According to Organisation for Economic Co-operation and Development (OECD) projections, future levels of climate finance, including the $100 billion goal, are linked to the number of private-sector sources that can be mobilized for climate change investments. This situation inevitably begs the question: What can the public sector do to help the private sector mobilize increased levels of climate finance?
As agreed upon in the Paris Agreement, developed countries have high historical responsibilities, and thereby should be the leading mobilizers of climate finance flows to developing countries. Turkey's historical responsibility for global climate change is below 1%. Therefore, as a developing country, it has repeatedly emphasized the need for climate justice in the provision of climate finance.
On the other hand, there are steps that developing countries can take on a national level to help channel finance from various sources to climate change investments.
As a developing country with high mitigation potential and a long track record of successful climate change projects, Turkey continues to be an attractive destination for climate change investments. In recognition of this fact, a Memorandum of Understanding (MoU) on climate finance was signed between Turkey and the World Bank Group members (the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC)), the European Bank for Reconstruction and Development (EBRD), the U.N., France and Germany. The MoU pledges over $3.2 billion (TL 47.4 billion) of climate finance to Turkey for a period of three years.
However, it is obvious that Turkey needs larger amounts of climate finance to transition to a low carbon economy and attain its long-term climate goals, including its 2053 net-zero emissions target. Turkey’s emphasis on the inclusive, sustainable and humanitarian nature of development are the hallmarks of its Green Development Revolution. As such, Turkey’s development vision treats climate change as an opportunity, not a threat. Supporting a shift from a linear to a circular economy, Turkey recognizes the importance of pursuing development priorities in a sustainable, responsible way.
The U.K.-Turkey Green Finance Conference held in London recently was an event that gave Turkey the chance to share its development vision with international investors. The conference, held in the heart of London’s financial district, was well attended by hundreds of participants, ranging from investment banks to public institutions.
Its main aim was to facilitate collaboration between public and private financial actors in both countries and to contribute to the acceleration of public policies and regulatory frameworks that improve green finance in Turkey. Accordingly, one of the focus areas of the conference was the measures taken by the Turkish public sector to facilitate the private sector's access to climate finance and pave the way for climate investment.
During the conference, the Turkish public sector shared the details of its enabling and regulatory role in mobilizing financial markets and the private sector for climate-friendly investments. Public policies, projects and targets in several sectors such as renewable energy (especially geothermal, wind and solar), green hydrogen, sustainable waste management, clean transportation and green buildings came to the fore during the event.
In this context, Turkey is preparing seven key policies that will facilitate climate finance and boost investor confidence.
The country is working on drafting a national climate change law this year. The law will mark the legal process to reach Turkey’s target of net zero emissions by 2053. By undertaking a binding commitment on climate change in the form of a law, Turkey will be sending a strong signal to international investors that it is fully dedicated to playing its part in the global action against climate change.
Turkey will be updating and releasing its Nationally Determined Contribution this year, which will announce more ambitious sectoral and nationwide climate targets. It will guide the investment decisions of the private sector in announcing which sectors and activities will be prioritized in Turkey’s climate change efforts.
With the ratification of the Paris Agreement, Turkey’s combat against climate change gained new momentum. Turkey’s net zero emissions targets will also contribute to the Paris Agreement’s 1.5 degrees Celsius (1.8 degrees Fahrenheit) target. Turkey will prepare a long-term climate strategy that will identify and promote the measures necessary to implement its net-zero emissions target. Many investors have long-term investment horizons; thus, they often need long-term commitments to tie their money in the climate-friendly investments of developing countries.
Developing countries can also encourage investments by putting in place long-term plans and strategies specifically on climate finance. Turkey will prepare a National Climate Finance Strategy that will spell out the overall strategy of our country to make financial flows compatible with low-carbon and climate-resilient development, as stipulated in the Paris Agreement.
As of the end of 2020, global asset managers have more than $100 trillion under management. Approximately, a third of these assets are managed by investors sensitive to environmental, social and corporate governance issues. In Turkey, the biggest players of the financial markets are banks; they, therefore, play a critical role in channeling financial savings to clean investments. For example, as of September 2021, banks in Turkey provided $22.6 billion in financing to renewable energy alone. In this context, to guide international and national financial players, Turkey will develop a National Green Taxonomy, which will classify which economic activities are considered “green” against a set of technical criteria. The taxonomy will help to protect investors against the risk of greenwashing.
Carbon pricing mechanisms drive businesses to internalize the cost of carbon they emit and incorporate carbon price into their economic decisions. As of 2021, 45 national jurisdictions have carbon pricing mechanisms in place, many of which are countries with net-zero emission pledges. Turkey will launch the pilot implementation of an Emission Trading System in 2024.
Global financial markets are marked by the diversity of green finance instruments, such as green bonds, green sukuks, green loans and mortgages. Turkey will encourage the use of such instruments by its financial institutions and corporations, which will help to diversify and expand their existing investor bases. For example, many of our public sector institutions have already taken steps to stimulate the use of green finance instruments. In 2022, the Capital Markets Board of Turkey (SPK) published guidelines on green and sustainable debt instruments and lease certificates, which defined these green financial instruments and laid out principles regarding their use, in line with existing international standards. In 2021, the Banking Regulation and Supervision Agency of Turkey (BDDK) published its Sustainable Banking Strategic Plan (2022-2026) to determine the general strategy and policies for the Turkish banking sector for laying the groundwork for sustainable banking practices. Finally, in 2021, the Ministry of Treasury and Finance has published its Sustainable Finance Framework to issue sovereign green or sustainable bonds or lease certificates in line with international standards.
The cost of investments we implement for the green transition is less than the costs of climate change disasters that we will face if we do not step up our mitigation and adaptation efforts. Climate finance permeates all aspects of climate change policy because finance is indispensable to implementing climate investments. Turkey’s national efforts recognize the importance of climate finance for its national climate goals and aim at improving Turkey’s status as an attractive destination for global climate finance flows. The increasing support in climate finance provided to Turkey by its international partners will continue to yield results that contribute to the global fight against climate change.
