The adoption of the European Green Deal in 2019 and Türkiye's accession to the Paris Agreement in 2021 mark the speeding up of public initiatives for green financing in Türkiye. These public initiatives come in the form of draft regulations and soft law instruments such as good practice guidelines published by regulatory authorities and Türkiye itself. One of the most prominent public initiatives for green financing is the Draft Communiqué on Green Asset Ratio ("Draft Communiqué") presented by the Banking Regulatory and Supervisory Authority (BRSA) in September 2023. The Draft Communiqué deals with the procedures and principles regarding the calculation and reporting of the green asset ratio and other key performance indicators determined for the calculation of banks' contribution to the financing of environmentally sustainable economic activities. According to the Draft Communiqué, the green asset ratio is calculated by dividing the compliant assets in banks' unconsolidated balance sheets by the eligible assets, and banks will be obliged to report their green asset ratio to the BRSA at certain intervals. In this sense, the Draft Communiqué is significant as it plans to introduce a mandatory measurement of banks' contribution to the financing of environmentally sustainable economic activities and requires long-term structural reforms for banks. In relation to real estate financing, consumer loans for improvement and renovation of energy-efficient housing and commercial loans for the construction and acquisition of green buildings are listed among the compliant assets for the calculation of the green asset ratio within the scope of the Draft Communiqué.
The BRSA also published the Good Practice Guidelines on Loan Allocation and Monitoring Processes ("BRSA Guidelines") complementing the Regulation on Internal Systems and Internal Capital Adequacy Assessment Process of Banks in June 2021. The BRSA Guidelines contain a separate section on environmentally sustainable loans and practices that banks should follow when allocating and monitoring environmentally sustainable loans, including preparation of environmentally sustainable loan policies and procedures. These policies and procedures should provide the criteria by which the bank assesses the eligibility of such projects and activities for environmentally sustainable lending, or references to relevant existing standards for environmentally sustainable lending that define the types of loans that are to be considered environmentally sustainable. In connection with this, banks should position their environmentally sustainable lending policies and procedures in the context of their overarching objectives, strategies and policies on sustainable finance. In particular, banks should establish qualitative and, where relevant, quantitative targets to support the integrity and development of environmentally sustainable lending activities, and assess the extent to which this development is aligned with or contributes to overall climate-related and environmentally sustainable objectives. The BRSA Guidelines are important in terms of providing guidance to banks in their sustainable finance considerations, including sustainable real estate finance.
Finally, in February 2023, the BRSA published the Decision on the Loan-to-Value Ratio and Maximum Loan Amount to be applied in Housing Loans and Housing Collateralized Loans, which determines loan-to-value ratio for energy performance class A houses with energy performance certificates and for energy performance class B houses, based on their market values. This regulation facilitates consumers' access to loans for energy-efficient housing, contributing to the green financing of housing needs.
The Capital Markets Board of Türkiye (CMB) published the Guidelines on Green Debt Instruments, Sustainable Debt Instruments, Green Loan Certificates, Sustainable Loan Certificates ("CMB Guidelines") on 24 February 2022. The CMB Guidelines regulate the principles and issuance processes of green debt instruments and green lease certificates based on the Green Bond Principles of the International Capital Markets Association, which has become the global standard in the field of green bonds. Similar to the Draft Communiqué and the BRSA Guidelines, the CMB Guidelines point to energy-efficient and green buildings among green projects eligible to attract the use of proceeds of green debt instruments and green lease certificate issuances.
Outside of the regulatory authorities' efforts on green financing initiatives, focusing on sovereign endeavors, Türkiye created its sovereign Sustainable Finance Framework ("Framework") in November 2021. The Framework regulates the standards for sustainable financing instruments (including all green, social or sustainability bonds, sukuks, loans and other debt instruments) and eligible green and/or eligible social projects. While the Framework sets the eligibility criteria for eligible green and social projects, it categorizes projects according to the United Nations Sustainable Development Goals. Similar to the draft regulations and soft law instruments of the regulatory authorities mentioned above, certain examples of eligible green projects categories under the Framework include energy-efficient buildings and green buildings. Türkiye intends to increase its activities in international finance markets by taking the steps on sustainability delineated in the Framework. Thanks to the Framework, Türkiye's transformation into sustainability has accelerated, and it has paved the way for improved access to international finance, including in the sustainable real estate sector.
Türkiye's green financing targets set out in the National Green Deal Action Plan ("Action Plan") published in 2021 complement the Framework goals. In this regard, Türkiye plans to revise its national incentive system by considering the incentives provided in the EU to green finance. In addition, within the Action Plan, Türkiye is developing the national energy efficiency financing mechanism and the Turkish banking sector strategy for sustainability. The Action Plan, alongside the Framework, shows Türkiye's commitment to providing financing alternatives to sustainable and green projects, among which are sustainable real estate projects.
International lenders such as the International Finance Corporation, the International Bank for Reconstruction and Development (IBRD) and the European Bank for Reconstruction and Development (EBRD) are also helping Türkiye in its efforts to replace conventional methods of financing of real estate projects with greener alternatives. In this context, the IBRD's Türkiye Sustainable Cities Additional Financing Project for over USD 560.6 million was approved in May 2019, and it aims to improve the sustainability of Turkish cities by enabling interested municipalities to access financing for their priority investments. This follows the launch of the Sustainable Cities Project (versions 1 and 2), which offered USD 132.7 million and USD 91.54 million, respectively, to Turkish cities for projects related to energy efficiency, renewable energy and urban environments. In addition, to target the potential of residential energy efficiency measures, the EBRD, supported by the Clean Technology Fund and the European Union, launched the Turkish Residential Energy Efficiency Financing Facility (TuREEFF) to provide finance to residential consumers who wish to invest in energy efficiency projects in their homes. As of 2020, TuREEFF has financed over 430 projects since 2015, reaching 50,000 homes and investing over USD 350 million through four local banks.
Turkish banks have also made multilateral commitments to achieve the transformation of companies' investment decisions and the market in support of sustainable development. In this regard, eight of Türkiye's leading banks signed the United Nations Global Compact Türkiye Sustainable Finance Declaration ("Declaration") in 2017, and the Declaration is reviewed and regularly updated every year. Under the Declaration, the signatory banks undertake, among other things, to consider the environmental and social principles set out in the Declaration in project finance, and to prioritize and promote resource efficiency, renewable energy investments and any investment to protect or improve environmental conditions for all new investments over USD 10 million. This means that the financing of sustainable real estate projects over USD 10 million will be prioritized and promoted by the signatory banks. The same signatory banks to the Declaration also sponsored the 9th Annual Sustainable Finance Forum ("Forum") organized by the Business and Sustainable Development Council on 22 November 2023. The Forum brought internationally recognized practitioners and thought leaders in the field of sustainable finance together, and the themes of the Forum were "Meeting the Financing Needs of Earthquake Affected Regions with Long-Term and Sustainable Resources" and "Financing Green and Earthquake Resistant Cities with Alternative Sustainable Resources." Energy-efficient and green buildings were top points of discussion under both themes. The Forum, alongside the Declaration, proves the Turkish market's genuine efforts to prioritize and promote green and sustainable finance in Türkiye.