Green and sustainable finance is an approach that aims to balance economic growth with environmental and social sustainability by taking into account the environmental and social impacts of financial transactions and investments. It seeks to make changes in the financial sector with the goal of addressing environmental and social issues, promoting sustainable resource use, and preserving human well-being.
Green Finance: Green finance is a financial approach that aims to invest in environmentally friendly projects and businesses, and support environmental issues such as energy efficiency, clean energy production, and water resource management. This can be achieved through financial instruments such as green bonds, green loans, and green funds. Green finance plays a significant role in addressing environmental issues like climate change and environmental sustainability.
Sustainable Finance: Sustainable finance encourages financial decisions to consider not only economic returns but also environmental and social impacts. This approach supports investments based on environmental, social, and governance (ESG) criteria. Sustainable finance encourages financial institutions to integrate sustainability principles into their business processes and decision-making processes. Examples of this include ESG funds, sustainable credit assessments, and social impact investments.
Green and sustainable finance aim to encourage the financial sector to act more responsibly in order to mitigate environmental issues and enhance societal well-being. This approach provides long-term sustainability and risk reduction opportunities for both investors and companies.
Sustainable finance and banking represent an approach focused on integrating sustainability principles and environmental, social, and governance (ESG) criteria into the business model and operations of financial institutions and banks. This approach aims to ensure that the financial sector fulfills its environmental and social responsibilities while also increasing its economic returns. Here are some key points related to sustainable finance and banking:
- ESG Criteria: Sustainable finance and banking are based on ESG criteria, which require financial decisions to consider environmental (Environment), social (Social), and governance (Governance) factors. These factors encompass issues such as a company's environmental impact, employee rights, management quality, and ethical business practices.
- Green Loans and Green Bonds: Banks offer specialized financial instruments like green loans and green bonds to provide financing for green projects or projects related to environmental sustainability. These instruments support environmental investments while also offering investors the opportunity to assess and monitor their environmental impacts.
- Sustainable Credit Assessments: Banks can evaluate their customers' ESG performance and incorporate sustainability criteria into their lending processes. This helps sustainable businesses access financing more easily.
- Social Impact Investments: Sustainable banking promotes investments focused on societal impacts, particularly in areas such as microfinance, social enterprises, and community housing projects.
- Risk Management: Sustainable finance and banking focus on managing environmental and social risks more effectively. This includes financial institutions conducting risk analysis from a long-term sustainability perspective.
- Customer and Investor Demands: Many customers and investors demand that financial institutions adopt sustainability principles and offer investment options sensitive to environmental and societal impacts.
As a result, financial institutions respond to these demands by providing sustainability-focused products and services.
Sustainable finance and banking is an important strategic approach that contributes to the transition of both the financial sector and the overall economy towards a more sustainable and environmentally friendly future. This approach is regarded as a step towards achieving the balance between financial growth and societal benefit.
Sustainable Financing Declaration
In 2017, seven banks, all members of the UN Global Compact, signed the Sustainable Financing Declaration prepared by the Global Compact Turkey Sustainable Banking and Finance Working Group. Through this declaration, the signatory banks committed to incorporating environmental and social risk assessment processes into credit procedures for investments of 50 million US Dollars and above. In accordance with Article 6 of the Declaration, the signatory banks pledge to update the Declaration annually.
In 2018, the Declaration was updated, reducing the investment threshold for banks to assess their environmental and social impact from 50 million US Dollars to 20 million US Dollars. Additionally, signatory banks committed to employing at least one staff member with responsibilities related to environmental and social elements in their job description.
In the 2019 update, the investment threshold for banks to assess their environmental and social impact was further reduced to 10 million US Dollars.
Banks that have signed the Sustainable Financing Declaration in Turkey:
• Akbank,
• Garanti BBVA,
• ING Türkiye,
• Türkiye Kalkınma ve Yatırım Bankası,
• Şekerbank,
• Türkiye İş Bankası,
• TSKB,
• Yapı Kredi Bankası
The Declaration prepared under the leadership of Global Compact Turkey was featured as a best practice example in the 'Global Compact Local Networks: Accelerating National SDG Implementation' report introduced at the 2018 High-Level Political Forum.