High-Level Policy Dialogue Addresses Climate Change Risks in CAREC Region

Tbilisi, Georgia: The 2023 Economic and Financial Stability Cluster High-Level Policy Dialogue was held on June 14 in Tbilisi, Georgia. The event, jointly organized by the Asian Development Bank (ADB), International Monetary Fund (IMF), and World Bank (WB) explored policy options for promoting sustainable finance to achieve green growth in the Central Asia Regional Economic Cooperation (CAREC) region.

In his keynote address, Mr. Selim Cakir, Senior Resident Representative of the IMF, highlighted the significant physical and transition risks faced by the financial sector in the CAREC region. He noted that the region has high climate-related investment needs, and that domestic financial sectors have the potential to support the transition to a green economy. However, he also warned that these sectors are vulnerable to climate change risks.

Mr. Cakir pointed to the rising frequency and costs of climate disasters, as well as the limited buffers to deal with climate shocks due to low insurance penetration. He also underscored the challenges of transitioning to a low-carbon economy in the CAREC region, due to the region’s high reliance on carbon-intensive industries and limited investments in renewables.

Mr. Cakir proposed key measures to address these challenges, including creating an enabling environment for climate risk assessment and developing private green finance. He also highlighted the need for better measurement and understanding of climate risks, promotion of climate risk data disclosure by financial institutions, and enhancement of climate risk models and forecasting.

The policy dialogue facilitated meaningful discussions among senior officials from finance ministries, central banks, and other stakeholders from CAREC countries, along with representatives from ADB and IMF. It provided an opportunity to exchange experiences and insights on specific climate change risks faced by different countries and propose effective policy options.

The dialogue emphasized the significance of regional cooperation through CAREC in helping member countries respond to these risks and explore opportunities for green growth.

Ms. Emma Fan, Director of the Public Management, Financial Sector, and Regional Cooperation Division at ADB, moderated a Q&A session following the event. She highlighted the various risks associated with climate change, including greenwashing, green bubbles, and green slack, emphasizing the need to address them effectively. Ms. Fan noted that the challenges faced are huge and unique in every country but also present opportunities for innovation. She further stressed the linkages between different segments of the financial sector and the critical linkage between the financial sector and the economy. Ms. Fan emphasized the need for systems and tools to keep pace with evolving requirements, including taxonomy disclosure, independent verification, stress tests, and regular updates and upgrades. These measures are essential for addressing challenges and seizing opportunities in the current financial landscape.