Certain clients serviced by Turkish banks will either face exposure to emission reduction legislation or seek involvement in the operation of greenhouse gas mitigation projects that may offer the benefits of selling carbon offsets. Banks are in a position to offer specialised services aimed at helping existing and new clients to manage the risks and exploit the opportunities created by both the international and domestic carbon markets.
Figure: Role of banks in the carbon markets
Source: Climate Focus and GAIA, 2021
The consultancy under MidSEFF seeks to strengthen partner banks’ capacities across the following three areas:
1. Exploring carbon market services
A number of Turkish banks already finance renewable energy and energy efficiency projects registered under a carbon standard. As such, partner banks are in a position to act as the intermediary party between carbon project sponsors and developers. The consultancy advises partner banks on:
For further details about of the types of carbon market services available to partner banks, please click here.
2. Support with legal and regulatory oversight of carbon market services
Activities of banks are strictly regulated to limit exposure to non-core activities. To support selected partner banks with integrating carbon market services within their portfolio of services, the consultancy supports banks with understanding the applicable legal and regulatory framework relating to these activities. The support extends to the following areas of work:
For further details about of the regulatory review work conducted under this consultancy, please click here.
3. Carbon pricing and Climate Finance tracking
Increasingly more international financial institutions are adopting approaches to use carbon pricing to quantify the exposure associated with carbon intensive investments. The application of internal carbon pricing to investments can be a useful tool to generate internal data and know-how to enable financial institutions to:
The consultancy assists partner banks with:
For further details about of Internal Carbon Pricing and Climate Finance Tracking for banks, please click here.
MRV in Turkey: implications and opportunities for Turkish Financial Institutions
The momentum for climate action is strengthening across the financial sector, with banks, insurance companies, and asset managers starting to embed climate change impacts into mainstream finance activities and investment decisions. Managing exposure to the various risks associated with climate change is a key motivation for financial institutions to adopt strategies, programmes and operations that prioritise climate. These include both physical risks associated with climate change, but also exposure to regulatory developments that pose both risks and opportunities for financial institutions:
Financial institutions in Turkey are closely following international and domestic developments in the area of climate policy and regulation, and are evaluating available approaches to scrutinise their portfolio exposures to climate risks, reallocate assets to more climate-friendly investments, divest from assets at risk of becoming stranded, and introduce tools such as internal carbon pricing to inform future investment decision making. Examples of leading efforts enabling financial institutions to achieve climate alignment and set targets include:
The foundation for implementing these various strategies effectively is the adoption of robust monitoring and reporting procedures at the institutional level so that financial institutions are able to map the carbon footprint of its operations and financed portfolios.
The consultant prepared a note presenting a roadmap to assist banks with the implementation of MRV at the institutional level. The objective of this roadmap is primarily to support the decision-making process by structuring the rationale for engagement in MRV and outlining the activities that need to be realised to achieve the desired outputs. As such, the framework serves to kick-start internal discussions within the bank and can act as a management tool to help guide the implementation process across various departments within a bank. It can also assist in the formulation of risk management processes linked to the bank’s traditional risk categories, including credit risk, liquidity risk and operational risk.
Figure: Roadmap for application of MRV within financial institutions
Source: Climate Focus and Gaia, 2021