Climate Risk, ESG Regulations, and Financial Stability – A Comparative Study of Central Asian Economies

Аннотация

This study provides the first comprehensive empirical analysis of the relationship between climate risk regulation and financial stability in the Central Asian banking sector. Employing a multi-method approach—including fixed-effects panel regressions, System GMM, and NGFS-aligned climate stress tests—on a unique dataset of 128 banks from 2010–2024, we investigate the impact of ESG regulatory stringency on key stability indicators. Our results reveal a critical supervisory gap, with no Central Asian country having conducted a formal climate stress test. Regression analyses demonstrate that a stronger ESG Regulation Index is significantly associated with lower systemic risk (SRISK), higher bank stability (Z-Score), and improved asset quality (lower NPLs), even after controlling for macroeconomic and institutional factors. Furthermore, stress test simulations project that Central Asian banks are 2-3 times more vulnerable to capital shortfalls under a disorderly climate transition than EU benchmarks. The findings affirm that climate risk is a material financial stability concern and provide a compelling evidence base for regulators to accelerate the integration of climate-related risks into prudential frameworks.