The report notes that Turkey has made progress in climate and environment agenda, notably by rapidly increasing renewable energy production and expanding waste treatment infrastructure. Following the flagship Zero Waste initiative, launched in 2019, thousands of buildings, residences and companies have implemented recycling programs and over 57,000 tons of waste has been removed from the country’s seas.
Nevertheless, Turkey remains a resource-intensive economy and green finance is still an evolving area. Initial green finance initiatives have been mostly focused on renewable energy investments, and chiefly financed by bank loans.
While there is great potential in green finance, short-term funding structures and other barriers – ranging from regulatory frameworks to high upfront capital costs – limit its growth.
The report details several practical policy recommendations that could help accelerate Turkey’s progress towards green growth by unlocking green finance. These include:
- Creating an overall strategy on green or sustainable finance. This may take the shape of a roadmap that aims to align financial sector policies, regulations and incentives with environmental and climate goals. A roadmap covering both the risks and opportunities of climate change can help prioritize actions and coordinate the activities of different stakeholders, including financial and environmental policymakers, regulators and financial institutions at the national and regional level.
- Clearly defining regulations that would provide comfort to the global ESG (Environmental, Social and Governance) investor community. This would be a way to strategically position Turkey as a destination for green investments by progressive investors.
- Establishing a national regulatory framework for sustainable finance. Although several banks in Turkey voluntarily apply sustainable finance guidelines, a national framework would significantly advance the development of capital market instruments for green finance. This would increase the availability of long-term sources for priority sectors by broadening the investor base and raising awareness.
- Developing a classification system for labeling green finance products, or building benchmarks, in line with global practices and with the European Union (EU).
- Establishing a champion financial sector public institution coordinating all relevant stakeholders could also help overcome the barriers to further development of sustainable and green finance in Turkey.
- Enabling better access to climate data and analytics on the impacts of climate change would support relevant actors in assessing potential climate related risks. In the case of climate adaptation, Turkey has yet to comprehensively assess the potential costs of climate change and the benefits of adaptation.
- Building capacity at financial institutions to integrate climate factors into all aspects of their operations. This includes integrating risks and opportunities relevant to climate change and the energy transition in strategy, risk management procedures and pricing models, governance structures, disclosure practices, and loan origination processes and securitization.
- Raising public awareness on green finance and green products could force both banks and firms to take actions and accelerate the green transformation.
- Strengthening government support for innovation, given its important role in developing new practices and technologies needed to produce goods in a more environmentally sustainable way.
These and other measures outlined in the report will help leverage the funding required for scaled-up climate action in Turkey through a strategic approach that covers both the risks and opportunities of climate change.