Possible Impacts Of The Communiqué On The Calculation Of Green Asset Ratio By Banks On Their Lending Practices

The Communiqué on the Calculation of Green Asset Ratio of Banks ("Communiqué"), published in the Official Gazette dated April 11, 2025 and numbered 32515, represents an important regulation in terms of financial transformation focused on environmental sustainability in Turkey. With the Communiqué, an environmentally-based financial indicator called the Green Asset Ratio ("GAR"), is adopted, which was not previously in the legislation, through which the ratio of the funding allocated by banks to environmentally sustainable activities within the total assets will be measured and the measurement results will be reported to the Banking Regulation and Supervision Agency ("BRSA"). The Communiqué also represents a first in terms of having objective criteria for the taxonomy of environmentally sustainable economic activities.

1. What is Green Asset Ratio?

GAR refers to the ratio of assets related to environmental economic activities in banks' balance sheets to total assets. The Communiqué also draws attention to the concept of "appropriate assets" when calculating this ratio. Parallel with the European Union Taxonomy, the determination of assets appropriate to and compliant with environmental standards is based on the conditions that an economic activity both makes a significant contribution to environmental objectives, does not harm other environmental objectives and complies with minimum social security standards.

In this context, for banks, GAR may become not only a performance metric but also a guiding factor for financial strategy and risk management. As a matter of fact, it is likely that the BRSA will set lower limits for banks' GAR ratios or introduce incentive/penalty mechanisms based on these ratios in the future.

2. Compliance with the European Union Taxonomy

The application of GAR in Turkey is in line with the "Green Asset Ratio" in the European Union ("EU") regulation. In addition, the GAR reflects the EU legal framework by being calculated on the basis of triple criteria based on a significant contribution to the protection and restoration of biodiversity and ecosystems, no significant harm to other environmental goals, and minimum social security standards. Similar to the regime in the EU where financial institutions report annually to the European Securities and Markets Authority, the Communiqué requires banks to report annually to the BRSA. However, while in the EU this obligation applies to banks, insurance companies, asset managers and large corporations, the BRSA regulation is limited to banks only. At the same time, unlike the intensive technical screening and detailed activity classification on a sectoral basis in the EU regulation, the Communiqué does not yet contain focused and particular regulations in terms of technical criteria, sectoral distinctions and compliance practices. Even if complete harmonization with the EU legislation and practice could not yet be achieved, a noteworthy approach in parallel with the EU legislation is taken.

3. Auditing and Reporting Mechanisms

While reports are subject to independent auditing in the EU system, the Communiqué only stipulates the reporting regime to be made to the BRSA and does not indicate a clear procedure for independent audit and compliance practices.

The environmental compliance reporting planned to be made to the BRSA by deposit banks and participation banks does not constitute a scientific reporting, but will rather be carried out by determining whether the assets in the balance sheet of the banks contribute to the financing of environmentally sustainable activities.

The fulfillment of the technical screening criteria must be documented through "emission reports, feasibility reports, energy efficiency study reports and similar reports, nationally or internationally recognized certificates, green technology selection tools or investment expenditure documents" which are to be prepared by independent verifying parties and made available for inspection by banks. According to the Communiqué, the starting date for the first reporting is set as June 30, 2025.

During the compliance process, various certification processes, particularly environmental impact assessment (EIA) and environmental management systems certifications such as ISO 14001, may also become a condition for loans. In addition, in line with EU practice, in cases where non-compliance is detected as a result of reporting, the BRSA may issue correction notices, warnings, guidance letters or, if necessary, administrative sanctions. Also, the obligation for banks to regularly report their green asset ratios may make it possible to monitor the environmental impact of their loan portfolios in a more transparent manner.

What Kind of Changes Can Be Expected?

As the Green Asset Ratio (GAR) increases are targeted, it becomes inevitable for banks to align their loan portfolios with environmental taxonomy. This is expected to enhance interest in loans directed toward areas such as energy efficiency, renewable energy investments, sustainable transportation, and environmentally friendly buildings, as such loans will offer both regulatory and reputational advantages.

In this context, it is foreseeable that credit agreements for projects falling under these categories may increasingly include provisions such as early repayment clauses, interest rate hikes, or penalties in cases of breaches of environmental commitments. Furthermore, the degree to which borrowers comply with sustainability standards is expected to become a criterion considered in banks' credit evaluation processes.

It is anticipated that the Communiqué will have a positive impact on companies' alignment with sustainability policies by facilitating access to financing for their projects. As environmental compliance becomes more prominent in financing conditions, companies may be encouraged to prioritize environmentally sustainable activities in their investment projects.

The Communiqué is expected to contribute to the development of a sustainability-oriented culture within the banking sector and to enable a stronger linkage between environmental performance and financial decision-making. Systematically integrating environmental criteria into lending processes is expected to yield positive outcomes for both financial stability and the fight against climate change.

In conclusion, the implementation of GAR calculation and reporting under the Communiqué is anticipated to enhance transparency and market discipline with respect to environmental impacts within the credit regime. This, in turn, is expected to strengthen awareness and motivation toward environmentally sustainable economic activities among banks and make a significant contribution to the achievement of Türkiye's climate change goals and international commitments.

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