Turkey’s Green Financial Revolution

By: Dr. Guzhan Gulay, Executive Vice President, Borsa Istanbul Apr 2022

According to the landmark Intergovernmental Panel on Climate Change (IPCC) report released in February, climate change is gaining speed, its impact will be more severe than anticipated, and we have little chance of preventing serious damage. The assessment report is the sixth since the IPCC was first convened by the UN in 1988, and it may be the last one undertaken while there is still a chance to take action that will make a difference.

The positive news is that awareness among people is now higher than ever and they are acting to try to prevent the most devastating scenarios from playing out. In this article, I would like to explain some of the great steps being taken in Turkey and provide a snapshot of the green instruments that we have introduced.

After months of preparation, the Climate Council convened for the first time in Turkey in February 2022. The Council was composed of representatives from public institutions, NGOs, local municipalities, banks, Borsa Istanbul, other financial institutions, companies, international organisations and academics. More than 600 participants discussed different aspects of the climate crisis in Turkey from various perspectives, and the meeting resulted in Turkey's roadmap for combating climate change.

Throughout the Climate Council meetings, the Borsa Istanbul team and representatives of energy companies had valuable discussions about setting up a nationwide Emission Trading System. Meanwhile, a National Climate Change Strategy and Action Plan were shaped, in line with Turkey’s 2053 net zero emission targets. It was also announced that a Climate Law is expected to be promulgated this year, aiming to establish the legal and institutional framework necessary for action against climate change.

While these promising developments took place at the national level, capital markets welcomed the introduction of guidelines for green bonds and Sukuk. On November 3, 2021, the Capital Markets Board (CMB) of Turkey submitted the Draft Guidelines on Green Debt Instruments and Green Lease Certificates (Sukuk) for public opinion. The guidelines are intended to regulate the principles regarding the Green Debt Instrument, Sustainable Debt Instrument, Green Lease Certificate and Sustainable Lease Certificate that will be issued to finance investments that contribute to sustainability. The guidelines, which are in line with the International Capital Markets Association (ICMA) Green Bond Principles, were prepared after considering the opinions of Borsa Istanbul and other market stakeholders.

To incentivise the financing of investments that will have a positive impact on the environment and sustainability via the capital markets, a 50% discount will be offered on the CMB fee for the issuance of capital market instruments within the framework of the guidelines. In the context of financing sustainable and green projects, the guidelines aim to ensure the relevant debt instruments are in compliance with international best practices and standards in terms of transparency, integrity, consistency and comparability. Additionally, Borsa Istanbul’s Board of Directors agreed on a 50% reduction in listing fees for green and sustainable debt instruments to further incentivise their listing in our markets.

Innovative financial instruments such as green bonds are increasingly important for sustainable finance. In light of the developments taking place in Turkey within the framework of the green economy, it should be stated that sustainable debt instruments will encourage the popularity of the green market. The development of these instruments and the growth of green debt markets will significantly contribute to action against climate change.

I think it is safe to say that the Turkish financial ecosystem has come a long way. For many years, the question “why” has dominated the sustainability-related discussions we had with company executives. We were trying to convince them why sustainability matters. However, particularly as a result of the Covid-19 pandemic, we are now seeing that “how” has become the popular question, replacing “why.” “How can I make my business more sustainable? How should I report non-financial matters to investors?” These are now among the questions that we receive from directors, executives and board members in meetings. These questions are on the agenda of Turkish companies.

To address the need for transparency and to incentivise non-financial reporting, in summer 2021 we introduced a methodology change for the BIST Sustainability Index, which has been calculated since 2014. Through the change in methodology, a new era began for the index, giving it a more dynamic, transparent and useful structure. An assessment that was carried out only once a year for companies in the index, has now become continuous. We developed a methodology in which listed companies’ sustainability assessment results calculated by Refinitiv are used as index criteria. Companies are able to update their sustainability input on the Refinitiv system throughout the year, and their grades are revised in light of those updates.

Though Refinitiv will accept upside developments from companies as long as they are verifiable, it will also conduct proactive research on the evaluations and apply downgrades where necessary. In this way, companies that showed a negative sustainability performance and whose ratings dropped in the middle of the assessment period, will be prevented from remaining in the index throughout the assessment period.

According to the new methodology, which consists of three main headings (environmental, social and corporate governance) with a total of 10 categories under those, the admission criteria became tougher. Therefore companies are encouraged to make an effort to increase their sustainability performance and to disclose the good practices they implement, so they can be part of the index.

Moreover, the coverage of companies that can potentially be included in BIST Sustainability Index has been expanded. Going forward, we will be able to see more and more companies that are performing well becoming candidates for the index. As such, good practices in these key environmental, social and corporate governance areas are being encouraged and incentivised more effectively.

In the coming period, we aim to increase the number of sustainability-themed indices. We have recently introduced the BIST Sustainability Participation Index, a double-themed index focusing on sustainability and Islamic finance. We plan to create other investment-grade sub-indices on which futures contracts and similar financial products can be based.

In today's world, where expectations vis-à-vis sustainability are growing nationally and internationally, we are inviting listed companies to take immediate action. I would like to emphasise that Borsa Istanbul will continue to work with investors and issuers to develop new ideas and take market-friendly steps to increase our presence in sustainability.


The views, thoughts and opinions contained in this Focus article belong solely to the author and do not necessarily reflect the WFE’s policy position on the issue, or the WFE’s views or opinions.