ADB Highlights Policy Reforms Needed to Unlock Green Finance Across CAREC

The Asian Development Bank finds that while CAREC countries are increasingly embracing green finance, weak financial markets, fragmented regulations, and a shortage of bankable green projects continue to limit progress. Strengthening regional cooperation, harmonizing green finance standards, and attracting private investment will be crucial for financing climate resilience, clean energy, and sustainable economic growth across the region.

As climate change intensifies and global investors increasingly direct money toward sustainable projects, countries in the Central Asia Regional Economic Cooperation (CAREC) region face a critical challenge: how to finance a greener and more resilient future.

A recent Asian Development Bank (ADB) policy brief, drawing on research from institutions including the World Bank, Yale School of the Environment, Astana International Financial Centre, Climate Bonds Initiative, and United Nations agencies, argues that green finance could become a powerful tool for economic transformation across the region. However, significant policy, regulatory, and financial barriers continue to slow progress.

A Region Under Growing Environmental Pressure

Many CAREC countries remain heavily dependent on fossil fuels, mining, and resource-intensive agriculture. While these sectors have supported economic growth for decades, they also leave countries vulnerable to climate shocks, environmental degradation, and volatile commodity markets.

The region is already experiencing serious environmental challenges. Water scarcity is worsening across Central Asia, while air pollution continues to affect major cities such as Almaty, Bishkek, and Lahore. Climate change is expected to increase droughts, reduce water availability, and place additional pressure on agriculture, which remains a key source of employment and income in several countries.

For policymakers, these environmental problems are no longer just ecological concerns. They directly affect food security, public health, infrastructure, and economic productivity.

Why Green Finance Matters

Green finance refers to investments that support environmentally sustainable projects such as renewable energy, climate-resilient infrastructure, clean transportation, and efficient water management systems.

According to the report, green finance can help CAREC countries address growing climate risks while creating new economic opportunities. It can attract private investment, reduce dependence on public spending, and support long-term economic diversification.

This is particularly important because many governments face climate financing needs that far exceed their available budgets. Mobilizing private capital has therefore become essential for achieving climate and development goals.

The real-world benefit is clear: more green investment can mean cleaner energy systems, better water infrastructure, stronger agricultural resilience, and new jobs in emerging industries.

Progress Is Visible, But Investment Remains Limited

Several CAREC countries have already begun developing green finance markets. Kazakhstan has emerged as a regional leader through green bond issuance and sustainable finance initiatives. Uzbekistan has issued its first corporate green bond, while Georgia has expanded financing for climate-resilient infrastructure.

Despite these encouraging developments, the overall market remains small. Most countries still rely heavily on banks, while capital markets remain underdeveloped. Long-term financing options are limited, making it difficult to fund large renewable energy and infrastructure projects.

As a result, many projects continue to depend on foreign investment and support from international development institutions.

The report warns that without stronger domestic financial systems, the region could struggle to attract the scale of investment needed for a successful green transition.

Policy Gaps Are Holding Back Growth

One of the report's strongest messages is that policy and regulatory weaknesses are preventing green finance from reaching its full potential.

Different countries use different standards to define green projects and measure environmental impacts. This creates uncertainty for investors and increases the cost of doing business across borders. Many financial institutions also lack the technical expertise needed to evaluate green investments.

Another major problem is the shortage of investment-ready projects. Renewable energy and sustainability projects often face delays because of weak planning, limited technical capacity, and inadequate project preparation.

For policymakers, the lesson is straightforward: attracting green finance requires more than announcing climate goals. It requires clear regulations, strong institutions, transparent reporting systems, and well-prepared projects that investors can trust.

A Roadmap for Policymakers

The report outlines several practical steps that governments can take to accelerate green finance development.

First, countries should work together to create common green finance standards and reporting frameworks. Harmonized rules would make it easier for investors to operate across the region and increase confidence in sustainable investments.

Second, governments should strengthen project preparation and build institutional capacity so that more projects are ready for financing.

Third, expanding green credit lines and risk-sharing mechanisms could help small businesses, farmers, and rural communities gain access to funding for climate-friendly investments.

Finally, stronger environmental monitoring and data systems are needed to improve transparency and reduce concerns about greenwashing.

The broader policy implication is that green finance should be viewed not simply as an environmental tool but as an economic development strategy. Countries that build effective green finance ecosystems can attract investment, improve energy security, strengthen resilience to climate risks, and create new opportunities for sustainable growth.

For CAREC countries, the coming decade could determine whether green finance remains a niche market or becomes a cornerstone of a more resilient and competitive economy.