3. Informing further development: International initiatives on measuring financial flows for green economy

This chapter provides a brief overview of selected international standards and guidelines on classifications and taxonomies. These are related to environmental protection, resource management and broader activities for sustainable development. It highlights the work of the Astana International Financial Centre on green finance taxonomy. It also notes work by the OECD on environmental protection expenditure and revenues, including by the Research Collaborative on Tracking Finance for Climate Action. It discusses how such standards and guidelines can inform improvement of the approaches to measuring green finance flows in Kazakhstan. By leveraging them, the country could further strengthen its statistical system and develop a methodology to track green finance regularly.

    

Context

The government of Kazakhstan lacks a common definition of green finance and insight into spending on different policy areas related to the green economy transition. More knowledge in both these areas could help the country better understand flows of green finance (OECD, 2016[1]). As previously discussed, a range of data is readily available on expenditures for environmental protection in the country. Yet it would still be useful to clarify definitions of green finance in Kazakhstan. Specifically, the government could examine how to expand thematic coverage and improve the granularity of data under its statistical system. To inform further development of its methodologies to measuring green finance flows, Kazakhstan would benefit from initiatives within and outside the country at both the international and the European Union (EU) levels.

A range of institutions and countries has launched or implemented initiatives that directly or indirectly measure finance flows for green economy or climate action at a country-level. For instance, the European Statistical Office (Eurostat) has been operating the following data collection under the System of Environmental-Economic Accounting (SEEA):

• Environmental Goods and Services Sector (EGSS), using the Classifications of Environmental Protection Activities (CEPA) and the Classification of Resource Management Activities (CReMA)

• Environmental Protection Expenditure Accounts (EPEA) using CEPA.

CReMA could provide a useful framework for understanding financial flows for a wider range of resource management activities than renewable energy, energy efficiency and other climate change mitigation. However, implementation of CReMA might also involve certain technical challenges in Kazakhstan as discussed later in the sub-section on CReMA.

Further, the combination of CEPA and CReMA would not necessarily ensure measurement of a complete set of data on green finance flows for all actions that contribute to the green economy transition. For instance, certain climate change adaptation activities do not fall into either classification. As one complementary approach, the government could develop a more comprehensive taxonomy of green or sustainable finance.

Varying understanding of what green finance means among different countries and institutions has also been an issue discussed in several international forums, including the Technical Expert Group (TEG) on Sustainable Finance of the European Commission. With support from TEG, the European Commission was developing the EU Taxonomy of Sustainable Economic Activities as of March 2019.

In Kazakhstan, the Astana International Financial Centre began developing the taxonomy of green finance for Kazakhstan in early 2019. A Kazakhstan-specific green finance taxonomy would be useful to complement government efforts to further refine or develop definitions of activities for the country’s green economy transition. Indeed, the taxonomy is being developed in part to help measure and report the flows and environmental impact of green projects (Ma, 2019[2]).

The Organisation for Economic Co-operation and Development (OECD) with its member countries has also continuously improved the environment-related statistical system, including on Environmental Protection Expenditure and Revenues (EPER). Work under the OECD-hosted Research Collaborative on Tracking Finance for Climate Action could also provide Kazakhstan with insight into technical aspects of tracking investment in certain areas of climate action and identifying the underlying sources of finance.

Table 3.1 outlines different standards, classifications and initiatives to be discussed in this section. By leveraging them, Kazakhstan could further strengthen the country’s statistical system and develop a methodology to track green finance regularly. The subsequent sub-sections provide more detailed information on each standard or classification, and their implications for developing methodologies to measure green finance flows.

Table 3.1. Selected standards and classifications and their possible contributions to improving methodologies to measure green finance in Kazakhstan
Standards and classifications	Implications for improvement of green finance measurement in Kazakhstan
Classification of Environmental Protection Activities (CEPA)	Improve quality of already reported classes of data through further convergence with CEPA under SEEA
Classification of Resource Management Activities (CReMA)	Complement CEPA to cover a broader picture of activities for green economy transition, especially on activities for better resource management such as resource efficiency
Draft EU Taxonomy of Sustainable Economic Activities and other national-level work on taxonomies	Broaden coverage of categories to be reported on, and refine criteria for activities to be eligible as green/sustainable finance Support development of a Kazakhstan-specific Green Finance Taxonomy by following discussion on the EU and other national-level taxonomies of sustainable finance or activities
OECD work on Environmental Protection Expenditure and Revenues	Improve quality of already reported classes of data under CEPA through further convergence under SEEA
Research Collaborative on Tracking Finance for Climate Action	Improve methodologies for measuring investment and financial flows for activities that contribute to or inhibit climate change action at a national level
Climate Public Expenditures and Institutional Review	Improve methodologies for measuring financial flows for climate change action
Sources: Adopted from (Eurostat, 2016[3]), https://ec.europa.eu/eurostat/documents/3859598/7700432/KS-GQ-16-008-EN-N.pdf/f4965221-2ef0-4926-b3de-28eb4a5faf47;
(OECD, 2014[4]), https://www.oecd.org/statistics/datacollection/Environmental%20Data_SOE%20guidelines.pdf;
(OECD, n.d.[5]), https://www.oecd.org/env/researchcollaborative/;
(TEG, 2018[6]), https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/sustainable-finance-taxonomy-feedback-and-workshops_en.pdf;
(UNDP, 2015[7]), http://www.asia-pacific.undp.org/content/rbap/en/home/library/democratic_governance/cpeir-methodological-guidebook.html;

Existing and upcoming initiatives that can inform regular measurement of green finance flows in Kazakhstan

Classification of Environmental Protection Activities (CEPA)

CEPA is recognised as the international standard for collecting environmentally related expenditures in both fixed capital formation (i.e. investment expenditures) and current (or operational) expenditures. It is a comprehensive framework to cover purposeful activities directly aimed at prevention, reduction and elimination of pollution or degradation of the environment. EPEA under SEEA uses CEPA to classify environmental protection activities.

Kazakhstan based its national statistical system for environmental protection activities, including on expenditures, on the version of CEPA adopted by the UN Statistical Commission in 2002 (CEPA 2000). Hence, it would make sense that any methodology to regularly track green finance in Kazakhstan would build on the existing Kazakh database that is largely in line with CEPA 2000. Classes under CEPA 2000 are listed below:

• protection of ambient air and climate (CEPA 1)

• wastewater management (CEPA 2)

• waste management (CEPA 3)

• protection and remediation of soil, groundwater and surface water (CEPA 4)

• noise and vibration abatement (excluding workplace protection) (CEPA 5)

• protection of biodiversity and landscapes (CEPA 6)

• protection against radiation (excluding external safety) (CEPA 7)

• research and development (CEPA 8)

• other environmental protection activities (CEPA 9).

Environmental protection expenditure is defined as the economic resources (i.e. all transactions in monetary terms) that resident units devote to environmental protection. Environmental protection expenditure accounts for all production costs through the recording of the value of the outputs produced and the value of the uses of these outputs. This includes calculated cost items such as depreciation (i.e. consumption of fixed capital) or the cost of capital. The expenditure concept excludes the following:

• payments of interest, fines and penalties for non-compliance with environmental regulations or compensations to third parties

• payments of environmentally related taxes, as these taxes do not directly aim at environmental protection

• expenditure by enterprises for producing market environmental goods, such as production costs for equipment, materials and other parts of the environmental goods and services industry (such expenditure is recorded in statistics and account on EGSS).

The outcomes of the joint project by the Committee on Statistics and the OECD on “implementation of the SEEA” can inform development of approaches to measuring green finance flows. The project concluded that data sources were of good quality (OECD, 2019[8]). At the same, it identified several areas where the government could improve alignment with CEPA. For instance, the data available does not distinguish between expenditures made by businesses, governments and households. The statistical system also does not break expenditures down into environmental protection-specific services, connected products, adapted goods1 and capital formation (OECD, 2019[8]).

Classification of Resource Management Activities (CReMA)

Despite its relevance to measuring green finance flows in Kazakhstan, CEPA does not capture some important activities for the country’s transition to a green economy. Among others, these exclusions are energy saving with the aim of resource efficiency, production of energy by renewable sources and more efficient use of water, forest or mineral resources. CReMA could complement such a methodological gap by collecting information on relevant current and investment expenditures.

As part of SEEA 2012 Central Framework, Eurostat aims to complement CEPA with CReMA to capture resource management activities in national statistics. It is not mandatory in Europe to collect expenditure-related information on resource management activities. As of March 2019, however, there has been an interest in a pilot estimate of such expenditures using CReMA (Eurostat, 2018[9]). The European Statistical System Committee endorsed the European Strategy for Environmental Accounts 2019-23 in February 2019. The strategy includes Resource Management Expenditure Accounts as a priority area for development. This is especially the case in the field of expenditure related to renewable energy resources, energy savings and material recovery (European Statistical System Committee, 2019[10]). It recognises the Resource Management Expenditure Accounts as a necessary part of SEEA to complete the picture of environmental activities alongside EPEA, EGSS, and taxes and subsidies (European Statistical System Committee, 2019[10]). Table 3.2 outlines examples of activities that can be included in seven classes under CReMA.

Table 3.2. Classes under CReMA and examples of activities
Class	Examples of activities included in the class
CReMA10 Management of water	Minimisation of inland waters intake through in-process modifications Reduction of water losses and leaks or reduction of the intake by substituting the resource with alternative resources, water reuse and savings Restoration activities (recharge of groundwater bodies) Related activities/products for measurement, control, laboratories Related education, training and information and general administration activities
CReMA11 Management of forest resources	Restoration or replenishment activities or development of new forest areas Prevention and control of forest fires, diseases, pests and weeds, etc. Replacement or adjustment of production processes to reduce the input of forest-related products (wood and non-wood) Recovery, reuse or savings of forest products and by-products Related activities/products for measurement, control, laboratories Related education, training and information and general administration activities
CReMA12 Management of wild flora and fauna	Minimisation of the intake of wild flora and fauna (wild growing forest products are excluded) through in-process modifications, as well as withdrawals reduction and regulation measures Restoration activities (e.g. replenishment of wild flora and fauna stocks) Related activities/products for measurement, control, laboratories Related education, training and information and general administration activities
CReMA13 Management of energy resources	Production of energy from renewable sources Heat/energy saving and management Minimisation of the intake of fossil resources for raw materials for uses other than energy production Related activities/products for measurement, control, laboratories Related education, training and information and general administration activities
CReMA14 Management of minerals	Minimisation of the intake of minerals through in-process modifications Reduction of scraps Recovery of mineral-based materials Production of substitute for minerals-based materials Related activities/products for measurement, control, laboratories Related education, training and information and general administration activities
CReMA15 Research and development activities for resource management	Research and development for renewable energy, for energy and minerals savings, for timber and other biological resources savings, etc.
CReMA16 Other resource management activities	General administration of natural resources General administration Environmental management systems.
Source: Adapted from (Eurostat, 2016[3]), https://ec.europa.eu/eurostat/documents/3859598/7700432/KS-GQ-16-008-EN-N.pdf/f4965221-2ef0-4926-b3de-28eb4a5faf47.

Kazakhstan’s statistical form for investment actually includes certain classes that may relate to CReMA13 (management of energy resources). These categories are investments in renewable energy sources; energy-saving technologies and energy efficiency; and reduction of greenhouse gas emissions. The Kazakh statistical system does not seem to collect investment-related data on other resource management activities than CReMA13. Moreover, Kazakhstan’s statistical form for current expenditures does not explicitly include any of the categories under CReMA.

While CReMA can potentially be useful for Kazakhstan to better measure green finance flows, it might entail some technical challenges. Indeed, implementation of data collection under CReMA has proven to be challenging even in EU countries since its adoption in 2008. One study on the feasibility of CReMA implementation in Germany, for instance, concludes “it is problematic to identify resource management products in existing statistical classifications” and “resource management activities cannot be sufficiently mapped” in the country (Federal Statistical Office of Germany, 2017[11]).

A lack of clarity on the ideal scope of the resources makes it difficult to define a number of resource management activities (Eurostat, 2018[9]). Experts also argue that some definitions may become obsolete quickly, and that certain products or activities mentioned in the definitions may lead to an unintended negative impact on the environment (e.g. production of biofuels may lead to forest resource depletion) (Federal Statistical Office of Germany, 2017[11]).

In another challenge, it is not clear whether some activities belong to environmental protection or resource management. For example, climate change activities may fall under both CEPA1 and CReMA13 (Eurostat, 2018[9]). Some guidance has been developed to help understand the line between resource management and environmental protection activities. Reporting entities in Kazakhstan could also use this guidance if requested to report on such activities. Annex 6 of the EGSS Accounts Manual, prepared by Eurostat, could also be useful. It provides operational rules for treatment of borderline cases under CEPA and CReMA. One such example is cleaner versus more resource-efficient transport and other equipment (Eurostat, 2018[9]).

If Kazakhstan’s statistical system were to use CReMA, it could face many more such borderline cases than the handful of examples in the Eurostat EGSS manual. This might lead to issues with regard to complexity of reporting and comparability of reported data. As a result, it would require a more detailed guideline tailored for Kazakh entities. Annexes 4 and 5 of the Eurostat manual also provide definitions, explanations and examples of activities under both CEPA and CReMA (Eurostat, 2016[3]). In addition, the annexes describe activities excluded from environmental protection or resource management activities2, which could serve as a useful base to start developing a Kazakhstan-specific guideline.

It remains an important research topic for Eurostat to enhance consistency in scope, concepts, definitions and classification groupings across different SEEA accounts, including environmental protection and resource management (Eurostat, 2018[12]). The government of Kazakhstan can benefit from following the future development of this research agenda. For instance, Eurostat proposes a framework for the integration of different accounts, including, but not limited to, Environmental Protection Expenditure Accounts and Resource Management Expenditure Accounts (Eurostat, 2018[12]).

EU taxonomy of sustainable economic activities

Kazakhstan needs to continue its work on definitions of activities eligible to be green or sustainable finance. In this way, it could improve the national statistical system and further clarify what statistical forms should measure as green finance flows. The Astana International Finance Centre has launched work in this area with the People’s Republic of China (hereafter “China”). However, the country could benefit from following existing or emerging work on sustainable or green finance taxonomies in other jurisdictions, particularly in the European Union (EU). Kazakhstan could also gain a wealth of insights from taxonomy work in China, Canada, France, Japan, the Netherlands and the United Kingdom, among others.

The European Commission created the Technical Expert Group (TEG) on Sustainable Finance, which started the work on four key actions proposed in the Commission’s Action Plan on Financing Sustainable Growth in July 2018. One key action is to develop an EU taxonomy of sustainable economic activities. This is meant to be a technically robust classification system at the EU-level to provide clarity on what is “green” or “sustainable” (HLEG, 2018[13]) (see also Annex 3.A for further details).

The EU taxonomy of sustainable economic activities would aim to encourage sustainable growth by enhancing clarity and understanding among industry, investors and governments about which economic activities are environmentally sustainable. The taxonomy would make it possible to “measure financial flows towards sustainable development priorities at the asset, portfolio, institutional, regional, national and European levels” (HLEG, 2018[13]). The taxonomy may serve as a basis for future standards and labels for sustainable financial products that provide sustainable capital flows.

The draft EU taxonomy proposal sets out the criteria for determining the environmental sustainability of an economic activity, in line with six environmental objectives as follows:

• climate change mitigation

• climate change adaptation

• sustainable use and protection of water and marine resources

• transition to a circular economy, waste prevention and recycling

• pollution prevention control

• protection of healthy ecosystems.

For each of the economic activities and corresponding NACE sector codes3, the taxonomy aims to establish principles, methodologies, metrics and thresholds to assess their degree of environmental sustainability. As the overarching principle, the sustainable activity should make a substantial positive contribution to one of the six environmental objectives, while not significantly harming any of the other five.

The government of Kazakhstan should closely follow development of the EU taxonomy. It could help elaborate definitions of activities for environmental protection and green economy transition provided under the statistical forms and associated instructions. The taxonomy, once finalised, could fill some gaps in the Kazakh national statistical system. For example, it could include how to integrate certain types of activities such as climate change adaptation. It might also suggest how to operationalise the notion of “do no significant harm”, which means avoiding any significant negative impacts of an activity on other environmental or social issues.

The EU Taxonomy of Sustainable Economic Activities could help the country clarify what should be reported as green or sustainable finance. Building on an informal annex to the EU High-Level Expert Group (HLEG) report and other studies, Table 3.3 could help the government better understand specific activities and complement the classes under CEPA. The Committee on Statistics could use these classes to refine definitions of environmental protection and resource management activities, or develop new definitions where needed.

Table 3.3. Examples of climate change mitigation and adaptation activities
Sector	Climate change mitigation	Climate change adaptation
Energy	Renewable energy power plants Substantial GHG savings for fossil fuel power plants Biofuels Efficient district heating/cooling systems Electricity transmission and distribution Electricity storage Carbon capture and storage	Fortification of flood-prone energy infrastructure Minimised cooling water requirement Installation of water pumping back-up systems Modification of infrastructure siting during renovations or while planning new developments Micro-grids and distributed generation Back-up plans to provide for a rapid recovery from supply interruptions
Industry	Resource-efficient products, equipment and appliances Efficient fuel production facilities Efficient product manufacturing facilities Efficient storage and distribution Efficient retail outlets	Better siting of factories Greater resilience of industrial buildings, facilities and infrastructure to (e.g.) heavier rains Climate risk assessment to improve supply chain risk management
Building and urban planning	Energy-efficient buildings Low-carbon urban planning Low-carbon urban infrastructure	Reform of building codes and design standards House insurance Incentives for relocation
Transport	Low-carbon rail, road, air, and/or water transport systems Fuel switching	Updates of design and construction standards and materials in transport infrastructure Modification to transport asset management practice based on climate event Climate risk mapping of transport infrastructure
Water supply and management	Energy-efficient water supply and distribution Energy-efficient water treatment plants (incl. desalination) Watershed management Water storage	Water conservation measures and effective water use Water storage, water demand management and technological development Safe drinking water and sanitation facilities during extreme events Movement of assets out of flood zones
Wastewater treatment	Wastewater treatment plants and sewage networks that contribute to energy saving or GHG emission avoidance	Direct and indirect reuse of treated wastewater
Waste management	Waste collection, sorting and materials recovery facilities Recycling Waste treatment that contributes to energy saving or GHG emission avoidance	Strengthened capacity of landfills, dumpsites and collection systems to combat natural disasters
Agriculture and fisheries	Climate-smart agriculture and husbandry Climate-smart fisheries and aquaculture	Development and use of crops more resilient to climate change Supplemental irrigation, intercropping systems, drip irrigation, levelling, etc. Management of pest or disease outbreaks Climate-resilient pasture and livestock management Climate-resilient horse production Crop insurance
Forestry	Reforestation and afforestation Plantations Management of forest fires	Management of forest fires Sustainable forestry and agro-forestry
Ecosystem	Conservation, restoration and enhancement of natural land habitats Restoration of degraded land	Development and use of saplings more resilient to climate change extremes and change Supplemental irrigation, drip irrigation Management of pest or disease outbreaks Ecosystem flood and/or storm damage protection Establishment of core protected areas and buffer zones Increased river dredging programmes Reinforcement of levees Re-establishment of natural flood plains and vegetation in upstream areas or riverbanks Management of pest or disease outbreaks Management of forest fires Degraded land restoration
Information and communication technology	Networks and communication facilities Information management system	Weather forecasting technologies Weather and climate services and information provision
Cross-cutting	Technical support and capacity building Research and development Public policy development Disaster relief products and services	More robust resilience programmes and improved enforcement Disaster risk plans and preparedness Development of revised codes for all design and operation of assets in all sectors, that consider climate change risks and require asset owners and managers to do so Research and development on climate-resilient crops.
Sources: Adapted from (KEPSA, 2014[14]), https://cdkn.org/wp-content/uploads/2015/04/Climate-Change-and-the-Energy-Sector.pdf;
(HLEG, 2018[15]), https://ec.europa.eu/info/sites/info/files/180131-sustainable-finance-final-report-annex-3_en.pdf;
(IEA, 2015[16]), https://webstore.iea.org/making-the-energy-sector-more-resilient-to-climate-change;
(Mavropoulos, 2011[17]), https://wastelessfuture.com/urban-waste-management-and-climate-change-adaptation/;
(Quium, 2015[18]), http://www.uncrd.or.jp/content/documents/345702_Abdul_Quium_Presentation_Kathmandu_Final.pdf;
(UNECE, 2014[19]), http://www.unece.org/env/water/.

In December 2018, the European Commission published a “Taxonomy Pack for Feedback”. It invited technical experts and stakeholders to give feedback on selected economic activities and the proposed criteria for the first sub-set of economic activities for climate mitigation by February 2019. Ultimately, 244 respondents provided their feedback (TEG, 2018[6]).

As of March 2019, the taxonomy sub-group of the TEG was developing new criteria for the second round of climate change mitigation and adaptation activities, and “do no significant harm” assessment. The process was due to be completed in April 2019. The TEG planned to submit its final report to the European Commission in 2019. The report would include an explanation of how sectors were selected, and how technical screening criteria were determined in compliance with the taxonomy proposal. It would also analyse potential economic, financial and environmental impacts.

Box 3.1. Development of a green finance taxonomy by the Astana International Financial Centre

In Kazakhstan, the Astana International Financial Centre (AIFC) began developing the taxonomy of green finance for Kazakhstan in early 2019. The AIFC has already adopted the criteria on green bonds as part of the Rule Book of the Astana International Exchange. These criteria drew on the Green Bond Principles by the International Capital Market Association and the Climate Bonds Taxonomy of the Climate Bonds Standard (AIX, 2019[20]).

A Kazakhstan-specific green finance taxonomy would be useful to complement government efforts to further refine or develop the definitions of activities for the country’s green economy transition. One key objective of developing the taxonomy is indeed to help measure and report the flows and environmental impact of green projects (Ma, 2019[2]). Other objectives include:

• providing financial institutions, businesses, policy makers and other market players with a common understanding and approach to identify, develop and finance green projects

• increasing investors’ confidence to finance green projects and reducing the risk of “green-washing”

• providing a basis for policy and regulatory incentives for green finance (Ma, 2019[2]).

Sources: (AIX, 2019[20]), https://www.aix.kz/wp-content/uploads/2019/03/Green-Bonds-Rules.pdf; (Ma, 2019[2]).

OECD work on Environmental Protection Expenditure and Revenues (EPER)

OECD member countries have long reported on EPER as part of the OECD questionnaire on the state of the environment (OECD, 2014[4]). Countries use this questionnaire to gather the best available environmental data and promote international harmonisation of these data.

In 2016, the OECD Working Party on Environmental Information (WPEI) agreed to review the EPER section of the questionnaire. It aimed to align this section with SEEA and the framework used for EPEA. At the same time, the review also aimed at:

• finding ways to improve the quality of the data provided by countries

• exploring options to better cover expenditure in areas such as biodiversity, climate, and water supply.

The WPEI noted that climate change and biodiversity expenditure accounts would also be useful. However, with respect to climate change, it also noted that CEPA can only capture mitigation and not adaptation. The WPEI was requested to agree on the final version of the revised questionnaire (content, priority variables and terminology) by October 2019. This was to also include a decision on how to better cover expenditure in areas such as biodiversity, climate and water supply.

The government of Kazakhstan participated in the pilot testing of the OECD statistical questionnaire for EPER in 2018. This should become a practical step to improving Kazakhstan’s statistical forms on current and investment expenditures for environmental protection. The exchanges held and feedback obtained through the pilot testing can be particularly useful in three areas. Specifically, they can further clarify activities to be included or excluded; improve usability of the statistical forms in Kazakhstan; and enhance quality and comparability of the relevant data.

Research collaborative on tracking finance for climate action

The OECD leads an open network called the Research Collaborative on Tracking Finance for Climate Action. It contributes towards data and methodological developments for tracking climate-related finance. The Research Collaborative co-ordinates governments, research organisations, development finance institutions, inter-governmental organisations and other relevant entities. It aims to share best available data, expertise and information to advance policy-relevant research on tracking climate finance in a comprehensive and timely manner (See (OECD, n.d.[5])for further information).

In light of tracking progress in relation to Article 2.1c of the Paris Agreement, the Research Collaborative initiated country-level pilot studies. These aim to track financial flows into new infrastructure and equipment, as well as refurbishment of existing ones. They combine different sources of financial data, complemented with estimates based on non-financial proxies (Dobrinevski and Jachnik, 2019[21]).

In the medium- to long-term, Kazakhstan might benefit from the methodologies developed by the Research Collaborative and outcomes of its country-level studies on tracking finance flows to help assess their consistency with climate objectives. These could particularly help Kazakhstan improve data quality and explore data that are more granular by sector or sub-sector, type of technology, financial instrument and provider of finance, among others. Such work would also help the government assess finance flows that contribute to climate objectives. Furthermore, they could identify financial flows to activities that undermine its climate change objectives, evaluate effectiveness of policies in shifting finance for low-carbon and climate-resilient investment, and complement non-financial indicators on climate mitigation (Jachnik, Mirabile and Dobrinevski, 2019[22]).

Climate Public Expenditures and Institutional Review by UNDP

Another example that could help improve the Kazakh statistical system, especially on public expenditure, would be the Climate Public Expenditures and Institutional Review (CPEIR) led by the United Nations Development Programme (UNDP). CPEIR is a systematic qualitative and quantitative analysis of public expenditures by different ministries of a country. It aims to improve how those different streams of public expenditures relate to climate change objectives (UNDP, 2015[7]). CPEIRs have been conducted in 17 countries (UNDP, n.d.[23]). CPEIR consists of three pillars:

1. 1. Policy analysis: a review of the climate change policy framework and its monitoring framework, as well as how the policy objectives translate into programmes and instruments;

2. 2. Institutional analysis: an analysis of the roles and responsibilities of institutions and their capacities in formulating, implementing and co-ordinating climate responses;

3. 3. Climate public expenditure analysis: a quantification of climate-relevant expenditure out of the total national budget and measure.

Climate public expenditure analysis starts with collecting data and deciding whether expenditure items are climate-relevant. The next step is to classify the climate-related expenditures. The UNDP’s guidelines on CPEIR outline multiple approaches to classification, such as Standardised UNDP/World Bank CPEIR Typology and the National Policy Objectives Typology. Once climate-related expenditures are classified, the weight of climate relevance to these expenditures can be applied to assess the proportion related to climate change (UNDP, 2015[7]).

Some activities primarily target climate change mitigation or adaptation, or both, while others may have climate-related components as a secondary objective. The CPEIR guidebook outlines two approaches to applying the weight to each expenditure depending on the relevance to climate change: the Climate Relevance Index and the Benefit Cost Ratio. These two approaches are not mutually exclusive and the decision of which one to use would depend on the level of data available for the analysis (UNDP, 2015[7]).

Implications for further improvement in Kazakhstan’s national statistical system

The joint work by the Committee on Statistics and the OECD on the SEEA coherence has concluded that Kazakhstan’s statistics on investment and current (operational) expenditures for environmental protection is appropriately structured and aligned with good international practice as in CEPA (OECD, 2019[8]). Existing data under the national statistical system are similar in structure and detail to the EPEA compiled by EU member states that is also based also on CEPA. However, they do not yet completely adhere to EPEA (Eurostat, n.d.[24]).

A greater level of alignment between Kazakhstan’s statistical system and the SEEA should provide insights into how to enhance granularity of the data. This could include, for example, disaggregated expenditure data into environmental protection-specific services, connected products, adapted goods and capital formation. This could be further enhanced through Kazakhstan’s ongoing participation in pilot testing for the revised statistical questionnaire for the EPER, implemented under the OECD WPEI.

While this study does not recommend immediate, fully-fledged application of CReMA to the Kazakh system, future use could further clarify types of resource management activities for consideration. For instance, the use of CReMA could refine definitions of activities for energy saving and production of energy by renewable sources, which have already been covered by the statistical form for investment. It could also help Kazakhstan decide which sectors should receive more coverage, such as measures for efficient use of water, forest or mineral resources. The Committee on Statistics could consider gradual adoption of those CReMA classes that could be particularly relevant to the green economy transition of Kazakhstan. To that end, it could follow closely the EU’s work under the European Strategy for Environmental Accounts 2019-23.

The EU Taxonomy of Sustainable Economic Activities, once finalised, could also complement Kazakhstan’s effort to further elaborate the definitions of green economy activities in different policy domains. These include areas such as climate change adaptation and mitigation, biodiversity, circular economy and air pollution, among others. The taxonomy could also provide some more considerations on how to operationalise the notions of “do no significant harm”, to avoid any significant negative impacts of an activity on other environmental or social issues.

Development of a Kazakh Green Finance Taxonomy by the Astana International Finance Centre should also inform development of methodologies for green finance measurement. Efforts to develop such a Kazakh-specific taxonomy should be aligned with the development of the EU taxonomy, as well as with other national-level sustainable finance taxonomies that already exist or are under development. This could also be complemented by the UNDP’s typologies for the Climate Public Expenditures and Institutional Reviews.

The country-level work by the Research Collaborative could also help the Committee on Statistics explore methodologies to tracking finance with further details over the long term. For instance, Research Collaborative work might inform potential future work by the Committee on Statistics on how to obtain disaggregated data by sector or sub-sector, type of technology, financial instrument and provider of finance, among others. In particular, the statistical system does not clearly capture green finance flows to households or as part of foreign direct investment (FDI). Collecting “green” FDI would require closer co-ordination with the National Bank of Kazakhstan since it is in charge of collecting FDI data in general.

Annex 3.A. The European Commission’s Action Plan on Financing Sustainable Growth

In March 2018, the Financial Stability and Capital Markets Directorate of the European Commission (EC) launched a broad Action Plan on Financing Sustainable Growth. In May 2018, it proposed a legislative package to implement its action plan. This package was based on recommendations of the industry-led EU High-Level Expert Group (HLEG) on Sustainable Finance in January 2018, following a collaborative and inclusive process in 2017 and 2018. The three objectives of the action plan are:

1. 1. Reorient capital flows towards sustainable investment to achieve sustainable and inclusive growth;

2. 2. Manage financial risks stemming from climate, environmental degradation and social issues;

3. 3. Foster transparency and long-termism in financial and economic activity.

In May 2018, the EC adopted three legislative proposals to start implementing its action plan. It proposed two regulations to facilitate sustainable investment and for disclosures relating to sustainable investments and sustainability risks. It also proposed a new category of stock market benchmarks. In June 2018, the EC set up a Technical Expert Group (TEG) on sustainable finance to help develop the delegated acts that will follow adoption of the above draft legislations.

The sustainable finance taxonomy proposal of the European Commission

The draft legislation aims to identify which economic activities can be defined as “environmentally sustainable” as per EU legislation. The economic activities are based on the Statistical Classification of Economic Activities in the European Community used by the EC. “Environmental sustainability” is based on six environmental objectives: climate change adaptation, climate change mitigation, water use, waste and recycling, pollution and protection of ecosystems.

To qualify as “environmentally sustainable”, an economic activity will need to contribute substantially to one of six environmental objectives and “do no significant harm” to the five other objectives. Notably, the use of the taxonomy will be mandatory only for investors wishing to refer to the “sustainability” of activities as per EC legislation.

The development of the full-fledged taxonomy will span several years. The first version will focus on economic activities identified as priorities for climate adaptation and mitigation, including minimum social standards. Further elaboration will detail criteria for a larger “environmental taxonomy”, as well as social and governance criteria. The taxonomy will be adaptable and will evolve over time, considering the development of technologies. The TEG on sustainable finance (including the OECD, which is serving as an observer), has led a consultation process with external experts. The aim is to devise principles, methodologies and technical screening criteria (e.g. emissions thresholds) for qualification for a number of priority activities and for the six objectives.

The legislative process

The relevant Committees of European Parliament voted on the taxonomy (based on proposed amendments to the legislative proposal below) on 28 March 2019. The TEG was tasked to draft a report and submit recommendations for public consultation during the summer of 2019. The TEG’s mission was expected to terminate at the end of 2019. Further information may be available (TEG, 2018[25]).

References

[20] AIX (2019), AIX Green Bonds Rules, Astana International Exchange, Nur-Sultan, https://www.aix.kz/wp-content/uploads/2019/03/Green-Bonds-Rules.pdf.

[21] Dobrinevski, A. and R. Jachnik (2019), “Tracking finance flows and investment needs for the energy and climate transition: Tracking finance flows in the context of Article 2.1c of the Paris Agreement”, presentation at the tracking finance flows and investment needs for the energy and climate transition conference, Berlin, March, http://wise-europa.eu/wp-content/uploads/2019/03/Session3_Tracking-finance-flows-in-the-context-of-Article-2.1c-of-the-Paris-Agreement-_OECD-2.pdf.

[10] European Statistical System Committee (2019), 39 th Meeting of the European Statistical System Committee, https://ec.europa.eu/eurostat/documents/1798247/6191525/European+Strategy+for+Environmental+Accounts/ (accessed on 24 April 2019).

[26] EuroStat (2018), Environmental protection expenditure accounts: National expenditure on environmental protection 2006-2017, https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Environmental_protection_expenditure_accounts#General_overview (accessed on 11 February 2019).

[9] Eurostat (2018), “Classification of environmental activities”, presentation at the London Group on Environmental Accounting, Dublin, October, https://seea.un.org/sites/seea.un.org/files/lg_24_b_7.pdf.

[12] Eurostat (2018), Integrated framework for environmental activity accounts, Directorate E: Sectoral and regional statistics Unit E-2: Environmental statistics and accounts; sustainable development, Statistical Office of the European Union, Brussels, https://seea.un.org/sites/seea.un.org/files/seea_paper_integrated_framework_estat_v5.pdf.

[3] Eurostat (2016), Environmental Goods and Services Sector Accounts Manual: 2016 Edition, Statistical Office of the European Union, Brussels, https://ec.europa.eu/eurostat/documents/3859598/7700432/KS-GQ-16-008-EN-N.pdf/f4965221-2ef0-4926-b3de-28eb4a5faf47 (accessed on 11 January 2019).

[24] Eurostat (n.d.), “Environmental Protection Expenditure”, (database), Statistical Office of the European Union (Accessed on 21 March 2019), https://ec.europa.eu/eurostat/web/environment/environmental-protection-expenditure.

[11] Federal Statistical Office of Germany (2017), Feasibility study on reporting under the Classification of Resource Management Activities (CReMA) and on Resource Management Expenditure Accounts (ReMEA) according to the new modules of Regulation 691/2011, https://www.destatis.de/EN/Methods/MethodologicalPapers/Download/FeasibilityStudySchlesag.pdf?__blob=publicationFile.

[13] HLEG (2018), Financing a Sustainable European Economy: Final Report 2018 by the High-Level Expert Group on Sustainable Finance - Secretariat provided by the European Commission, High-Level Expert Group on Sustainable Finance, Brussels, https://ec.europa.eu/info/sites/info/files/180131-sustainable-finance-final-report_en.pdf.

[15] HLEG (2018), Informal supplementary document on sustainable taxonomy (Annex III to the Final report of the High-Level Expert Group on Sustainable Finance), High-Level Expert Group on Sustainable Finance, Brussels, https://ec.europa.eu/info/sites/info/files/180131-sustainable-finance-final-report-annex-3_en.pdf.

[16] IEA (2015), “Making the Energy Sector More Resilient to Climate Change”, International Energy Agency, Paris, https://webstore.iea.org/making-the-energy-sector-more-resilient-to-climate-change.

[22] Jachnik, R., M. Mirabile and A. Dobrinevski (2019), “Tracking finance flows towards assessing their consistency with climate objectives”, OECD Environment Working Papers, No. 146, OECD Publishing, Paris, https://dx.doi.org/10.1787/82cc3a4c-en.

[14] KEPSA (2014), Climate Change and the Energy and Manufacturing Sector, Climate Change and Your Business Briefing Note Series, April, Kenya Private Sector Alliance, Nairobi, https://cdkn.org/wp-content/uploads/2015/04/Climate-Change-and-the-Energy-Sector.pdf.

[2] Ma, J. (2019), “Green finance and green taxonomies”, presentation at the AIFC workshop on green taxonomy, Nur-Sultan, April.

[17] Mavropoulos, A. (2011), Urban waste management and climate change adaptation, Wasteless Future Blog, https://wastelessfuture.com/urban-waste-management-and-climate-change-adaptation/ (accessed on 10 April 2019).

[8] OECD (2019), Agreement between the government of the Republic of Kazakhstan and the Organisation for Economic Co-operation and Development for the realisation of the project “Implementation of the System of Environmental Economic Accounting”: Interim Report, OECD, Paris.

[1] OECD (2016), Kazakhstan GREEN Action Platform, http://www.oecd.org/env/outreach/kazakhstangreenactionplatform.htm (accessed on 16 January 2019).

[4] OECD (2014), Questionnaire on the State of the Environment, https://www.oecd.org/statistics/data-collection/Environmental%20Data_SOE%20guidelines.pdf (accessed on 6 January 2020).

[5] OECD (n.d.), Research Collaborative on Tracking Private Climate Finance, https://www.oecd.org/env/researchcollaborative/ (accessed on 25 April 2019).

[18] Quium, A. (2015), “Transport infrastructure – Adaptation to climate change and extreme weather impacts”, presentation at regional seminar on Safe, Climate Adaptive and Disaster Resilient Transport for Sustainable Development, Kathmandu, November, http://www.uncrd.or.jp/content/documents/345702_Abdul_Quium_Presentation_Kathmandu_Final.pdf.

[25] TEG (2018), Spotlight on Taxonomy, Technical Expert Group on Sustainable Finance of the European Commission, Brussels, http://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-353-F1-EN-MAIN-PART-1.PDF.

[6] TEG (2018), Taxonomy pack for feedback and workshops invitations December 2019, Technical Expert Group on Sustainable Finance, Brussels, https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/sustainable-finance-taxonomy-feedback-and-workshops_en.pdf.

[7] UNDP (2015), A Methodological Guidebook: Climate Public Expenditure and Institutional Review (CPEIR), UNDP Bangkok Regional Hub, http://www.asia-pacific.undp.org/content/rbap/en/home/library/democratic_governance/cpeir-methodological-guidebook.html.

[23] UNDP (n.d.), CPEIR Country Database | Governance of Climate Change Finance for Asia-Pacific, https://www.climatefinance-developmenteffectiveness.org/CPEIR-Database (accessed on 10 January 2019).

[19] UNECE (2014), Guidance on Water and Adaptation to Climate Change, Water Convention, http://www.unece.org/env/water/ (accessed on 25 April 2019).

Notes

← 1. Connected products are those whose use directly serves environmental protection purposes, but which are not species services related to environmental protection or inputs into characteristic activities. Adapted goods are goods that have been specifically modified to be more “environmentally friendly” or “cleaner” and whose use is therefore beneficial for environmental protection. Examples of adapted goods include de-sulphurised fuels, mercury-free batteries and CFC-free products.

← 2. In terms of developing the national accounts for environmental goods and services, a challenge is to identify “borderline cases” between CEPA and CReMA (see page 24 of Eurostat 2016). However, for the purpose of tracking green finance within the country, there are two additional more important challenges. First, Kazakhstan must avoid “double counting” (where the same expense is reported twice in different classes) in the total finance flows. Second, it must ensure that reporting entities understand which activities should be categorised in which classes in a consistent manner.

← 3. NACE : Nomenclature statistique des activités économiques dans la Communauté européenne. For more information, see : https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Statistical_classification_of_economic_activities_in_the_European_Community_(NACE)