The Practice of Green Bonds in the World and Turkey

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“Green Bonds” are, in brief, fixed income securities issued for borrowing from the markets in accordance with the conditions in the prospectuses accepted by the issuers, designed specifically for use in preventing climate change or for other environmental projects. In addition to promoting sustainability, these bonds provide certain tax advantages.

The global Green Bond market (including all green, social and sustainability bonds) is expected to reach a size of over 650 billion USD in 2021.[1] Considering that the first such bond was the “climate awareness” bond issued by the European Investment Bank in 2007, and that the first bond actually labeled as a Green Bond worth 300 million USD was issued by World Bank in 2008, the growth reached in this short time may be seen more clearly.[2] In fact, as of May 2021, the World Bank has issued more than 185 Green Bonds worth $16 billion in 23 different currencies.

The Green Bond market is gaining in value day by day and attracting many investors. In 2020, the issuance of bonds in the green, social, sustainable and sustainability-related bond market (“GSSS”) doubled compared to 2019 and reached 600 billion dollars. The issuance of Green Bonds in the GSSS market reached a size of 300 billion dollars.[3]

As the Green Bond market continues to grow, it has become necessary to set certain standards for the appropriate use of Green Bonds issued in the market. The first advisory guidelines in this area were published in 2014 by a consortium consisting of Bank of America Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Bank, JPMorgan Chase, BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank, and SEB. On the other hand, there are currently guidelines and draft regulations that have been prepared by the International Capital Markets Association (ICMA), the World Bank, and the European Securities and Markets Authority (ESMA) of the European Union.

With the Law on the Approval of the Paris Agreement, published in the Official Gazette dated 7 October 2021 and numbered 31621, the transformation process of Turkey’s climate policy has begun. Capital markets will play an important role in this transformation process in terms of financing bond issuers who want to address the negative effects of climate change. In this context, it is expected that projects related to sustainability goals will continue to be developed in Turkey and that these investments will be financed through Green Bonds.

In this context, it would be useful to take a look at the most commonly used guidelines.

The Practice of The World Bank (World Bank Green Bonds)

Projects eligible for the World Bank Green Bond[4] Program are selected by the bank’s environmental experts. “Eligible projects” refers to projects that are partially or wholly financed by the World Bank and which support the transition to low-carbon and climate-resilient growth in the recipient country. Eligible projects may be projects that aim to mitigate climate change and carbon emissions, such as investments in renewable energy, or improvement or adaptation projects of industries that aim to have less impact on climate change and to emit less carbon. In order to become eligible, candidate projects first undergo a preliminary examination in order to monitor their potential environmental and social impacts. It is then approved, like all other World Bank projects, by the Board of Directors, which consists of 25 members representing member states.

The proceeds of the issued bonds are transferred to a special account and used within the framework of the World Bank’s liquidity policies until they are used for the relevant green project.

Monitoring and reporting activities are ensured by the reports to be received from the government institutions proficient in the relevant sector. The development and impacts of the project are supervised by the relevant government institution and the World Bank.

Green Bond Principles (GBP)

The GBP[5], which were most recently renewed in June 2021, aim to ensure the transparency and accuracy of the information conveyed to the investors by the bond issuers. Four fundamental components are listed in the GBP:

  • Use of Proceeds: According to the GBP, the projects in which the proceeds of the bond will be used shall be stated clearly and in detail. “Green projects” that will benefit the environment shall be preferred. The green project shall support one of the following issues:
    • Climate change mitigation
    • Climate change adaptation
    • Natural resource conservation
    • Biodiversity conservation
    • Pollutions prevention and control

Although some green project categories are mentioned in the guidelines, these categories are not exhaustive. These categories are renewable energy, energy efficiency, pollution prevention and control, environmentally sustainable management of living natural resources and land use, terrestrial and aquatic biodiversity, clean (public) transportation, sustainable water and wastewater management, climate change adaptation, circular economy adapted products, and green buildings.

The GBP does not set clear boundaries as to which projects are green projects, but rating agencies which provide independent analysis, advice, and guidance, may determine which projects are included within the scope of green projects.

  • Process for project evaluation and selection: According to the GBP, the bond issuer shall inform the investors about the purpose and objectives of the green project, and the category of the green project, which can be environmental, social, or climate change projects.
  • Management of proceeds: The proceeds of the Green Bond to be issued shall be credited to a special sub-account or sub-portfolio in a transparent manner that can be disclosed to independent advisors, or shall be properly monitored and reported by the issuer. The guide recommends appointing an external reviewer to ensure transparency.
  • Reporting: The GBP requires that the information flow shall be ensured through annual reports. The annual report should explain how much of the proceeds is allocated to which projects and its impact. Reference is made to the ICMA templates (“Impact Reporting Metrics and Databases”), which are also used in other guidelines on GBP reporting.

Although external review is not obligatory in the guide, it is among the recommended elements.  The guidelines recommend carrying out an external review before and after the issuance and publishing these reviews on the relevant web pages.

If organizations that are mainly or entirely involved in climate and environmental activities issue bonds that do not align with the four core components of the GBP, investors will need to be informed accordingly and care should be taken to not imply GBP features.

Current Developments in European Union Legislation on Green Bonds

Currently, the Green Bond market is based on standards and practices defined by market actors’ own initiatives, and assurance is provided by independent advisors who provide external review services to investors. These existing standards are set out with practice-based guidelines. However, there is no uniform and comprehensive definition of green projects. This prevents investors from readily identifying the bonds whose proceeds are in line with or contribute to achieving environmental goals. This also reduces the opportunity for issuers to transform their activities into more environmentally sustainable business models.

In order to overcome these deficiencies, the European Green Deal document drew attention to the importance of ensuring a regular capital flow to green investments. The European Green Deal Investment Plan dated 14 January 2020 announced that the Commission would issue a Green Bond standard, and on 6 July 2021, the European Union Commission published the European Green Bond Standard Regulation (“EUGBSR”) Draft (“Draft”).[6] This Draft aims,

  • To help investors to identify high quality Green Bonds,
  • To facilitate Green Bond issuance by explaining what green economic activities are and reducing potential reputational risks for bond issuers,
  • To uniformize supervision and review practices and to increase confidence in external review by introducing a voluntary registration and review regime.[7]

The draft is aligned with the Taxonomy Regulation of the European Union.[8] The Taxonomy Regulation is used as a criterion to classify an economic activity or project as a green project or activity. According to Article 4 of the Taxonomy Regulation, the European Union shall use the criteria of the Taxonomy Regulation when setting standards for economically sustainable bonds. For this reason, the European Union Commission has argued that the Taxonomy Regulation shall be applied while defining “green” in the context of Green Bond practice.

The Draft provides a framework for all Green Bond issuers, including those from the public and private sectors, including both financial and non-financial companies. The issuer may be from inside or outside of the European Union. All types of bonds, including covered bonds, asset-backed bonds, and project bonds can be issued as European Green Bonds as long as they meet the conditions in the Regulation.

In addition, the Draft establishes a set of rules that must be followed by Green Bond issuers in order to issue bonds labeled as European Union Green Bonds (“EUGB”). In accordance with Article 4(2)(a) of the Treaty on the Functioning of the European Union, the Draft falls within the competence shared between the European Union and its member states.

The Draft also aims to meet the need for a central registration and supervision regime coordinated by ESMA at the European Union level, especially for organizations conducting external review.

Article 1 of the EUGBSR Draft sets out the conditions that must be met by bond issuers who want to use the label “European Green Bond” and establishes a registration and supervision system for external review institutions.

According to the Draft Regulation,

  • In order to ensure transparency, a “Green Bond factsheet” shall be published before the bond issue, and this factsheet shall be subject to pre-issuance review. (art.8)
  • Until the full allocation of the proceeds, annual reports shall be prepared. (art.9)
  • A post-issuance review shall be prepared after the full allocation of the proceeds of the bond. (art.9)
  • Bond issuers shall, after the full allocation of the proceeds, and at least once during the lifetime of the bond, draw up a European Green Bond impact report on the environmental impact. (art.10)

The bond issuer shall make the above-mentioned factsheets and reports available for review in a separate section under the title of “European Green Bonds” on its website.

The Draft Regulation also introduces some regulations related to institutions that conduct external review. Institutions performing external review shall register with the ESMA and meet the requirements regarding expertise, record keeping, transparency and conflict of interest management. ESMA regularly monitors these external review bodies.


There is a fast increase in the Green Bonds and in general in the green finance in recent years. Such increase is fueled by the climate change and the Covid-19 pandemic, and concerns about climate and environmental problems have increased remarkably in recent years. While the interest of investors and bond issuers in the Green Bond market was initially driven by climate and sustainability related concerns, incentives for Green Bonds, along with the European Green Deal and the Paris Climate Agreement, may also play a large role in determining the future behavior of investors and bond issuers. The spread of Green Bonds in capital markets necessitates the establishment of uniform rules on green financing. Otherwise, it may lead to the misuse of the confidence of investors and issuers deviating from the purpose of Green Bonds. Considering the place of climate change in the European Union agenda, it should be expected that many innovations and changes may occur in this area in the upcoming days.

(Authored by Özgür Kocabaşoğlu and first published by Erdem & Erdem on November 2021)






[6] Proposal for a Regulation of The European Parliament and of The Council on European green bonds



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