Progress Updates

Progress Updates

Funding of climate-related projects

Over the past 20 years and more, Armenia has received financial assistance from targeted and non-targeted climate funds to support climate change mitigation in Armenia, particularly, reduction of GHG emission, enhancing climate change adaptation potential, disaster risk reduction, as well as technology transfer, education and awareness raising in targeted areas. Specifically, climate-targeted funding has been provided to Armenia by the Global Environmental Facility (GEF) - in the amount of approximately USD 20.5 million, the Climate Investment Fund (CIF) - in the amount of approximately USD 40 million (around USD 14 million of grants and USD 26 million of concessional loans), the Green Climate Fund (GCF) - in the amount of approximately USD 23.3 million, and the Adaptation Fund - in the amount of approximately USD 4 million, for the implementation of national climate change programs.

In addition to climate-targeted funding, grants and loan resources have also been provided to support the country’s overall development, which at the same time is expected to contribute to the development of the country’s climate change mitigation and adaptation potential. For the period of 2013- 2014 the largest amount of funding - about USD 162 million annually, aimed at the country’s development and at the same time relevant to climate projects, has been provided for energy, agriculture and water sectors.

State of green finance in Armenia




Armenia is recognized as one of the most climate vulnerable countries in the region of Europe and Central Asia. Such vulnerability creates clear risks for the country’s economic and social development. This is well-reflected in the ambitious climate agenda and the Nationally Determined Contribution (NDC) of Armenia under its commitment to the United Nations Framework Convention on Climate Change (UNFCCC) and Paris Agreement.

In this context, the Armenian government also considers a further enhancement of the NDC by defining a more ambitious set of targets and by making them more actionable. In particular, this aims at strengthening the existing institutional capacity, and more importantly, enhancing the financial mechanisms available in Armenia. The government of Armenia plans to significantly scale up the availability and volume of green finance instruments in Armenia and to secure a more pro-active participation of the private sector in implementing interventions in climate adaptation and mitigation domains.

The Armenian government has already been taking decisive steps towards the establishment of green finance infrastructure in the country with the assistance of international partners. For instance, in 2019 the European Union’s new regional EU4Climate Initiative and the EBRD’s Green Economy Financing Facility (GEFF) programme, developed and co-financed with the Green Climate Fund (GCF), were launched in Armenia.

Thanks to these initiatives and those of other DFIs, a number of financial institutions in Armenia have become beneficiaries of international green credit lines and have been providing green financial products to businesses and households, locally. Government promotion, increasing awareness and available green financing have enabled growing presence of green product vendors.

As a key element of the Armenian government’s strategy to promote an enabling framework for introducing environment resilient practices, green finance has been gaining weight as a core element of an innovative and sustainable financing toolset to move Armenia onto a more sustainable development path. In recent years, in line with the international trends and the commitments undertaken for example in Paris in 2015, the Armenian government has increasingly focused on providing support for investment in clean and resource-efficient products.



Armenia has already developed a range of legal and policy frameworks on addressing issues concerning climate change and a wider set of sustainable development agenda (e.g. Strategic Development Programme of the Republic of Armenia for 2012-2025). During the period 2013-14, nearly USD 200 million per year of climate-related development finance was committed to support mitigation and adaptation actions in Armenia. The level of the committed amount was lower than the average among the countries of Eastern Europe, the Caucasus and Central Asia (EECCA) (i.e. USD 303 million per year). The allocation of funds between mitigation, adaptation and multifocal (i.e. both mitigation and adaptation) projects were relatively well balanced (29%, 38% and 33% respectively) during the period. The energy, agriculture and water-related sectors got the largest committed amounts of climate-related development finance in 2013 and 2014 (approximately USD 162 million per year, or 67.8%) in the country.

Both bilateral and multilateral providers committed significant amounts of climate-related development finance. The largest contributor was Germany, as well as the World Bank Group, the Asian Development Bank, and the European Bank for Reconstruction and Development. A diverse set of financial instruments are used to deliver climate-related development finance to Armenia, including grants, concessional and non-concessional loans and equity, while loans are an instrument most widely used in terms of the absolute amount. Loan financing dominates as an instrument to deliver climate-related finance both in bilateral and multilateral channels. The Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) provide non-concessional equity financing for mitigation projects (e.g. energy and financial sectors).

International organizations, donor agencies and multilateral development banks were also active in provision of “green financing” to Armenian private sector and households through specifically designed on-lending facilities. During last 5 years approximately 100 mln USD were channeled through Armenian commercial banks in the form of loans to the SMEs and households aimed at increasing energy efficiency and introducing of renewable energy solutions (key donors: EBRD, GGF, French Development Agency, WB and KfW). However, Armenia’s banking sector significantly under-utilizes potential of green financing, primarily due to lack of expertise (e.g. E&S Safeguards) and respective methodologies, addressing of which is the over-arching goal of this proposal. In accordance with the “2019 Joint Report on Multilateral Development Banks’ Climate Finance” Armenia has received 107 mln USD in 2019, compared with 45 and 132 mln USD in 2018 and 2017 respectively.

Synthesis of Priority Green Finance Options for Armenia



Moving towards a green and sustainable financial system is no longer a luxury but has become a requirement for continued successful operations of financial sectors in developing and transition economies across the world. The expectation is that the full integration of sustainability considerations into financial sector operations will lead to better financial decision making, enhanced financial stability, better returns for the sector, and improved capacity for long term sustainable decision making. Ultimately, if a financial sector in a  country is not prepared for a future focusing on green and sustainable lending, rather than the brown lending that is currently the norm,  then the financial institutions in that sector can expect to disappear over time and be replaced by those who have taken these challenges on board.

 A key finding of the phase one report is the absence of agreed and regulated foundations of a green financial system in Armenia. Instead, green finance in Armenia is driven bottom up by financial institutions who see a market opportunity and/or by DFIs who act in accordance with their overall mandate and Armenia country strategies in delivering support for local financial institutions and investors who want to pursue green investments and the establishment of green finance offerings.

 This situation, which has been confirmed in the phase one report as well as during our interviews, is driving the nature of the recommendations for the Armenian government and central bank regarding the next steps that will have to be taken in order to put the development of a green financial system in Armenia on a robust foundation.

Nevertheless, as shown by the nascent green financial system that is already demonstrating the potential for further growth in Armenia, there is a role and a range of actions that can be taken by financial institutions in Armenia in order to accelerate the growth of a green financial system.

These actions have been tried and tested in other markets by financial institutions in countries in the OECD but also in countries that are at an earlier stage of development. Individual banks and financial institutions will have to amend them to their specific circumstances but there is no doubt that they will be able to use them to support their own transformation towards offering higher shares of green and sustainable finance options to their clients.

Ultimately, both the public and private actions will have to proceed in parallel in order to establish a comprehensive and robust green and sustainable financial system. This is a reflection of both the urgency of addressing climate change as well as the very close interaction between the changes that can be driven by either the public or the private side.


Public Action to Establish a Green Financial System


The foundations of a green financial system, rather than those of a green financial institution, will have to be established by public actors, such as the government, and the central bank. They include rule setting to ensure that financial institutions act in ways that reflect the long-term objectives of the government in the climate area.

Governments and public actors need to understand that one of the major risks that investors consider in regard to green and sustainable investments is public policy risk. Therefore, it will be critical for governments to provide reassurance to financial institutions, investors, and the wider public, as well as donors regarding the public commitment towards the transition towards achieving the Paris agreement targets.

Examples of such actions include legislative action such as France’s Article 173, proactive engagement of multilateral and bilateral donors such as the GCF, and consideration of preferential treatment of risks that are incurred by financial institutions in pursuit of the objectives of the Paris agreement.







The Importance of Transparency and Long-Term Clarity


The transformation of any substantial sector of the economy is always a long term, multi-stakeholder process which has to take into account the baseline in the sector, as well as external and internal pressures working on it that may either mitigate or accelerate change. Conceptualizing the transition of the financial sector towards increasing shares of green and sustainable finance, while reducing and ultimately eliminating brown finance, as a multi stakeholder long term process, is critical to its success. It is inevitable for a successful transition process to be highly inclusive and be carried out in a spirit of full transparency throughout.

One important step in this regard is the development and adoption of a comprehensive road map which will need to provide both an indication of the actions to be taken, and a timeline during which they will be implemented and/or for how long they will last, for example in the case of support schemes for renewables or energy efficiency full circle. The development of such a road map in close collaboration with stakeholders is what is required to develop and maintain stakeholder confidence in the public commitment to the achievement of the Paris agreement objectives and the long-term progress of the energy transition in Armenia. Such a road map would need to be treated as a dynamic, rather than a static document, that is reviewed on a regular basis and integrates feedback loops from progress achieved in the energy transition in Armenia itself as well as technological progress , for example in developing cheaper renewable energy or energy efficiency technologies.



Public principles for Establishing a Green Financial System

The following principles have been identified as critical in developing a green and sustainable financial system in developing and emerging economies. They frame the analysis of the current situation and provide the necessary first steps to establish the foundation of the new system towards which the financial sector will have to be transitioned.

  • Analyze the existing regulatory environment;
  • Define the entry point;
  • Allow a combination of instruments to work in concert;
  • Establish the needed government incentives and regulation;
  • Require transition and climate risk disclosure;
  • Introduce an appropriate taxonomy to qualify what counts as green finance;

Public Sector Recommendations:

  Public Policy Preparation

  • Development of a comprehensive road map for the transformation of the Armenian financial sector towards green and sustainable lending;
  • Providing certainty to investors by developing long term approaches to policy support for e.g. renewables and climate mitigation; o As appropriate provision for long-term funding support for critical sectors such as buildings energy efficiency, small scale renewables, or small scale infrastructure investments in order to provide investors certainty, and reduce financing costs;
  • Development of long-term road maps and assessments to identify climate risks and sector vulnerabilities in order to provide information to the financial sector about needed investments and investment risks emanating from climate change in Armenia; and
  • Identification of priority legislative actions in order to clearly identify and provide a timeline for preparation for critical actions- but need to be undertaken by financial institutions and to allow them to build capacity for these.

  Regulatory Preparation:

  • Consideration of the establishment of frameworks to allow fintech to play a larger role in green and sustainable finance in Armenia, for example through the introduction of crowdfunding as a way to raise finance;
  • Assessment of risk frameworks to enable the preferential treatment of risks taken where these are aligned with the objectives of the Paris agreement, for example by having lower capital requirements for green lending where such an approach is possible under Basel 2;
  • Introduction of mandatory reporting requirements similar to the French article 173 law and/or transposition of TCFD requirements and
  • Introduction of regulations such as national and/or international taxonomies to identify green and sustainable investments in a way that is compatible with international approaches.

International Development Preparation:

  • Further develop cooperation with multilateral and bilateral partners in order to enhance access to donor funds and technical support to be able to provide investment support to both financial institutions (through capacity building and project preparation) and borrowers, to the provision of grants and or reduced interest rates; and
  • Proactive participation in international networks dedicated to green and sustainable finance and
  • Further develop the capacity of Armenia to access donor climate finance.


Financial Institution Actions

Financial institutions are actors in their own right, as they will have to fully integrate the risk exposure of the transition towards a green financial system into their business models. This means, for example, that credit assessments will need to take into account long term changes to business models potential for carbon pricing and other aspects that relate to expected changes from the implementation of the Paris agreement in Armenia.

They will also have to consider the requirements for becoming able to raise financing for dedicated green operations through, for example, green bonds. This will require their ability to operationalize external verification systems and to report to investors in line with emerging systems such as the green bond principles.

This reporting and potential screening of operations will feed through into lending at all levels as well as borrowing and fund-raising. It will therefore require the establishment of dedicated capacity within the financial institutions that will enable this work to be undertaken robustly and regularly. The integration of the rules and operational procedures underpinning the green financial system will have to become as integrated in financial institutions as the Basel 2 rules are today.

It will also require a different approach to risk assessment where risks that are undertaken for the common good, i.e. in line with the objectives of the Paris agreement, may have to be treated differently from ordinary risks and in particular from risks coming from exposure to the downside of the expected energy transition and climate change impacts. Such risks would include investments in non-sustainable activities including for example fossil fuel production, highly inefficient production and buildings, or investment in agricultural land or practices or infrastructure that will not be sustainable with increasing impacts from climate change.


Private principles for Establishing a Green Financial Institution

The following principles have been identified as critical in developing a green and sustainable financial institution in developing and emerging economies. They describe the actions required to transition the institution towards a heavier weight of green and sustainable lending in the institution’s portfolio and fund raising.

  • Accept that green and traditional finance will run in parallel for years;
  • Set climate finance targets and challenging KPIs for the institution to push the transition and ensure accountability;
  • Adopt an international tracking framework;
  • Be very active in bond markets in relation to climate and sustainable development;
  • Honor obligations to investors;
  • Track data appropriately and robustly;
  • Be open about risks and opportunities.
  • Build relationships;

Private Sector Recommendations:

  Strategic Preparation

  • Adoption of a long-term strategy that is aligned with the objectives of the Armenian government and the Paris agreement, and tracking the government's adopted road map for the transformation of the financial sector in Armenia towards more green and sustainable lending.

  Fund-raising Preparation

  • Adoption of international standards for the tracking of green and sustainable lending operations including the building of internal capacity;
  • Undertaking of a comprehensive risk assessment off the existing long portfolio against medium- and long-term climate change risks affecting Armenia;
  • Build long-term relationships with DFIs, investors, and development partners working with financial institutions around which the transition of the business can be structured; and
  • Upgrading reporting of operations to comprehensively inform investors about the environmental impact of the loan portfolio.

  Operational Preparation

  • Development of enhanced screening of possible lending operations against the Paris agreement objectives and climate risks;
  • Building capacity to be able to comprehensively report on the long portfolio and shift direction in landing into green and sustainable lending to become more fully aligned with the long-term direction of the international financial system;
  • Development, as appropriate, of internal project preparation and screening procedures in order to develop a better understanding of the flow of green and sustainable finance lending operations from the existing and potential client base in Armenia;
  • Utilization of a wider range of products including equity and guarantees in order to be more flexible with the provision of funding for green and sustainable projects and to balance overall risks in the transition of the lending portfolio towards green and sustainable finance; and
  • Development of new products, such as blended finance operations with donor funds, in order to grow the green and sustainable lending portfolio over time.

  International Preparation

  • Participation in international initiatives such as “Mainstreaming climate finance” or the UNEP - FI initiative to learn and become fully integrated into the international efforts to build a worldwide green and financial system;
  • development, as appropriate, of direct relationships with donors, such as the GCF, DFIs, and other potential partners including filling traffic organizations in order to be able to access funds needed for both internal transformation, capacity building, and support to clients in implementing green and sustainable lending operations.