joint efforts of the financial sector and regulators, we can create conditions for a sustainable future in which environmental and social goals are integrated into business strategies and investment decisions.