20
Sat, Apr
44 New Articles

The Rise of Green Finance in Turkey

The Rise of Green Finance in Turkey

Turkiye
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Turkey, a G20 country, has been experiencing an increase in energy demand with its high-speed economic and population growth which makes it even more dependent on energy imports for primary energy sources. To ensure the security of its energy supply, Turkey has set its mind to increase the share of renewable energy resources, as per its renewable energy and energy efficiency action plans. That being said, besides other obstacles, the country’s priority target cannot be achieved without an innovative financing resource.

Issued Green Bonds

In the last seven years, Turkey has introduced many green financing methods such as green loans, green sukuks, and green bonds. Among others, high investment costs, longer periods for investment returns, and investors’ high-risk perception of green investments make green investments less favorable compared to other investment methods. In this regard, green bonds as a capital market instrument step forth, by reducing the risk and cost of investment by attracting a more diverse base of investors.

The first green bond in Turkey was issued in 2016 by Turkiye Sinai Kalkinma Bankasi (TSKB), with the USD 300 million raised to be used in energy, health, and education projects. The launch of the bond is considered a significant success since the bond was demanded 14 times more than expected. Following the first green bond, several other companies issued green bonds to finance their sustainability-linked projects. Moreover, after TSKB, Turkey’s two biggest banks also issued green bonds to fund the construction of green buildings and renewable energy projects.

Recent Developments

Turkey has proved its commitment to sustainability principles. In 2020, the Turkish Capital Markets Board (CMB) amended its corporate governance regulation which requires public companies to indicate in their annual activity report whether they apply sustainability principles. If they do not, they must give detailed reasons for this and list the social and environmental risks arising from non-compliance by using a template sustainability report published by the CMB within the financial report submission period but, in any case, no later than three weeks before the general annual meeting. Thereafter, in mid-2021, Turkey published the Green Deal Action Plan to harmonize the EU’s actual and planned policy changes by adopting compliant roadmaps for foreign trade.

The Green Deal Action Plan included two specific goals regarding green bonds which are to establish the Sustainable Bond Framework Document, under which Turkey intends to issue green and sustainable bonds in international capital markets, and to draft a guide on green bonds. Not long after, on November 3, 2021, a draft guide on green bonds and green lease certificates was published by the CMB for public review, and later on, on February 25, 2022, the CMB introduced the applicable version of the guide. As of November 12, 2021, the Sustainable Bond Framework Document became applicable to any sustainable financing instrument to be issued by the Republic of Turkey. Also, both the mentioned guide and framework document were drafted as per the principles outlined in the International Capital Market Authority handbooks. Further, the CMB has decided to apply a 50% discount to the administrative fees applicable to capital market instruments to incentivize green investments.

Remarks and Suggestions

Between the invasion of Ukraine and the rapid increase in energy prices, Turkey has suffered from being heavily reliant on energy imports. Considering Turkey’s new economic model, which primarily aims to increase production and exports despite the risks and uncertainties related to its energy supply, Turkey’s priority target to ensure energy supply and maintain, and even increase, its economic growth depends on green energy and, hence, green financing. Accordingly, with the recent and expected interest rate increases, green bonds are expected to be in high demand for green projects, and recession concerns may make green bonds even more appealing for investors, with their low-risk fixed revenue opportunities. 

The volume and amount of the current green bonds may not be considered adequate for Turkey, where its energy needs increase each day and most of its energy supply is provided through imports. So far, Turkey has shown its eagerness to increase green energy through green investments and attract foreign investment through legislative and administrative action.

By Hulya Kemahli, Partner, and Arcan Kemahli, Counsel, CMS Turkey

This Article was originally published in Issue 9.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

CMS at a Glance

CMS Sofia is a full-service law firm, the largest international law firm in Bulgaria and one of the largest providers of legal services in the local market as a whole. The breadth and depth of our practice means that our lawyers are specialised, with a level of specialisation that few of our competitors can match.

CMS Sofia is the Bulgarian branch of CMS, a top ten global legal and tax services provider with over 5000 lawyers in 43 countries and 78 offices across the world.

CMS entered the Bulgarian market as one of the first internationally active law firms in 2005 and is now among the most respected legal advisors in the country. We have 7 partners, 4 counsel and over 30 lawyers in our office in Sofia.

Our legal experts, who are rooted in Bulgaria’s local culture, can also draw on years of experience in foreign countries and are at home in several legal systems at once. We know the particularities of the local market just as well as the needs of our clients and combine both to achieve optimum solutions. Our lawyers are Bulgarian qualified and we also have English qualified experts – all of them regularly working on cross-border mandates.

In our work, we focus on M&A, Energy, Projects and Construction, Banking and Finance, Real Estate, Media, IP and IT law, Tax, Employment law, Competition, Procurement and any kind of Dispute resolution, including arbitration and mediation. What’s more, we also take care of the entire legal management of our clients’ projects.

Firm's website.