*This Article was originally published in Legal Industry Reviews
Edition N'4 | December 2023 | Türkiye
The global financial landscape has undergone a significant transformation with regulations on environmental concerns and sustainable development. In response, financial instruments such as green bonds and loans have been introduced, specifically designated to fund environmentally friendly projects. These adhere to principles outlined by the International Capital Market Association, ensuring dedication to green eligible activities (World Bank). Notably, green bond issuance witnessed a 22.2% increase in the first half of 2023, representing the largest half-year issuance since the European Investment Bank's inaugural release in 2007. In addition, the World Bank's green bond issuance has reached $18 billion as of October 2023 (World Bank). This transformative process aligns with regulations initiated by the Paris Agreement (2015) and subsequently the EU Green Deal (2019).
Türkiye has also embraced international regulations while devising its own initiatives. The Green Deal Action Plan released pursuant to Presidential Decree No. 2021/15, and the Framework for Sustainable Finance issued by the Ministry of Treasury and Finance on 12 November 2021, demonstrate commitment to the Green Deal. Given that 77% of green bond issuances pertain to the financial sector (Corporate Green Bonds and Firm Value: Evidence from Turkey), the actions taken by banking institutions are pivotal for Türkiye's sustainable development goals. Herein, 2022-2025 Strategic Plan on Sustainable Banking is released by Banking Regulatory and Supervision Authority (“BRSA”) on 24 December 2021. Accordingly, the sector has issued bonds for sustainability purposes totaling $2.7 billion since 2016.
Under the Green Deal, the Carbon Border Adjustment Mechanism is introduced to impose taxes on products imported to the EU based on their carbon content. In fact, Türkiye is among the countries to be most significantly impacted, as the EU made up 41.5% of the total export volume of these products in 2022. Thus, green finance instruments seem convenient for mitigating the risk of exported products incurring higher costs under carbon pricing, potentially impairing the competitiveness of Turkish goods in the EU market.
To promote low-carbon growth projects while encouraging green bond issuance, the Capital Markets Board (“CMB”) released the Guide on Green Bonds on 24 February 2022. It promotes the Green Bond Principles (2021), aiming to standardize reporting, enhance transparency, and encourage green financing. It offers incentives by reducing CMB, Stock Exchange, and Central Registry Agency fees by 50% (2022 Activity Report of the Green Deal Working Group).
In September 2023, BRSA issued the Draft Communique on Green Asset Ratio, aligned with the EU Taxonomy Regulation (2020) to delineate the criteria for green investments. The Taxonomy ensures funds support projects contributing significantly to an environmental objective, avoid harm to others, and meet minimum social security criteria. Herein, the Communique requires banks to periodically report their green asset ratio to the BRSA to assess their contribution to sustainable finance. It establishes this ratio as the primary performance indicator for banks while elevating the importance of green bonds and loans in the near future.
In light of the above, governments and financial institutions are to offer more favorable terms, fostering increased investor interest in green financing, as further enhancements are on the horizon for green bonds and loans
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