Sustainability in the Financial Sector and National Green Taxonomy

The crisis and forced changes brought about by climate change, together with the instability in the markets and the natural disasters that are the irresistible consequence of the climate crisis, while the resulting millions of dollars of losses and possible threats to the markets that may arise as a result of this situation have become a very important issue for the banking and finance sector.

Fragile market conditions and unpredictable outcomes have led to the proliferation of principles emphasizing the sustainability of renewable energy resources and investments in a global perspective. At this point, the European Green Deal adopted by the EU in 2019 aims to make economic instruments and markets more sustainable, while at the same time establishing a guide for the finance and banking sector. In addition to this process, some of the regulations adopted by the EU for sustainable finance are the EU Taxonomy, the Sustainable Finance Reporting Directive, and the Corporate Sustainability Report.

At this stage, the EU Taxonomy and the guide adopted for sustainable finance in Turkey are of great importance. The EU Taxonomy is a system that classifies economic activities that are sustainable in order to combat environmental crises and ranks activities within the framework of this classification. At the same time, as examples of "green washing" are increasing globally and companies mislead consumers, the EU Taxonomy plays an important regulatory role to prevent green washing. Supporting the circular economy and legalizing sustainable policies are key elements of the EU Taxonomy. The EU Taxonomy aims to help create a sustainable financial environment with its classification of sustainable activities, while at the same time providing companies or countries with a standardized policy on what kind of economic activities can be considered sustainable.

Along with the EU Taxonomy's steps towards sustainable finance, taxonomy preparation studies have been initiated in order to disseminate sustainable policies due to Customs Union relations. Turkey's National Taxonomy Framework Document is at the forefront of these efforts in order to ensure that the Turkish legal system is in line with the EU Taxonomy system. At the same time, an organized taxonomy activity is being prepared with the Green Deal Action Plan, which includes sub-headings such as green financing, green and circular economy, combating climate change.

In 2022, in the process that started with the "Preparation of Reporting Guidelines in Turkey and Identification of Potential Users and Beneficiaries of the Green Taxonomy" project, it was aimed to examine and analyze other sustainability policies in order to provide the technical infrastructure on the subject, to create appropriate resources and reports for legislative studies or to establish a technical expert group.

In the process leading to the National Taxonomy Framework Document, goals such as the preparation of a project to identify potential interested parties that can be evaluated within the scope of the green taxonomy together with collaborations and projects, and the realization of reporting activities related to this project have been determined. With this project, it is aimed to facilitate access to green finance and to emphasize sustainable banking and finance activities, to support the legislative work of the green taxonomy for sustainable finance in the coming years and to provide a suitable environment for current legal developments in the field of green finance in Turkish law.

In addition to the projects to support green finance, work on behalf of the Taxonomy Technical Expert Group is also accelerating to promote sustainable investments and policies in the markets. In the last quarter of 2023, the Taxonomy Framework Document was finalized and a report on sustainability targets in the finance and banking sector and a roadmap for legislation was published. In the name of green finance and sustainability, the CMB's (Capital Markets Board) "Sustainability Principles Compliance Framework" and "Green Debt Instrument, Sustainable Debt Instrument, Green Lease Certificate, Sustainable Lease Certificate Guidelines" as well as the BRSA's (Banking Regulation and Supervision Agency)  "Guidelines on Credit Allocation and Monitoring Processes" provide the legislative infrastructure and relevant regulations for the national green taxonomy. Sustainability in finance, which has developed and gained a new momentum with the EU Taxonomy, and the limitation of economic activities within the framework of sustainability increase the potential for international cooperation and legal regulations in the field of green finance in the future. Turkey's National Green Taxonomy, which was developed within the perspective of the Customs Union and harmonization with the EU, and the legislative studies developed within this scope aim to bring Turkey together with green finance at the global and local level. The national green taxonomy, which emerged with the decisions of the Climate Council and developed within the framework of the EU taxonomy, became a milestone for legal regulations in the field of green finance with the publication of the legislation studies in the last quarter of 2023 with the technical expert group within its body.

The climate crisis, whose effects are felt in every sector at the global level, has become a very important issue for companies as well as affecting the financial sector. In these times when sustainability and ESG policies are becoming widespread and encouraged, it is important for companies to determine which economic activities are sustainable within the scope of the national green taxonomy and to produce projects within this scope in order to attract investors aiming to finance sustainable projects. Projects that comply with the EU taxonomy and the National Green Taxonomy published in 2023 can gain prestige in the sector for regulatory compliance reasons, while also paving the way for accelerating sustainable legal regulations and practices at the local level.

The National Green Taxonomy Document, which was completed in the last quarter of 2023 and supported by the comprehensive "Green Consensus Action Plan" covering the period 2022-2025, constitutes an important roadmap for potential developments in the field of sustainability in the Turkish Banking and Finance sector and legislation in order to combat climate change and minimize the global economic damage and potential threats in the markets brought about by climate problems.

Bibliography

• https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en
• https://eu-taxonomy.info/
• https://www.bddk.org.tr/KurumHakkinda/EkGetir/18?ekId=126
• https://ticaret.gov.tr/data/60f1200013b876eb28421b23/MUTABAKAT%20YE%C5%9E%C4%B0L.pdf
• https://iklim.gov.tr/taksonomi-proje
• https://iklim.gov.tr/db/turkce/projeler/files/Taksonomi%20%C3%87er%C3%A7eve%20Dok%C3%BCman%C4%B1(2).pdf