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Journal number 1 ∘ Salome Tvalodze
Analysis of Sustainable Financial Products and Sustainable Finance Market Trends in Georgia

Expanded Summary

In recent years, the global financial landscape has witnessed a paradigm shift towards sustainability, driven by increasing awareness of environmental and social challenges. Within this context, sustainable finance has emerged as a critical avenue for fostering economic growth while addressing pressing environmental and social concerns. In Georgia, a country with a burgeoning economy and a growing emphasis on sustainability, the analysis of sustainable financial products and market trends holds significant importance.

This paper aims to provide a comprehensive examination of sustainable financial products and sustainable finance market trends within the Georgian context. By exploring the landscape of sustainable finance in Georgia, we seek to understand the extent to which sustainable financial instruments are being utilized and their impact on the broader financial ecosystem. Furthermore, we will delve into the trends shaping the sustainable finance market in Georgia, including regulatory frameworks, investor preferences, and emerging opportunities.

Through this analysis, we endeavor to shed light on the current state of sustainable finance in Georgia and offer insights into its potential implications for financial institutions, investors, and policymakers. By understanding the dynamics of sustainable finance in Georgia, stakeholders can better navigate the evolving landscape of responsible investment and contribute to the country's sustainable development goals.

The integration of sustainability principles into financial systems has become a pivotal concern worldwide, with increasing attention paid to Environmental, Social, and Governance (ESG) considerations. However, the extent to which commercial banks in Georgia disclose information about their green loan activities remains disparate, as evidenced by the annual ESG reports of thirteen commercial banks, where only seven provided data on green loans for 2022. Despite this variability, the reported volume of green loans surged by 16% compared to the previous year, reaching approximately GEL 486 million (US $180 million), with a majority still denominated in USD.

As of the end of 2022, the outstanding stock of green loans amounted to around GEL 1.4 billion (US $530 million), marking a 15% increase from the previous year. The share of green loans in the total outstanding portfolio also witnessed an upward trajectory, rising to 3.2% in 2022 from 2.9% in 2021 and 2.2% in 2020.

Moreover, the implementation of the Sustainable Finance (SF) Taxonomy, spurred by the Taxonomy Regulation, commenced among five banks, with the SF Taxonomy-aligned green loan portfolio reaching approximately GEL 881 million by December 2023, albeit still comprising less than one percent of the total lending portfolio. Sectorally, a significant portion of green loans—65%—was directed towards renewable energy projects, with a notable emphasis on hydropower projects. Additionally, 14% of green loans were allocated to green building and contraction sector and 10% to the green transport sector, reflecting a diversified approach towards sustainable financing initiatives.

Beyond green loans, the Georgian financial market has witnessed a surge in the issuance of Green, Social, Sustainable, and other Labeled (GSS+) bonds. Particularly noteworthy is the heightened activity in GSS+ bond issuance on the domestic bond market, predominantly denominated in the Georgian national currency. As of December 2023, the market saw the issuance of 11 GSS+ bonds, totaling more than USD 1 billion, underscoring a growing interest among Georgian companies in leveraging sustainable financing instruments to support their operations.