New €500 million facility to green Turkey’s financial system

By Dan Storey

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  • New €500 million facility responds to Turkey’s ambitious new climate commitments
  • For the first time, a GEFF incorporates technical assistance to improve corporate climate governance
  • Facility combines EBRD finance with donor funding from CTF and Turkey-EBRD Cooperation Fund

The EBRD has agreed a first transaction under a new financing facility that will benefit thousands of businesses and homeowners while strengthening the competitiveness of key Turkish companies and financial institutions.

Signed earlier in April, the transaction is part of  a €500 million EBRD Green Economy Financing Facility (GEFF), which combines EBRD finance with around €21.5 million of concessional financing from the Clean Technology Fund (CTF) and about €7 million in grants for technical assistance from the CTF and the Turkey–EBRD Cooperation Fund, among others.

The GEFF builds on the Turkey Sustainable Energy Financing Facility (TurSEFF) that has been running in Turkey since 2010.  Participating banks and leasing companies will use the finance received through the facility to support individuals, businesses, vendors and producers of green materials and products with investments in high-performing green technologies.

These financial institutions can also benefit from a technical assistance programme on corporate climate governance. This is the first time such a programme has been incorporated into a GEFF.

Improvement in corporate climate governance to help maintain access to markets and capital

Corporate climate governance refers to the rules, policies and processes organisations use to identify, assess, manage and disclose risks and opportunities resulting from climate change. Various frameworks have been developed to support good climate governance, but there has been a recent push for global standards in response to the introduction of mandatory climate-related disclosures by regulators and demand from investors.

Although Turkey has advanced regulatory and institutional frameworks for corporate governance in listed companies, there is still work to do to apply best practices with regard to corporate climate governance.

As of the end of 2021, only 16 per cent of the 2,913 supporters of one of the most widely recognised frameworks, the Task Force on Climate-related Financial Disclosures (TCFD), were from emerging markets, with Turkish companies accounting for just over 3 per cent of those emerging-market firms.

This matters because the lack of climate governance is already affecting companies’ access to capital. Rating agencies regularly upgrade and downgrade firms’ credit ratings based on data from providers and their own assessments.

By helping Turkish institutions to integrate climate-related information into their decision-making and to disclose their responses to changes in climate and related policies, the new facility will enable them to reassure the investment community about their management of climate-related risks and opportunities.

It will also help businesses maintain competitiveness in key export markets such as the European Union (EU). For instance, support to make green investments and establish robust monitoring, reporting and verification systems can reduce trade risks and annual costs stemming from the EU’s Carbon Border Adjustment Mechanism (CBAM), due to be phased in next year, which could run into hundreds of millions or euros.

The new facility responds to Turkey’s ambitious new climate commitments

The size and design of the new facility is a response to Turkey’s ambitious new climate commitments. In autumn 2021, Turkey ratified the Paris Agreement and announced its aim to achieve net-zero greenhouse gas emissions by 2053. Meeting this target will require a sharp increase in green investment, which could have huge economic benefits.

The potential for the facility to help is there. Since 2010, the EBRD and its financing partners have made €2.5 billion available alongside CTF concessional funding and EU grants to 14 financial institutions in Turkey through a series of financing facilities.

The total energy produced and saved by renewable-energy and energy-efficiency projects financed through the facilities is equivalent to that provided by about 12 per cent of the country’s 2020 coal imports for power plants. Purchasing this amount of coal at average 2021 prices would have cost the Turkish economy US$ 265 million.

Financial institutions can play a leading role in the transition to a green economy

The new facility will continue to support specific investments, but also aims to increase its impact by strengthening the competitiveness of key Turkish companies and financial institutions and accelerating changes in Turkey’s financial system that will enable it to better support the country’s ambitions for green growth. It will pave the way for replication of the approach in other programmes in further EBRD economies and become a central element of the EBRD’s engagement with its financial-sector clients in future.

As the place where the financial system and the real economy meet, Turkey’s banks and leasing companies are the source of the finance that most people invest in their businesses and homes. By combining finance for high-performing green technologies with support to assess, manage and disclose climate-related risks and opportunities, the new GEFF will increase these financial institutions’ ability to advise their customers and channel investment into decarbonisation and innovation across the economy.

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