Republic Square, Hraparak. Yerevan, Armenia.

16 November 2023

Supporting climate resilience and economic growth: Armenia’s Sustainable Finance Roadmap

By Martin Galstyan, Governor, Central Bank of Armenia

Armenia’s Sustainable Finance Roadmap provides a blueprint of Central Bank expectations and planned actions regarding the incorporation of environmental, climate, social and governance risks into financial market processes.

                                                    Martin Galstyan, Governor

The environmental damage caused by resource-intensive and polluting growth trajectory, which we have pursued since the beginning of the Industrial Revolution, is undeniable.

While beneficial outcomes such as increased productivity, wealth, and improved living standards for society have been apparent, the economic system built around fossil fuels has caused toxic emissions, contributing to climate change and detrimental effects on human health. Pollution, the depletion of natural resources, and climate change are imposing substantial economic barriers, which have not been considered or adequately tackled in global development strategies before.

There is a growing awareness that the risks of inaction are considerable, and that a new development model can unlock great opportunities across the globe. Armenia’s sustainability vision is outlined in several core documents, and it lays out ambitious goals related to economic growth, energy diversification, ecological balance and social stability.

These sustainability aspirations have the potential to deliver strong social, environmental and economic outcomes, which will also contribute to the delivery of the Sustainable Development Goals (SDGs) highlighted in the UN 2030 Agenda.

Thus, sustainable finance has a key role to play in supporting Armenia’s economic growth while helping to reduce pressures on the environment and strengthening social and governance factors.

While the momentum from commercial banks has been highly encouraging, there is a growing realization that the entire financial system will need to join the effort to help the country pivot towards a new sustainable growth trajectory.

To realize this ambition, Armenia has embarked on developing a Sustainable Finance Roadmap through an inclusive, multi-stakeholder process. The roadmap frames and clarifies current developments, and draws on relevant international experience from the growing number of countries, which are scaling up sustainable finance across continents.

The call for sustainable finance framework stems in part from a gap between funding required for sustainable development and funding currently available. While the gap is considerable, estimating the magnitude of the sustainable funding shortfall is complicated.

Challenges include taxonomy, methodology and data issues. Going forward, the shift towards sustainability will necessitate continued availability of capital for this purpose, resulting in the demand for systemic solutions to medium- to long-term capital needs.

Barriers to scaling sustainable finance can be grouped into both financial and sustainability-related segments. Financial barriers relate to interest rates and medium- to long-term funding, challenges in access to finance and scarce alternatives to commercial bank lending. Sustainability-related barriers refer to poor awareness on sustainable finance, rudimentary sustainability finance policy framework, limited capacity within the public and private sector actors, and lack of policy alignment.

Proactively, the CBA has embarked on the development of this Sustainable Finance Roadmap, which encompasses the next steps in addressing sustainability in the financial sector. The Roadmap provides a blueprint of the CBA’s expectations and planned actions regarding the incorporation of environmental, climate, social and governance risks by Financial Market Participants into their core processes to ensure Armenia’s climate resilience and sustainable pathway for economic growth. This Roadmap is an evolving document undergoing adjustments to correspond to the changing enabling context in Armenia and internationally.

The CBA has committed to fully internalise this vision and strongly encourages financial market participants to actively engage in this journey.

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