BAKU, Azerbaijan, May 14. Actions of the Central Bank of Azerbaijan (CBA) in the field of sustainable finance within the framework of the strategic goals set for 2026 target strengthening sustainability in the financial sector, effectively managing climate risks, and promoting green financial flows, the sustainable financial report of the Central Bank of Azerbaijan (CBA) says, Trend reports.
The CBA's goals for the implementation of the Sustainable Finance Roadmap are as follows:
1. Capacity building in sustainable finance: In this direction, it's envisaged to develop and implement specialized training programs in order to increase knowledge and skills in the field of sustainable finance in the banking sector. The trainings will be organized within the framework of cooperation with international organizations and will provide an opportunity to learn and apply advanced global practices. Besides, through the expansion of membership and cooperation with international organizations, the institutional capacity of the banking sector will be strengthened, and the application of modern approaches and standards in the country will be promoted. In this context, it's aimed to systematically develop the knowledge base of financial institutions on sustainable finance through seminars, workshops, and methodological support mechanisms.
2. Formation of an ecosystem for sustainable financial flows: Comprehensive measures will be taken to form an appropriate ecosystem to promote sustainable financial flows. This includes the preparation of a legislative framework in accordance with international standards for the development of the green bond market, the definition of emission and reporting requirements, as well as the application of incentive mechanisms.
Moreover, in order to strengthen the sustainability of the insurance sector, an Action Plan on Sustainable Insurance will be developed, and the implementation of climate risk management and Environment, Social, and Governance (ESG) criteria will be promoted. These measures will serve to increase sustainable investments and the sustainable development of the financial sector.
3. Integration of climate change and ESG factors into risk management: In order to strengthen the integration of ESG risks in the banking sector in 2026, an ESG guideline will be developed in accordance with the ESG Risk Radar Tool project framework, and the integration of Risk Radar results into credit decisions will be determined. At the same time, awareness-raising activities will be held for banks, and credit analysis questions for the construction sector will be completed within the framework of the pilot project. After the final report on the Risk Radar Tool is prepared, measures will be taken to integrate the tool into prudential policy.
In addition, stress tests on transition risks are planned to be carried out in order to comprehensively assess the resilience of the financial system to climate risks. In the initial stage, a top-down approach will be applied to systematically analyze the transmission channels of transition risks arising from factors such as climate policies, carbon pricing, and technological transformation to the banking sector through macroeconomic indicators.
Within this framework, scenarios will be formulated for key macroeconomic variables (economic growth, inflation, interest rates, etc.), and the impact of these scenarios (Annex 1) on the financial stability indicators of the banking sector will be assessed. Specifically, the impact of transition risks on banks' asset quality, the dynamics of non-performing loans, the sensitivity of loan portfolios by sector, and their possible impact on capital adequacy will be measured through quantitative models.
In addition, based on the results obtained, the sensitivity of the banking sector to climate risks will be determined, potential systemic risks will be assessed, and, if necessary, substantiated proposals will be prepared to improve prudential policy instruments.
4. Ensuring transparency and market discipline in financial markets: Within this framework, an annual report on sustainable finance will be prepared, and a unified methodology will be developed for the disclosure of sustainability indicators. In addition, an appropriate legal framework will be developed to ensure the integration of greenhouse gas emissions data into the Central Credit Registry, which will allow financial institutions to boost the efficiency of sustainable investment and lending decisions.
These actions will serve to more systematically implement sustainable development principles in the financial sector and more effectively manage climate risks from the perspective of financial stability.
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