National Bank of Georgia headquarters in Tbilisi © Oleksandr Burlaka
Georgia faces increasingly complex policy trade-offs, needing to balance economic development with the pressing environmental and social challenges posed by climate change. The country’s rising vulnerability to climate-related risks—such as frequent droughts in the east and flash floods in the west—is already destabilising critical sectors like agriculture and energy, threatening the country’s economic stability. Prolonged droughts have reduced agricultural yields, while flooding has damaged infrastructure and displaced communities.
These disruptions underscore the pressing need for comprehensive reforms that integrate climate adaptation into Georgia’s economic strategy.
A key element of this transformation is the restructuring of financial architecture to mobilise private capital for green and inclusive growth. However, creating an environment that attracts and retains this capital requires strong regulatory frameworks that instils investor confidence in the long-term sustainability of such investments.
This is where Georgia’s central bank, the National Bank of Georgia (NBG), plays a crucial role. And while the NBG has made significant progress in developing Georgia’s green finance strategy, it can do more to improve the country’s approach to climate adaptation.
Laying the groundwork for sustainable green finance
As Georgia’s central financial authority, the NBG has laid the groundwork for sustainable finance through initiatives like the sustainable finance roadmap and the sustainable finance taxonomy.
The central bank’s sustainable finance roadmap, first introduced in 2020, serves as a key guiding document for Georgian banks, financial institutions, and other stakeholders in the financial sector. It outlines strategic actions to integrate environmental considerations into the financial system. The document emphasises critical areas such as the development of green loans, ESG reporting, and setting criteria for sustainable investments. As an important approach to mainstreaming green finance in Georgia, the roadmap provides clear policy recommendations aimed at achieving long-term economic sustainability while maintaining financial stability in the face of increasing environmental challenges.
These frameworks serve as essential tools for Georgian banks and financial institutions, offering clear guidelines for aligning lending practices with sustainability goals. Recognising the critical role of ESG in financial markets, Georgia’s central bank introduced comprehensive ESG guidelines in December 2023, mandating financial institutions to disclose their climate-related risks and align their portfolios with sustainability objectives. These steps are critical in attracting both domestic and international capital to support Georgia’s transition to a low-carbon economy.
The NBG has also made significant contributions to Georgia’s green finance strategy by developing the green bond market. In 2022, this led to the country’s first corporate green bond issuance of US$80mn. This bond is the largest domestic corporate green bond placement in Georgia to date, focusing on renewable energy projects to boost Georgia’s energy security and sustainability.
Meanwhile, the NBG’s membership in the Network for Greening the Financial System (NGFS) has led to progress in areas such as incorporating climate risk scenario analysis and climate-related financial disclosures into its regulatory framework.
Where the NBG could do better
Despite these advancements, significant challenges remain. Currently, green loans represent less than 1% of total bank lending in Georgia, highlighting the need for broader adoption of the sustainable finance taxonomy by Georgian banks. While the issuance of green bonds and loans marks a solid start, the NBG should consider introducing more innovative instruments. For example, sustainability-linked bonds which would tie financial returns to specific environmental targets. This could help diversify the green finance market and attract a wider range of investors.
To further strengthen the green bond market, the NBG could follow the example of central banks like the European Central Bank, which has incorporated climate risk assessments into its collateral frameworks and asset purchasing programmes. Such initiatives could deepen market liquidity and create a favourable environment for future green bond issuances, ensuring the long-term viability of Georgia’s green finance strategy.
The central bank could also strengthen its approach by introducing more rigorous enforcement mechanisms to prevent superficial adherence to ESG principles—commonly referred to as greenwashing. Implementing a double materiality approach, which assesses both financial and environmental outcomes, would ensure more meaningful compliance and deeper integration of sustainability across financial practices. Double materiality is a promising intervention point under conditions of superficial compliance and makes a strong case to ensure transparency.
And for NBG’s NGFS membership to have a more tangible impact, it could better integrate NGFS guidelines into its monetary and fiscal policies—such as introducing green lending facilities or offering incentives for banks that meet ESG standards, following the example of more advanced markets.
Another critical gap is the lack of awareness surrounding green financial products among consumers and businesses. To address this, the NBG could launch public education campaigns to promote the benefits of green finance, thus increasing demand.
NBG vice governor Ekaterine Mikabadze has emphasised the country’s progress and the NBG’s commitment to advancing the sustainable finance framework, but acknowledged that continued coordination between central banks, ministries of finance, and capital market regulators is essential for attracting the level of investment needed for sustainable development. Looking ahead, the NBG’s planned 2024 sustainable finance roadmap offers a promising pathway for expanding green finance products and incorporating climate risk assessments into policy tools.
Looking ahead
By strengthening partnerships with international financial institutions and leveraging its NGFS membership, the NBG can ensure that Georgia’s financial system not only supports the country’s transition to a low-carbon economy but also sets an example for other emerging markets.
Central banks, including the NBG, have a crucial role to play in sustainably managing their assets, using strategies like negative screening (excluding harmful assets), best-in-class selection, and integrating environmental, social, and governance (ESG) criteria into portfolio management. A recent paper co-authored with PMCG, which I contributed to as a peer reviewer, suggests that central banks should adopt such practices both to mitigate the material and reputational risks that may come from inaction and to set an example for other central banks. It also outlines a hands‑on portfolio management approach for central banks.
National strategies to define a green transition must ultimately be led by governments. But the alignment of monetary and supervisory tools with these frameworks is essential and a necessary precursor to achieving global climate and biodiversity targets and preserving the functioning of our planet’s most critical ecosystems.
This page was last updated October 24, 2024
Written by
Sneha Yadav began her career at JPMorgan Asset Management and has previously served as the International Head of Green Finance at Positive Money UK and a Policy Researcher at the Grantham Research Institute. She has since developed a strong focus on green finance, sustainable finance, and climate finance, establishing herself as an expert in these areas. She holds an undergraduate degree in engineering from India and a Master's in Public Policy (with distinction) from the London School of Economics and Political Science.
