What are Green Bonds?

Standing for Environmental, Social, and Governance Bonds—are financial instruments that connect investors with projects driving positive environmental, social, and governance outcomes. The Baku Stock Exchange (BSE) serves as a platform for issuing and trading these bonds, helping businesses in Azerbaijan raise funds for sustainable development.

To further encourage the issuance of green bonds, the BSE offers a "Green Bond Market" classification. While this classification does not function as a separate listing segment, securities listed under the "Green Bond Market" follow the existing Rules for Inclusion in Listing and etc. As an added incentive, green bonds traded on the "Green Bond Market" are exempt from listing fees. This initiative aims to encourage more issuers to participate in sustainable finance, demonstrating BSE’s dedication to promoting green investments and supporting a sustainable future in Azerbaijan.

What is a Taxonomy?

A taxonomy is a classification system that defines clear and measurable criteria for identifying environmentally and socially sustainable activities. Azerbaijan's Green Taxonomy, developed by the Central Bank of Azerbaijan Republic (CBAR), acts as a framework for aligning investments with sustainability objectives. It ensures transparency, consistency, and credibility within the financial market, creating a roadmap for sustainable finance.

Purpose of a Taxonomy

• Standardization: Defines what qualifies as “green” or “sustainable,” providing a clear reference point for projects.
• Guidance: Helps investors, issuers, and regulators identify eligible projects for ESG funding.
• Accountability: Reduces greenwashing by setting measurable benchmarks for sustainability claims.

How it Supports Green Bonds

CBAR’s Green Taxonomy ensure that Green bonds meet strict sustainability standards by outlining:

• Eligible Projects: These include renewable energy, pollution control, sustainable agriculture, and circular economy initiatives.
• Principles: All projects must align with global frameworks like the Paris Agreement and the Sustainable Development Goals (SDGs).
• Safeguards: Projects must comply with the "Do No Significant Harm" (DNSH) principles and adhere to Minimum Social Safeguards (MSS), protecting environmental and social integrity.

Requirements and Benefits of Green Bonds at the Baku Stock Exchange

Requirements for Green Bonds on BSE:

• Green Bond Framework: Issuers must develop a framework outlining the bond’s purpose and sustainability objectives.
• Project Eligibility: The bond must finance activities aligned with Azerbaijan’s National ESG Taxonomy, such as renewable energy, pollution control, or biodiversity conservation.
• Independent Verification: Issuers are required to secure a second-party opinion or external review to validate ESG compliance.
• Transparency and Reporting: Regular updates on fund utilization and the sustainability impact of projects must be provided.
• Adherence to Regulations: Bonds must comply with all BSE listing rules and meet international ESG standards.

Benefits of Using Green Bonds Aligned with Taxonomy Objectives:

• For Issuers:
  • Access to capital for sustainable projects with favorable terms.
  • Enhanced reputation as a sustainability leader.
  • Comprehensive support from BSE, including ESG compliance guidance and post-issuance reporting.
• For Investors:
  • Transparent and impactful investment opportunities aligned with global sustainability goals.
  • Assurance of credibility through alignment with the National ESG Taxonomy and independent external audits.