Introduction
Within the scope of the 11th Development Plan and 2021 Economic Reforms Package and the Paris Climate Agreement, the Capital Markets Board issued the Green Debt Instrument, Sustainable Debt Instrument, Green Lease Certificate, Sustainable Lease Certificate Guideline ("Guideline") and adopted and published on February 24, 2022.
The Guidelines are based on the Green Bond Principles of the International Capital Markets Association ("ICMA") and regulate green and sustainable debt instruments and sustainable lease certificates that have a positive green and social impact.
Purpose and Scope
The Guideline purposes to support and encourage sustainable and green investments and projects, to ensure that they are carried out in compliance with the standards, to protect investors and to increase transparency, integrity, consistency and comparability in project financing.
The Guideline was issued based on Articles 1 and 128/1 (e) of the Capital Markets Law Numbered 6362. It is stated that the general principles and obligations specified for green debt instruments within the scope of the Guidelines also apply to sustainable debt instruments, green lease certificates and sustainable lease certificates.
Definition
The Guideline defines a green project as a project that contributes to environmental objectives such as mitigation of climate change impacts, adaptation to climate change, conservation of natural resources, protection of biodiversity, prevention and control of pollution. In this context, the Guideline defines green debt instruments and green lease certificates as follows.
Pursuant to the Guidelines a green debt instrument is defined as "any listed or non-listed debt instruments, framed by the four core components of this Guideline, whose proceeds will be used exclusively for partial or total financing or refinancing of new and/or existing green projects in conformity with the eligible green project".
Pursuant to the Guideline a green lease certificate is defined as "any listed or non-listed lease certificates, framed by the four core components of this Guidelines, whose proceeds will be used exclusively for partial or total financing or refinancing of new and/or existing green projects in conformity with the definition of eligible green projects".
General Principles
Pursuant to the Guideline the conditions of the issuance of green debt instruments are regulated. In this scope; the issuer shall confirm in the framework document that the issues covered by the framework document will be conducted in accordance with the principles set out in the Guideline, proceeds from the issue as specified in the framework document shall be used exclusively to finance or refinance, partially or wholly, new and/or existing green projects that meet the definition of green projects given in the relevant section of this Guideline, and the compliance of the green debt instrument framework document with the Guideline shall be reviewed and evaluated by a second party opinion.
Core Components
The Guideline regulates four core components of green debt instruments:
- Use of Proceeds Obtained from the Issue: It should be stated that a green project may be related to one or more types of and/or environmental objectives and may include research and development and other supporting expenditures related to the green Project. According to the Guideline, the funds obtained from the issuance of green debt instruments should be used for green projects as soon as possible and the timeframe for this should be included in the framework document. The Guideline also includes examples of eligible green projects, such as renewable energy, energy efficiency, pollution prevention and control, clean transportation, sustainable water and wastewater management, and green buildings.
- Project Evaluation and Selection Process: Green debt instrument issuers should disclose the information specified in the Guideline to investors through the framework document. Processes should be established for practices that reduce negative social and environmental impacts in financed green projects.
- Management of Proceeds Obtained from the Issue: Pursuant to the Guideline, as long as the green debt instrument is outstanding, the net fund balance should be managed by allocating it to eligible green projects during the relevant period. In addition, the issuer should disclose information on the unused portion of the fund in the framework document.
- Reporting: Issuers should make available and keep up-to-date information on the utilization of the funds obtained. In the Guideline, it is stated that once a year from the date of issuance and in any case after the funds obtained from the issuance are fully utilized, updated information on the use of funds shall be disclosed to the public on the Public Disclosure Platform, and on the issuer's website. The regulations of the Capital Markets Board regarding the public disclosure of material events are reserved.
External Review
The Guideline provides details on the types of external assessment services that issuers may receive during the green debt instrument issuance process, namely second party opinion, verification, certification, and green debt instrument scoring and rating, as set out in the ICMA External Assessment Guidelines.
Organizations providing external evaluation services should comply with the principles of integrity, honesty, objectivity, professional competence, diligence and confidentiality.
International Issuances
The Guideline specifies the procedures to be performed during and after the issuance of green debt instruments. Accordingly; (i) in issuance applications, the framework document prepared in accordance with the standards and approved by the board of directors and the second party opinion should be submitted to the Capital Markets Board and disclosed on the Public Disclosure Platform and website, and (ii) after the issuance, the Turkish translation of the fund utilization reports in compliance with foreign standards must be disclosed to the public on the Public Disclosure Platform and/or website within three months.
Conclusion
It should be noted that this Guideline has been prepared by Capital Markets in line with the Green Bond Principles issued by ICMA. In this way, the Guidelines are expected to benefit the development of green debt instruments in Turkey.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
