Advancing Private Sector Climate Readiness in Central Asia

The study explored two questions: (i) To what extent do private sector firms integrate and apply ESG regulations in their operations in Central Asia? and (ii) What are the obstacles and opportunities for introducing ESG regulations in the region?

Adopting ESG regulations was presented as having value-creating potential. These regulations can improve internal firm operations, enhance reputation, open new opportunities, attract foreign capital, and facilitate entry into foreign markets. However, as of 2025, the regulatory infrastructure for ESG promotion remained at the early development stage in Central Asia.

Carbon regulation instruments, such as emissions trading systems or carbon taxes, had not been implemented across the region, except for Kazakhstan which is regarded as the regional leader in ESG reporting implementation. It adopted mandatory ESG reporting for financial institutions starting 1 January 2025. In 2023, voluntary reports were published by approximately 57% of companies registered on the Kazakhstan Stock Exchange.

Using the ESG framework, the study explored the adoption and promotion of green finance instruments and risk disclosure practices by private sector firms and banks in Central Asia. It examined and mapped existing climate change risk assessment methodologies and identified measures and strategies used by private firms to disclose climate-related risks within their asset portfolios. It also assessed the extent to which ESG regulations were incorporated into the strategic planning of private firms and banks.

The study was based on both primary and secondary data collection and analysis. Secondary data include existing academic and grey literature sources focusing on decarbonization, ESG policies, and practices across Central Asia.

Primary data collection consisted of a survey of 167 medium-sized and large private firms in Central Asia across the infrastructure, energy, finance, light and heavy manufacturing, trade, and construction sectors. The survey—conducted in 2023–2024—included 66 firms from Kazakhstan, 19 from Kyrgyzstan, 19 from Tajikistan, 36 from Turkmenistan, and 27 from Uzbekistan.

Only private firms were included and none were listed on a stock exchange. The study focused only on firms for which ESG requirements were voluntary but could become mandatory. Firms ranged in size: 5-10 employees (49 firms); 10-30 employees (102 firms); 30-100 employees (16 firms) and were selected using a combination of random and convenience sampling strategies.

Survey results showed that 65% of the firms strongly agreed that climate risks and ESG regulations would significantly affect their operations in the next 5–7 years (Figure A). Yet, awareness of medium- and long-term exposure to climate-related financial risks remained low.

Most local investors had limited understanding of asset exposure to climate risks and how to apply ESG tools. Only 39% of firms used risk assessment and due diligence mechanisms.

Figure A. Will Climate Risks/ESG Strongly Affect Operations of Your Firm Within the Next 5–7 years?

Source: Author.

An overwhelming 90% of firms did not have established sustainability and compliance practices. More than half (58%) lacked risk management plans and strategies, reducing their ability to anticipate and manage risks effectively. The severe gaps in ESG reporting and compliance need to be addressed to ensure that private sector remains competitive both domestically and internationally. A more positive insight noted a growing interest in adopting more proactive approaches to environmental regulations.

The survey showed that company-level social standards were more advanced than the governance and environment dimensions of ESG. Most firms have adopted or planned to adopt best employment practices and social policies.

The majority of firms (97%) set salaries in line with average market rates while 88% provided equitable basic pay for both women and men.

Unlike climate- and environment-related regulations, labor, and social norms are embedded in labor codes and enforced by government institutions in the region since the early 1990s.

The private sector in Central Asia needs to be more actively involved in achieving national carbon neutrality objectives. ESG requirements can enhance private sector participation in carbon neutrality activities.

Governments could set measurable targets to achieve ESG standards by private firms. They could develop and adopt a clear timeline for transitioning from voluntary to mandatory ESG requirements for private firms, starting with large firms and then including medium-sized ones.

ESG-related standards need be adjusted according to the company’s industry, size, and geographic location. Governments can set clear targets for carbon reduction and align them with the UN SDGs.

Energy firms should be encouraged to develop decarbonization strategies related to ESG requirements. Similarly, banking institutions should be equipped with climate risk assessment mechanisms when issuing loans and credits.

Since most local investors have low awareness of how their asset portfolios are exposed to climate risks and because many private firms in Central Asia lack experience and knowledge of ESG standards, business and industry associations could create ESG knowledge platforms and incentivize their members to actively use those platforms.

Addressing climate change and upholding high social obligations and standards that benefit the labor force and local communities are becoming increasingly important. Governments could organize free courses and provide training on ESG for entrepreneurs seeking to register a company and conduct business.

^[1] The 11 CAREC member countries are Afghanistan, Azerbaijan, People's Republic of China, Georgia, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan.

R. Vakulchuk. 2025. Scaling Up Decarbonization in Central Asia: Improving the Environmental, Social, and Governance Practices of Private Firms. CAREC Institute.