According to the Organization for Economic Co-operation and Development (OECD) projection, future levels of climate finance, including the $100 billion target, are linked to the number of private sector sources that can be mobilized for climate change investments. This inevitably raises the question: what can the public sector do to help the private sector mobilize increased levels of climate finance?
As agreed in the Paris Agreement, developed countries have high historical responsibilities and should therefore be the main mobilizers of climate finance flows to developing countries. Turkey’s historical responsibility for global climate change is less than 1%. Therefore, as a developing country, it has repeatedly stressed the need for climate justice in the provision of climate finance.
On the other hand, there are actions that developing countries can take at the national level to help channel finance from various sources towards climate change related investments.
A hub for 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 investment. In recognition of this fact, a Memorandum of Understanding (MoU) on climate finance has been signed between Turkey and members of the World Bank Group (the International Bank for Reconstruction and Development (IBRD) and the Finance Corporation (IFC)), the European Bank for Reconstruction and Development (EBRD), the UN, France and Germany. The MoU pledges over $3.2 billion (TL 47.4 billion) in climate finance to Turkey for a period of three years.
However, it is clear that Turkey needs more climate finance to transition to a low-carbon economy and meet its long-term climate goals, including its 2053 net-zero emissions target. Turkey on the inclusive, sustainable and humanitarian nature of development is the hallmark of its green development revolution. Thus, Turkey’s development vision sees climate change as an opportunity, not a threat. Supporting the shift from a linear to a circular economy, Turkey recognizes the importance of pursuing development priorities in a sustainable and responsible manner.
The UK-Turkey Conference
The UK-Turkey Green Finance Conference held recently in London was an event that gave Turkey the opportunity to share its development vision with international investors. The conference, held in the heart of London’s financial district, brought together hundreds of participants, ranging from investment banks to public institutions.
Its main objective was to facilitate collaboration between public and private financial actors of the two countries and to contribute to the acceleration of public policies and regulatory frameworks that improve green finance in Turkey. Accordingly, a focus of the conference was the steps taken by the Turkish public sector to facilitate private sector access to climate finance and pave the way for climate investments.
During the conference, the Turkish public sector shared details of its facilitating and regulating role in mobilizing financial markets and the private sector for climate-friendly investments. Public policies, projects and objectives in several sectors such as renewable energies (including geothermal, wind and solar), green hydrogen, sustainable waste management, clean transport and green buildings were highlighted during of the event.
For more climate finance
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 achieve Turkey’s net zero emissions goal by 2053. By making a binding commitment on climate change in the form of a law, Turkey will send a strong signal to international investors that ‘she is fully committed to playing her part in the global action against climate change.
Turkey will update and publish its Nationally Determined Contribution this year, which will announce more ambitious sectoral and national climate targets. It will guide private sector investment decisions by announcing which sectors and activities will be prioritized in Turkey’s climate change efforts.
With the ratification of the Paris Agreement, Turkey’s fight against climate change has gained new momentum. Turkey’s net-zero emissions goals 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 needed to implement its net zero emissions goal. Many investors have long-term investment horizons; thus, they often need long-term commitments to tie their money to climate-friendly investments in developing countries.
Developing countries can also encourage investment by putting in place long-term plans and strategies specifically focused on climate finance. Turkey will prepare a National Climate Finance Strategy that will define our country’s overall strategy to make financial flows compatible with low-carbon and climate-resilient development, as stipulated in the Paris Agreement.
By the end of 2020, global asset managers had over $100 trillion under management. About a third of these assets are managed by investors sensitive to environmental, social and corporate governance issues. In Turkey, the biggest players in the financial markets are the banks; they therefore play an essential role in channeling financial savings into specific investments. For example, in September 2021, Turkish banks provided $22.6 billion in financing for renewables alone. In this context, to guide international and domestic financial actors, Turkey will develop a national green taxonomy, which will classify economic activities considered “green” against a set of technical criteria. The taxonomy will help protect investors against the risk of greenwashing.
Carbon pricing mechanisms push companies to internalize the cost of the carbon they emit and to integrate the price of carbon into their economic decisions. By 2021, 45 national jurisdictions have carbon pricing mechanisms in place, many of which are countries with net-zero emissions pledges. Turkey will start the pilot implementation of an emissions trading system in 2024.
Global financial markets are marked by the diversity of green financing instruments, such as green bonds, green sukuks, green loans and mortgages. Turkey will encourage the use of these instruments by its financial institutions and companies, which will help diversify and broaden 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) issued Guidelines on Green and Sustainable Debt Instruments and Lease Certificates, which define these green financial instruments and set out the principles regarding their use, in accordance with standards existing international ones. In 2021, the Banking Regulation and Supervision Agency of Turkey (BDDK) published its Sustainable Banking Strategic Plan (2022-2026) to determine the strategy and general policies of the Turkish banking sector to lay the foundations for banking practices durable. Finally, in 2021, the Ministry of Treasury and Finance released its sustainable finance framework to issue green or sustainable sovereign bonds or leasing certificates that meet international standards.
The cost of the investments we are implementing for the green transition is lower than the cost of the climate disasters 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 critical to the implementation of climate investments. Turkey’s national efforts recognize the importance of climate finance for its national climate goals and aim to improve Turkey’s status as an attractive destination for global climate finance flows. The growing climate finance support provided to Turkey by its international partners will continue to yield results that will contribute to the global fight against climate change.