Albania, towards the opening of a new financial market - In September, the first draft for the National Green Taxonomy
Albania is laying the foundations for a new green financing market, at a time when climate change is becoming not only an environmental problem, but also a risk to the economy and the financial system.
The European Investment Bank highlights that Albania is developing the first national green taxonomy, a system that will clearly define which activities and projects can be classified as green investments. The first draft is expected to be ready by the end of September 2026.
The process is supported with technical assistance from the European Investment Bank and financed by the governments of Germany and Luxembourg.
The need for such a system is directly related to the exposure of the Albanian economy to climate change.
According to the European Investment Bank, the Bank of Albania's climate transition risk test, the first of its kind in the Western Balkans, has shown that more than half of bank lending in Albania is concentrated in sectors exposed to climate risks, including transport and construction, vulnerable to floods and fires.
The figures show the extent of the problem.
According to data cited by the World Bank, Albania ranks among the most disaster-prone countries in Europe. Over the past two decades, floods, fires, landslides, and earthquakes have affected 95% of the country's municipalities.
Conservative estimates indicate that climate-related damages could reach up to 7% of Albania's Gross Domestic Product by 2050.
The energy sector remains particularly exposed. Most of Albania's electricity is produced by hydroelectric power plants, which makes the country's energy balance dependent on rainfall.
For this very reason, the expansion of solar energy is considered critical for diversifying the energy mix and reducing dependence on hydropower.
But the change that is brewing goes beyond energy.
Albania also aims to develop a capital market and a framework for the issuance of green sovereign bonds. The taxonomy will define what constitutes a green investment; the bond framework will set the rules for financing these projects, after which the issuance of financial instruments can begin.
The Albanian financial system currently remains mainly focused on banks, while the capital market, corporate bonds and equity financing are still underdeveloped.
According to experts, Albania is essentially trying to build a capital market almost from scratch and create new financing mechanisms.
A concrete example might be the construction of a solar power plant through a green bond. Investors finance the project by purchasing the bond, while the money raised is used only for the specified investment. The issuer must then report on how the funds were used and what environmental results were achieved.
The first potential investors could be international financial institutions, regional investors and the diaspora, but also banks and pension funds in Albania.
Meanwhile, pressure on Albanian businesses will also increase from European integration and new EU rules on carbon, climate reporting, and environmental standards.
In this context, the green taxonomy aims to create a common language between banks, businesses, the state and investors. What a green investment really is and where capital should be directed in the Albanian economy of the future.
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