Legal Framework of Sustainable Finance

Green taxonomy of Kazakhstan

Since sustainable investments gaining momentum, there is a widely perceived need for greater certainty on the environmental sustainability of different types of investments and economic activities. In response, a number of jurisdictions, including Kazakhstan have started to legislate to create official definitions of sustainable finance and to develop sustainable (green) finance taxonomies.

A taxonomy of green (sustainable) projects as a classification is needed to provide a common understanding and approach to the identification, development and financing of green (sustainable) projects, as well as to increase investor confidence and prevent “green camouflage” – a situation where projects without environmental benefits are labelled as “green”.

The taxonomy also provides a framework for disclosure and reporting, as well as for the use of economic incentives such as interest rate subsidies and guarantees. More precise and consistent definitions of which investments are “green” and “sustainable” could facilitate investment by giving confidence and assurance to investors. Other potential benefits include easier tracking of sustainable finance flows to be able to measure them or to take a policy action such as setting incentives.

In 2021, the Green Finance Centre has developed the Green Finance Taxonomy that sets criteria for projects eligible for green financing. The Green Finance Taxonomy was adopted by the Decree of the Government of the Republic of Kazakhstan (put a link to taxonomy https://adilet.zan.kz/rus/docs/P2100000996)

Subsidies for green projects under the National project on development of entrepreneurship for 2021-25

Economic incentives for green bonds and loans – coupon and interest rate subsidies, as well as a green bond guarantee mechanism (adopted by the Government Decree of the Republic of Kazakhstan No. 43 dated February 2, 2022; operator – DAMU Entrepreneurship Development Fund).

ESG FUNDS

In a significant move towards fostering sustainable and responsible investment practices, in 2023 in the AIFC jurisdiction the regulation for the creation of Environmental, Social, and Governance (ESG) Fund was adopted. According to the ESG Fund legal framework, ESG Fund is a fund the strategy of which involves at least 70% of investments in financial instruments that comply with ESG principles.

To embed ESG Fund into current funds regulations, Astana Financial Services Authority as amended the AIFC Collective Investment Scheme Rules to introduce an Environmental, Social, and Governance (ESG) Fund as a new type of Specialist Fund.

This initiative reflects AFSA’s commitment to align with global best practices, meeting stakeholder expectations, and addressing the evolving landscape of responsible investing. Obtaining the status of an ESG Fund holds significant importance since it enables investors to support companies that prioritise sustainability and responsible practices and offers potential financial benefits and risk mitigation. More information on the ESG Fund regulations can be found following the link (put a link https://aifc.kz/files/legals/601/file/cis_a4-01.01.2024.pdf)