Green Banking Practices in Türkiye

The environmental issues, which include corporate climate policies, energy use, waste, pollution, natural resource conservation, and treatment of animals have caused an essential shift in the finance sector in recent years. In particular, climate-related risks have resulted in physical and transitional concerns for the financial sector. Due to the adoption of sustainable policies, various green banking efforts have been launched by financial regulators and institutions to mitigate the negative effects of environmental challenges.

Green banking products refer to financial services and investments ranging from individual banking products to complex financial solutions, including green mortgages, credit cards, green investment funds, green insurances together with the green bonds and green loans. These products focus on economic activities that use fewer resources and reduce carbon emissions, promoting an eco-friendlier approach to banking and a transition towards a sustainable financial system.

Certainly, the approach to green banking and its adaptation process varies for each country. Due to the increasing environmental and social awareness worldwide, the financial market regulators in Türkiye are paying more attention to the green banking sector in recent years. For instance, the “Green Deal Action Plan” was enacted within the Presidential Communiqué No. 2021/15 on 16 July 2021 to develop an ecosystem that supports green finance and sets forth a road map to develop sustainable banking.

The awareness of Turkish banks on environmental and social risk management is also enhancing as concerns for ESG and sustainability emerge. The Turkish banking sector employs green assets such as green loans and green bonds which serve as tools for channeling capital towards sustainable development. By extending green loans with low-interest rates and long maturities for financing of green and sustainable projects, the real sector is encouraged to green transformation. Additionally, assessing the environmental and social impacts of loans provided within the scope of green finance is important to ensure sustainability and transparency. In this context, certain Turkish banks that assess environmental and social risks follow international approaches such as International Finance Corporation (IFC) Performance Standards, Equator Principles and European Bank for Reconstruction and Development (EBRD) Performance Requirements. The Banks Association of Türkiye also prepared an advisory “Sustainability Guidelines for the Banking Sector” which aims to enable Turkish banks to manage environmental and social predictability, transparency and accountability approaches more systematically. According to the 2023 Financial Stability Report of the Central Bank of the Republic of Türkiye, the credit/financing limit increased to TRY 2.5 billion to be used for investments with a total fixed investment amount of TRY 1.5 billion or more due to the sustainable, strategic and green transformation, provided that the allocation amount does not exceed the total fixed investment amount.

Another green banking practice is Diversified Payments Rights (DPR) programs, which provide funds derived from securitization of future international flows. The Green Economy Financing Facility (GEFF) program, backed by EUR 6.3 billion of funds provided by EBRD, supports green economy investments through participation of local institutions. GEFF Türkiye has EUR 500 million of EBRD financing for green investments aimed at reducing energy use and mitigating the negative impacts of climate change. For instance, in August 2022, GEFF Türkiye provided a total of USD 127 million of funds to Türkiye İş Bankası Anonim Şirketi (İşbank) to support investments in renewable energy and resource efficiency as well as women-led small-scale enterprises. Similarly, in April 2023, a total of USD 143.25 million was provided to Deniz Bank Anonim Şirketi to be used for green investments, women-led businesses and relief and reconstruction efforts in the earthquake zones. In addition, USD 88.25 million of this fund, in total, was allocated to green economy projects, which was co-financed with the World Bank’s Clean Technology Fund. Furthermore, IFC is also supporting the green transformation in Türkiye through DPR securitization programs. In September 2023, IFC invested USD 125 million in DPR securitization of Yapı Kredi Bankası Anonim Şirketi in the amount of USD 1 billion to support women-owned micro, small and medium enterprises, as well as climate finance initiatives.

Furthermore, green bonds also serve to finance green projects focused on renewable energy, sustainability, energy efficiency, clean transportation, pollution prevention and control. In 2022, Capital Markets Board of Türkiye published “Guidelines on Green Debt Instruments, Sustainable Debt Instruments, Green Lease Certificates and Sustainable Lease Certificates”, which was prepared based on the International Capital Markets Association Green Bond Principles and aims to ensure that green debt instruments comply with international financial market standards and to protect investors in the financing of green projects that can contribute to environmental sustainability, and to increase transparency, consistency and comparability. In Türkiye, the green bonds are primarly used for private sector investments in renewable energy, energy efficiency, and other activities/projects that reduce greenhouse gas emissions. According to the 2023 Financial Stability Report of the Central Bank of the Republic of Türkiye, in the first quarter of 2023, the amount of sustainability-themed bonds and loans reached approximately USD 5.1 trillion, and this corresponds to approximately 5.5% of total financing on a global basis.

In December 2023, the Ministry of Treasury and Finance has announced the new fund called “Türkiye Green Fund” that is established to provide financing for green transformation activities such as investment in green technologies and further enhance transaction diversity. In this context, it pointed out that the World Bank has recently approved of a loan worth USD 155 million, which has been channeled to the Türkiye Sınai Kalkınma Bankası Anonim Şirketi for the green finance project. In addition, İşbank has reached a milestone in Turkish banking sector by issuing the first-ever domestic green debt instrument in Turkish lira, which is a green bond amounting TRY 500 million, with a two-year maturity period for the financing of green projects in the battle against climate change.

In addition to these practices, in 2022, beyond the online banking practices, regulatory efforts to transition to branchless banking, i.e., digital banking, began in Türkiye with the Regulation on the Working Principles of Digital Banks and Service Model Banking. Banks established as digital banks will operate without physical branches, reducing paper waste and electricity consumption. This approach not only promotes the sustainability of financial products but also contributes to the sustainability of the services provided by banks. Besides the digitalization of banking services, some Turkish banks have initiated environment friendly green buildings and use renewable energy sources in their branches or ATMs.

Banks and financial institutions may not be directly impacted by environmental degradation, but it has indirect repercussions for them. Currently, sustainable finance in Türkiye is progressing to a rate commensurate with more depth, diversity, and growth of the banking sector. Therefore, it is anticipated and necessary for the green banking system to be implemented more actively in the coming years, with the guidance and contributions of regulatory authorities. The banking sector in Türkiye generally demonstrates the ability to adopt innovations and follow trends in an efficient and timely manner. Hence, it is expected that practices in Türkiye will swiftly adopt green banking to contribute to a sustainable economy.