Azerbaijan central bank advances green finance reforms

The Central Bank of Azerbaijan is moving to expand sustainable and green finance by strengthening regulation, improving market transparency and requiring financial institutions to integrate climate and ESG risks into their strategies, Shahin Mahmudzade, Executive Director of the Central Bank of Azerbaijan, said.

Speaking at an SDG dialogue held as part of the Islamic Development Bank Group annual meetings in Baku, Mahmudzade said the central bank had launched a Sustainable Finance Roadmap in 2023 built around four priorities: increasing the capacity of financial institutions, closing regulatory gaps, integrating ESG risks into risk management and improving market discipline.

He said Azerbaijan had developed a National Green Finance Taxonomy to align its financial market with international standards and help attract green capital.

The central bank has also introduced ESG principles and climate risk management guidelines for financial institutions, while amendments to prudential and corporate governance rules adopted in April incorporated ESG and climate-related requirements.

Mahmudzade said the central bank plans by the end of this year to develop macroprudential tools to reflect ESG and climate risks in capital planning and to incorporate transition risks into its stress-testing framework.

He added that Azerbaijan was working with international partners, including IFC, SBFN, UNDP and the Climate Bonds Initiative, on a project aimed at improving the interoperability and comparability of sustainable finance taxonomies.