This article was written by Nigina Abdurakhmonzoda, Director of the Agency of Securities and Special Registration of the Ministry of Finance of the Republic of Tajikistan

Today, international ESG principles, based on three interrelated components - ecology (Environmental), social policy (Social) and corporate governance (Governance), are becoming increasingly popular.

In a broad sense, this is the sustainable development of commercial activities, which is built on the following principles:

responsible attitude towards the environment;

high social responsibility;

high quality corporate governance.

According to experts, in the near future, global funds will stop investing in companies that ignore the principles of sustainable development.

Environmental principles define how much a company cares about the environment and how it tries to reduce the damage it causes to the environment.

Social principles show the company's attitude towards its staff, suppliers, clients, partners and consumers. To comply with the standards, a business must work on the quality of working conditions, monitor gender balance or invest in social projects.

ESG is important because socially conscious investors now use ESG criteria to screen potential investments. ESG helps identify and manage risks, enhance social responsibility, improve long-term sustainability, meet stakeholder expectations, navigate and comply with regulations, and improve access to capital.

ESG opens up new marketing opportunities for businesses and helps take the relationship between producer and consumer to a new level. Addressing environmental, social and governance issues can be used to position an organization as a responsible business with a positive social impact.

Globally, investors increasingly believe that companies with good ESG performance are less risky, better positioned for the long term and better prepared to cope with uncertainty.

Modern society has begun to impose additional requirements on the activities of companies and, in addition to financial reporting, has begun to evaluate them from the point of view of investing in sustainable development. To be considered successful, a company must demonstrate not only sustainable growth in its financial indicators, but also have a certain reputation. ESG support allows a company to improve its reputation and increase brand recognition.

Environmental, social and corporate governance issues have become important factors in investment decisions that responsible investors have begun to use on a regular basis when building their portfolios.

Investors have realized that investments must be assessed based on their impact on society and the environment, and that this impact must be responsible and lead to positive outcomes.

Recently, the global financial market has been replenished with new green,social bondsand sustainable development bonds.

There is a significant expansionESG investmentsfor allworld as organizations and individuals increasingly recognize the interdependence between social, environmental, and economic issues. The COVID-19 pandemic has particularly contributed to this trend.

Market disruption and uncertainty,caused by the pandemic in 2020, forced many investorsinvestors are turning to ESG funds to boost sustainability. In fact, US$45.6 billion was poured into these funds globally in the first three months of 2020. There are currently US$30.7 trillion in sustainable investment funds worldwide, and it is projected that this amount could grow to around US$50 trillion over the next two decades. More investors are looking to fund organizations and products that support and promote sustainability and comply with new regulations, such as climate change regulations. This demand has been met by greater action on ESG issues in the business world, as well as gradually higher returns on investments in ESG funds due to their resilience to normal market disruptions. Portfolios that incorporate ESG and sustainability also often perform better over the long term than those that do not. This boom in ESG investing can be attributed to a number of factors. Assupply chainsbecome moree complex, there is growing awareness of social, labour and human rights issues and risks to the business world. Growing concerns about environmental issues such as climate change are also influencing investor decisions. Increased participation of groups previously less involved in traditional investing, particularly youth and women, is also thought to have contributed to the boom in ESG investing. To reflect these changing societal values and norms, it is important for organisations to adopt forward-looking ESG practices if they are to remain competitive in their industry and contribute to the common good.

The Securities and Special Registration Agency needs to establish new government regulation that will allow companies to attract low-cost funding for ESG projects, and also consider the issue of government support for investment projects that meet ESG criteria in accordance with international standards. Today, government organizations can issue “green” bonds that will finance various national projects.

Currently, we are closely collaborating with development partners to study global experience, develop amendments and additions to current legislation, and prepare new regulatory legal acts to regulate the securities market.

The world has changed, and we must change with it. Today, the agenda of sustainable development goals no longer seems like recommendations for achieving a prosperous future, but is becoming an applied tool for the state, business and civil society to conquer social, environmental and economic heights for all interested participants.

The new state of the economy in general and the investment and financial system in particular under the influence of ESG transformation requires strengthening the regulatory policy in this area.The country is gradually implementing the Strategy for the Development of the Green Economy in the Republic of Tajikistan for 2023-2037, which defines the following as some of the goals for the development of the green financing market:

-development of methodological recommendations for the classification of financial instruments aimed at financing green growth;

  • participation of Tajik banks in green investment markets;

-development of state investment projects in the field of "green" economy and their presentation to international financial institutions and business partners;

  • creation of a Green Investment Fund with the attraction of foreign capital;

  • raising funds through the green bond mechanism for the construction of power plants and stations based on renewable energy sources;

-operation of the Central Asian Stock Exchange in the global and regional green bond markets;

  • creation of specialized public and private financial institutions (organizations) for financing green projects.

It is also important to note the need to create an independent assessment mechanism, the tools of which are verification, ratings, and certification. The use of these tools by companies will send the right signal to investors and the market, which also directly affects ESG indicators and further decision-making.

ESG investments in Tajikistan are still in their infancy. The country currently lacks awareness of the possibilities of ESG investing. The emergence of demand for such instruments from investors, in turn, will generate interest from companies in complying with ESG requirements.

First of all, hydropower projects could be of interest as potential issues of “green” bonds in Tajikistan.

Issuers who want to comply with ESG requirements are required to operate in a socially responsible and environmentally friendly manner. For example, they must:

• reduce air, water and soil pollution; sort and recycle waste; rely on renewable resources and alternative energy sources; stop using natural fur in their products and stop animal testing.

• Create decent working conditions for employees; increase benefits for clients; support various charitable, educational, sports and public organizations; create our own public initiatives.

• use ethical business practices; ensure transparency of activities and gender diversity in the team; improve the quality of company management.

As noted The Founder of Peace and National Unity - Leader of the Nation, President of the Republic of Tajikistan, esteemed Emomali Rahmon in his annual Address to the Parliament of the Republic of Tajikistan "On the Main Directions of Domestic and Foreign Policy of the Republic of Tajikistan" dated December 28, 2023: "In order to attract domestic and foreign capital, it is necessary to take the necessary measures to develop the securities market, especially "green" securities and the secondary market." This instruction emphasizes the importance of work on developing the capital market infrastructure in our country, which is also in line with the main goals of the forum to deepen cooperation in this area.

In this regard, I would like to note that at present, we are working intensively in this direction and the Agency for Securities and Special Registration of the Ministry of Finance of the Republic of Tajikistan has managed to achieve positive results and solve a number of tasks set before us. In this direction,diagnostic study of the state of the capital market and legislation on regulation of the securities market in the Republic of Tajikistan, organized regular issues of government bonds on the platform of the Central Asian Stock Exchange of the country with yield on market terms, and registered the first issue of corporate "green" bonds in the Republic of Tajikistan in accordance with ESG principles, established fruitful cooperation with international development partners. Thus, on June 27, 2024, in the capital of the United Arab Emirates, the city of Abu Dhabi, a ceremony was held to sign a memorandum of understanding on cooperation and assistance between the Securities and Commodities Agency of the United Arab Emirates and the Securities and Special Registration Agency of the Ministry of Finance of the Republic of Tajikistan. Also, within the framework of cooperation between the SCO countries and China, on October 22, 2024, in Tsingtao, People's Republic of China, a Memorandum of Cooperation was signed between the center for international commodity trade, the Asia-Europe Exchange of the People's Republic of China, and the Agency for Securities and Special Registration of the Ministry of Finance of the Republic of Tajikistan.

Our Agencyand will continue to make every effort to further accelerate the pace of development of the financial sector, create favorable conditions for the issue of government and corporate “green” bonds, attract ESG investments, domestic and foreign capital to the stock market, as well as compliance with ESG principles in accordance with international standards, which will certainly have a positive effect on the growth of the country's economy.

Please allow me to inform you that the Agency for Securities and Special Registration of the Ministry of Finance of the Republic of Tajikistan is the authorized state body for regulating the securities market, implements a unified state policy in the securities market, regulates and supervises the activities of entities in the securities market, ensures the protection of investors' rights, as well as other tasks defined by the legislation of the Republic of Tajikistan.

It should be noted that as of October 1, 2024, 19 professional participants in the securities market operate in Tajikistan, including:

  • 12 companies engaged in intermediary activities;

  • 1 central depository (CJSC “Central Depository”);

  • 4 registrars of shareholders;

  • 2 stock exchanges.

JSC Central Asian Stock Exchange (CASE) cooperates with leading global stock exchanges such as the London Stock Exchange, Tokyo Stock Exchange, Moscow Exchange (MOEX), and Kazakhstan Stock Exchange (KASE).

The stock exchange trading platform of the Central Asian Stock Exchange OJSC lists shares of 43 issuers and corporate bonds of 3 issuers, the total capitalization of securities is 6,500,000,000 (six billion five hundred million) somoni.