Publication Details
Abstract
In banking, financial sustainability is the ability to earn profit that will offset the cost of capital, shocks and growth without a state bail-out. It is difficult to imagine that the above result can be achieved in commercial banks of Uzbekistan. The state still has nearly two-thirds of the institutions’ assets, less than half of the deposits show up on the overall balance sheet, and a large portion of the loans is in sectors with high transition risk. In this article, the author will explore how environmental, social and governance principles can be used as a tool for financial sustainability and cannot simply be considered as a disclosure effort. The study introduces five transmission channels through which integration of ESG reaches bank balance sheets, based on Central Bank of Uzbekistan financial stability data, financial sector assessment, conducted jointly by the IMF and World Bank, and literature survey of empirical studies of banking. They include the diversification of funding, the risk of credit losses, efficiency of capital usage, control over operating costs and the quality of governance. Results of thematic debt issuance in Uzbekistan show pricing benefits already become tangible. The policy recommendations cover taxonomy enforcement, sequencing of disclosures, supervisory expectations, and building a data infrastructure for climate risks.