Obstacles to overcome when standardising green bonds in Turkey
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Obstacles to overcome when standardising green bonds in Turkey

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Sait Eryılmaz, Başar Kırka and Ali Can Altıparmak of CIFTCI Attorney Partnership consider why a standard set of principles is necessary for the treatment of green bonds in Turkey

Enviromental, social and governance (ESG) initiatives are at the forefront of today’s market economy as government and corporate leaders are urging advancements in sustainable investing.

Public and private investors across the globe are facing greater scrutiny in their adoption of sustainable and socially responsible policies influenced by a combination of factors, including scarcity of resources, environmental concerns related to pollution and climate change, and a greater awareness of social issues.

In parallel, investor demand, economic necessity and competitive pressures have resulted in the rapid growth of the sustainable finance market as central banks, financial regulators and governments around the world increase their focus on the risks that climate change poses to the global economy. There are a number of factors in managing those risks, including the need for a robust categorisation system for ‘green’ or ‘sustainable’ investments, as well as reliable data on how companies and assets are performing against that categorisation.

There is currently no standardised set of principles or adherence orders issued by local authorities in Turkey as to the categorisation or treatment of green bonds. However, as investor appetite in green bonds and other sustainable debt products issued out of Turkey soars and news sites report that a sovereign green bond issue is being assessed by Turkish authorities, market players anticipate Turkey will soon join its peers in their efforts to standardise in sustainable finance.

Indeed, in June 2021 Turkey unveiled its Foreign Direct Investment Strategy (2021–2023) which sets out that work is in progress to align Turkey’s business environment and regulatory framework with UN’s Sustainable Development Goals (SDGs) and the European Green Deal.

Standardisation efforts in green bonds

Since its launch in 2007, the global green bond market has experienced significant growth showing the appetite for green investments across the financial spectrum. Green bonds initiated the sustainable finance trend, and, although not currently the only sustainable finance tool, they are set to continue to play a pivotal role in achieving global ESG objectives as an increasingly popular method of funding assets that are needed for fostering a net zero emissions economy and protecting the environment.

“Turkey has an impressive sustainability strategy, with a particular focus on renewables in order to meet the continual rise in the country's demand for energy."

However, the definition of ‘green’ has been (and continues to be) subject to debate in the market. In simple terms, green bonds can be defined as debt securities issued to fund environmentally friendly projects. Green bonds can be divided into (i) green labelled bonds and (ii) green unlabelled bonds – depending on whether they are labelled as ‘green’ by the issuer.

According to the International Capital Markets Association (ICMA), green bonds are any type of bond instrument the proceeds of which must be exclusively applied to finance or refinance, in part or in full, new and/or existing projects that contribute to environmental sustainability (green projects) and which are aligned with the four core components, being:

  • Use of proceeds;

  • Process for project evaluation and selection;

  • Management of proceeds; and

  • Reporting.

Green projects, in turn, are defined broadly and include a wide range of projects across various industries contributing to environmental objectives.

Ambiguity around what qualifies as ‘green’ may hinder the growth of the green bond market amid issuers’ and investors’ concerns about reputational risks. While an imminent adoption of a universally accepted definition of green bonds appears unrealistic at this stage, it may be worth noting that the ICMA reported in a press release that in 2020, 97% of sustainable bonds issued globally referenced the ICMA principles.

This clearly shows that there is increasing consensus among market participants on the importance of consistency and alignment on green definitions, taxonomies and criteria in order to reduce reputational risks and ensure transparent growth of the green bond market.

Sustainability developments

During the recent Leaders’ Summit on Climate hosted by the US, the UK announced a landmark target to reduce emissions by 78% from 1990 levels by 2035, Canada announced a 40–45% reduction from 2005 levels by 2030, and Japan promised a 46% cut from 2013 levels, also by 2030. China, too, made some strides in allaying fears on its dominant use of coal in agreeing to ‘phase down’ coal consumption in the five-year period towards 2025.

Similarly, the European Commission has recently adopted a comprehensive package of measures to help improve the flow of money towards sustainable activities across the EU. The 26th UN Climate Change Conference of the Parties (COP26) in November 2021 will bring states together to accelerate actions under the Paris Agreement and the UN Framework Convention on Climate Change. The Paris Agreement was signed in 2015 by 195 states in order to combat climate change and reduce its impacts. Despite signing the Paris Agreement, Turkey has yet to ratify the Paris Agreement.

On the other hand, SDGs were also adopted by all UN member states in 2015 as a universal call to action to end poverty, combat climate change and ensure that all people enjoy peace and prosperity by 2030 (2030 Agenda).

With an established commitment to contribute to a sustainable world, Turkey has linked these SDGs with its national development plans and sectoral strategies.

In 2017, Turkey signed in line with the global SDGs the Declaration on Sustainable Finance as part of the United Nations Global Compact, which aims to integrate environmental and social risk analysis in banking activities and market strategies.

To date, eight Turkish banks, whose asset value represents almost 40% of the Turkish banking sector, have signed the Declaration on Sustainable Finance. The signatory parties have been implementing sustainability benchmarks in their credit facility policies and diversifying the green products they provide to customers, who range from individuals to big corporations. More recently:

  • In March 2021, the Turkish government announced that works are underway for the establishment of a ‘bond guarantee fund’ as part of the new economic reform package. The bond guarantee fund is expected to increase the investor appetite in the bond markets by providing additional incentives, which are also expected to boost new green and sustainable bond issuances.

  • In May 2021, Istanbul Metropolitan Municipality signed a memorandum of understanding with the European Bank for Reconstruction and Development (EBRD) which oversees Istanbul’s participation in the EBRD’s flagship ‘Green Cities’ urban sustainability programme. Following Ankara and Izmir, Istanbul will be the 47th city to take part in the EBRD’s Green Cities urban sustainability programme.

  • In June 2021, Turkey unveiled its Foreign Direct Investment Strategy (2021–2023) which sets out that work is in progress to align Turkey’s business environment and regulatory framework with UN’s SDGs and the European Green Deal.

Sustainable finance and green bonds in Turkey

Following an increase of US$500 billion in 2020 alone, the volume of the global sustainable debt market has passed US$1.5 trillion. As an emerging economy, Turkey’s sustainable debt market volume is a total of US$4.2 billion. Of this amount, US$3 billion is comprised of bonds, while the remaining US$1.2 billion is made up of loans.

Turkey has been no exception in terms of the rising trend in sustainable finance and green bond issuances. Türkiye Sınai Kalkınma Bankası AŞ led by issuing the first-ever green bond out of Turkey, which was followed by a series of green bond issues by Turkish banks and financial institutions in increasing volumes. The green bond market appears to be gaining momentum for corporates as well in the recent years, particularly following Arçelik AŞ’s offering of €350 million 3.0% green bonds in 2021 – Turkey’s first-ever green bond issuance by a corporate in the international markets.

Turkey has an impressive sustainability strategy, with a particular focus on renewables in order to meet the continual rise in the country’s demand for energy. In just over a decade, Turkey has tripled its installed renewable capacity to 45,000 megawatts and invested nearly US$40 billion in renewable energy projects. On legislative developments, Turkey offers a wide range of incentives for private investors interested in developing renewable energy projects in line with the country’s 2023 targets.

“In June 2021 Turkey unveiled its Foreign Direct Investment Strategy (2021–2023)”

The most common forms of sustainable finance in Turkey have been green credit lines and loans made available by International Financial Institutions (IFIs). In the current market, the two major players are EBRD and the World Bank.

EBRD has recently provided financing to renewable energy and resource efficiency investments of private sector enterprises in Turkey, while the World Bank has provided on-lending facilities for the promotion of women’s participation in the labour force and encouraging a women-friendly working environment with the aim of attaining for women inclusive access to finance.

In addition to renewable energy projects, green mortgage programmes which aim to build eco-friendly facilities promoting energy efficiency have been gaining popularity among Turkish financial institutions in the recent years.

Although the country currently lacks a standardised set of principles for green bonds, the ESG framework in Turkey has seen marked development in the recent years.

One of the most promising developments was the launch of the Borsa Istanbul Sustainability Index (BIST Sustainability Index) in 2014, which aims to promote sustainable business practices in Turkey and establish a platform for institutional investors to demonstrate their commitment to Borsa Istanbul companies managing ESG issues, and has been successful in its aim.

The companies that are included in the BIST Sustainability Index enjoy increased visibility, in particular from the perspective of local and global ESG investors, and are expected to have easier access to funding, whilst being able to track and compare their sustainability performance with that of peers. In order to pinpoint the importance of alignment with global standards, Borsa Istanbul recently published a guide on the research methodology and indicators used in BIST Sustainability Index’s assessment of the ESG compliance level.

In accordance with an agreement in place between Borsa Istanbul and a UK-based provider of independent research into the social, environmental and ethical performance of companies, the willing Borsa Istanbul companies listed in the BIST 100 Index or BIST Sustainability Index are assessed in accordance with the international sustainability criteria based on publicly available information. As a further incentive, the cost of assessment is covered by Borsa Istanbul and the list of companies subject to assessment is to be announced publicly on an annual basis, providing another benchmark for ESG-focused investors.

In order to introduce ESG in the agendas of all listed companies in Turkey, the Capital Markets Board of the Republic of Turkey (the CMB) amended the Corporate Governance Communiqué and published the ‘Sustainability Principles Compliance Framework’ (the CMB’s Sustainability Framework) which contains the ESG principles that would apply to listed companies in Turkey as of October 2 2020.

Although there is no hard obligation to follow these principles on the listed companies and implementation remains voluntary, they will be required to dedicate in their annual reports a section on CMB’s Sustainability Framework, and report on their compliance status on a ‘comply or explain’ basis.

Despite these new developments, there are still substantial financing risks in the transition Turkey is making towards the implementation of sustainability principles. Further regulatory changes will require engagement from all stakeholders, to facilitate the appropriate amendments to existing policies and processes (particularly in relation to disclosure and reporting mandates on ESG-driven risks, as well as financial risks).

As sustainable finance initiatives further develop and introduce new products and business models, additional human and technical resources will be needed to adapt to these new market principles. It may also be challenging to define the duty of corporates in a way that promotes this individualised risk-based approach while creating certainty for business from day one that its approach meets the expectations of financial adequacy and profitability.


The growth in sustainable financing has been a marked high note in a challenging market. In the first quarter of 2021, sustainable debt deals of US$280 billion were executed globally of which around two-thirds were bonds and one-third were loans. This market has more than doubled since 2018.

Regionally, Europe is the biggest market, with most of the bonds and loans originating from Europe. Europe’s success story is no surprise, as the EU seems to have unreservedly adopted a consciousness which is distinguished in its establishing pioneering legislation and, simultaneously, keeping pace with global trends at the domestic level.

With government and corporate attention focused on both ESG initiatives and sustainable investing, it is a matter of ‘when’ and not ‘if’ the sustainable finance market in Turkey will have to overcome issues relating to environmental and social accountability.

This only appears possible in today’s ESG-driven global financial market with a forward-looking regulatory environment that introduces transparent standards for green bonds and other sustainable finance products, which would serve as an attempt by investors to reward debtors for positive environmental practices.

Click here to read all the chapters from IFLR's ESG Europe Report 2021


Sait Eryılmaz


Ciftci Attorney Partnership

T: +90 212 339 0060

E: sait.eryilmaz@ciftcilaw.com.tr

Sait Eryılmaz heads the finance practice of the Ciftci Attorney Partnership. He is specialised in banking and finance transactions, with a particular focus on project finance and structured finance.

Sait has extensive experience in all types of structured and complex financings, being regularly involved with introducing new financial products into the Turkish market for the first time including advising on Turkey’s first-evet corporate green bond issuance in international markets in 2021.

Sait also holds a key position at the forefront of Turkish infrastructure and energy transactions, taking part in many notable projects including public-private partnerships (PPPs). He has acted for banks, export credit agencies, Islamic and conventional financial institutions, sponsors and other transaction parties in domestic and international project financings, including PPPs, infrastructure, transportation (roads, railways and airports) energy projects, oil and gas, and privatisations.

Sait has a law degree from Istanbul Bilgi University.


Başar Kırka


Ciftci Attorney Partnership

T: +90 212 339 0002

E: basar.kirka@ciftcilaw.com.tr

Başar Kırka is an associate at Ciftci Attorney Partnership. He specialises in banking, finance including syndicated financings, project financings, securitisations and other structured financings along with capital markets.

Başar has advised lenders, sponsors on several project and acquisition financings and equity and debt offerings. He also takes part in the corporate/M&A transactions and assists the corporate team in general advisory matters.

Başar has a law degree from Istanbul Bilgi University.


Ali Can Altıparmak


Ciftci Attorney Partnership

T: +90 212 339 0002

E: alican.altiparmak@ciftcilaw.com.tr

Ali Can Altiparmak is an associate at Ciftci Attorney Partnership. His specialises in banking and finance.

Ali Can has worked in a number of project financing, syndicated financing, acquisition financings, insolvency matters. He also assists with cross-border M&A transaction as well as day-to-day regulatory matters.

Ali Can has a law degree from Galatasaray University.

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