Green, sustainable and social capital market instruments are crucial for economic growth and the realization of environmental and social goals. The global climate crisis, COVID-19 and the European Green Deal have increased environmental, social and sustainable investments, and thus green, sustainable and social capital market instruments have risen in popularity.
In Türkiye, where these developments are followed closely, the Capital Markets Board (“CMB”) released the Draft Guidelines on Green, Sustainable and Social Capital Markets Instruments and the Draft Guidelines on Sustainability-Linked Capital Markets Instruments (“Guidelines”) on 06.09.2024.
The Guidelines are based on the International Capital Market Association’s (“ICMA”) Green Bond Principles, Sustainability Bond Principles, Social Bond Principles and Guidance on Green, Social and Sustainability Sukuk. The Guidelines provide information about the general principles on green, sustainable and social capital market instruments such as green, sustainable and social debt instruments, lease certificates, asset and mortgage-backed securities, asset and mortgage-based securities, project-based securities, and real estate certificates, as well as the relevant key components, minimum information to be provided in the framework document, reporting and external evaluation services.
Accordingly, the following requirements must be fulfilled for the issuance of green, sustainable and social capital market instruments:
i. In their framework document, issuers should explain that they will issue as per the principles in the Guidelines.
ii. The funds raised from the issuance should be used exclusively for the partial or full financing or refinancing of new and/or existing green and/or social projects that fulfill the definition of green and/or social projects provided in the relevant section of the Guidelines, as specified in the issuer’s framework document.
iii. The compliance of the framework document regarding green, sustainable and social capital market instruments with the Guidelines should be reviewed and evaluated through a second opinion.
iv. Issuers should determine whether a capital market instrument is green, social or sustainable based on the main objective of their projects.
v. In the issuance of green, social and sustainable lease certificates, asset and mortgage-backed securities, asset and mortgage-based securities and project-based securities, only assets for activities that fulfill the definition of green and social projects referred to in the Purpose and Scope section of the Guidelines should be used as underlying assets.
Issuers will submit their framework document and the second opinion attesting to the framework document’s compliance with the Guidelines, together with other information and documents related to green, sustainable and social capital market instruments, to the Board during the application for the approval of the issuance document or statement regarding the issuance limit.
The framework document and the second opinion will be disclosed to the public on the issuer’s website and on the Public Disclosure Platform (“KAP”) if the issuer is a member of the KAP, together with the issuance document or statement approved by the Board, after the Board’s approval of the issuance limit.
Green, sustainable and social capital market instruments have four main components: (i) use of funds raised from issuance, (ii) project evaluation and selection process, (iii) management of funds raised from issuance, and (iv) reporting.
The funds raised from the issuance should be used for green and/or social projects as soon as possible, depending on the type of the instrument as defined in the Guidelines, and the planned timeframe should be specified in the framework document.
Investors should be informed in the framework document about the social and environmental goals of the projects, the processes to define a project as a green and/or social project and to identify a social project’s intended benefits for the target audience(s), along with the process for recognizing and managing environmental and social risks associated with green or social projects.
The net funds obtained from the issuance while green, sustainable and social capital market instruments are in circulation will be managed by being allocated to the green and/or social projects in the relevant period based on their type defined in the Guidelines. In the framework document, the issuer should explain how it plans to manage the unused portion of the funds raised from the issuance (interest accrual principles for short-term financial instruments and liquid assets) until they are allocated to relevant green or social projects.
Issuers are required to prepare a report containing up-to-date information on the utilization of the funds obtained from the issuance at least once a year and to disclose this report on their website and on KAP if they are members of KAP in accordance with the Board’s regulations on public material disclosure.
After the full utilization of the fund, a fund utilization report must be prepared, the monitoring method for its utilization must be validated through a second opinion, and the opinion must be disclosed on the issuer’s website and on the KAP if the issuer is a KAP member.
Issuers must prepare and publicly disclose an impact report that includes the estimated and/or actual environmental and social impacts after all the funds raised from their issuance have been used. The review and evaluation of the impact report by an external evaluation organization are not mandatory.
The Guidelines specify the persons eligible to provide a second opinion as part of external evaluation services, the organizations that can provide this service, what should be evaluated, and the principles to be respected by the external evaluation service providers.
The Guidelines also indicate the minimum information to be included in the framework document. Accordingly, the framework document should contain the following: (i) the date of the framework document, (ii) the title of the issuer, (iii) the issuer’s corporate website, (iv) the title of the entity providing the second opinion, (v) the issues for which the issuer and/or the fund user and/or the originator and/or the founder are responsible under the Guidelines (for instruments such as lease certificates, asset and mortgage-backed securities, asset and mortgage-based securities), (vi) a statement that the capital market instruments issued are in compliance with the Guidelines, (vii) the issuer’s environmental and social objectives as part of its sustainability strategy and its grounds for issuing green, sustainable and social capital market instruments, (viii) how the funds obtained from the issuance will be used, (ix) the project evaluation and selection process, (x) how the funds obtained from the issuance will be managed, and (xi) the fund utilization report. The Guidelines also delineate the points to be explained as part of this minimum information.
