I. INTRODUCTION

The Draft Regulation on Türkiye’s Green Taxonomy (“Draft Regulation“) was published in the last quarter of 2024 by the Climate Change Directorate of the Ministry of Environment, Urbanization, and Climate Change of the Republic of Türkiye (“Ministry”) and submitted for stakeholder consultation. The Draft Regulation establishes the classification methodology for economic activities in line with sustainable development goals and defines the procedures and principles that the relevant institutions and organizations within its scope must adhere to.

Emergence;

Green taxonomy is a classification system designed to determine whether economic activities are environmentally sustainable. This system facilitates the assessment of economic activities’ compliance with international policies, such as the Paris Agreement and the European Green Deal, both of which aim to achieve a carbon-neutral economy by 2050. As explicitly stated by the European Commission, the primary objective of the taxonomy is to prevent greenwashing and to support investors in making informed and sustainable investment decisions.

A step backward;

In February 2022, the Ministry convened the Climate Council, during which the Commission’s Recommendations emphasized the necessity of finalizing the green taxonomy legislation by the end of 2023.

As part of the Project on the Preparation of Reporting Guidelines in Türkiye and the Identification of Potential Users and Beneficiaries of the Green Taxonomy, conducted by the Ministry in collaboration with the French Development Agency, a comprehensive report was published in March 2023. This report provided a detailed analysis of national and international developments regarding taxonomy, outlined national taxonomy efforts in compliance with EU regulations, and introduced a taxonomy framework document. Notably, this project also included a cost-benefit analysis of establishing a national taxonomy system. The full details of this study can be accessed here.

On the other hand, Article 380.2 of the Twelfth Development Plan (2024-2028), published by the Presidency of the Republic of Türkiye Strategy and Budget Department, states that a national taxonomy and related legislation will be developed to define sustainable economic activities. Additionally, the Medium-Term Program (2025-2027), under the section titled “Acceleration of Green Transformation”, emphasizes that the legislative efforts for establishing a national green taxonomy—which aligns with the EU Taxonomy and other international taxonomy frameworks while also addressing Türkiye’s specific needs—will be finalized.

Background from the Europan Perspective;

In line with the objectives of the European Green Deal, the EU Taxonomy Regulation entered into force on July 12, 2020, establishing six environmental objectives to assess whether an economic activity is sustainable. These objectives have also been incorporated into the Draft Regulation submitted for consultation by the Ministry.

On April 21, 2021, the European Commission published the Sustainable Finance Package, which included key regulatory measures such as the EU Taxonomy Climate Delegated Act and the Corporate Sustainability Reporting Directive (CSRD). Consequently, the EU Taxonomy Climate Delegated Act officially entered into force on January 1, 2022.

Regarding this matter, the European Commission subsequently adopted the Complementary Climate Delegated Act on July 15, 2022, followed by the Environmental Delegated Act on June 27, 2023. These legislative texts became applicable as of January 1, 2024.

II.   FUNDAMENTAL PRINCIPLES

What is Türkiye’s Green Taxonomy and Its Scope of Application?

Türkiye’s Green Taxonomy is a classification system that establishes principles and criteria for economic activities that contribute to mobilizing climate finance and support efforts to combat climate change in line with designated environmental objectives.

Article 2(a) of the Draft Regulation specifies that institutions and organizations required to conduct sustainability reporting under Türkiye’s Sustainability Reporting Standards (TSRS) fall within the scope of Türkiye’s Green Taxonomy. Under TSRS regulations, these institutions and organizations include publicly traded companies with capital market instruments listed on the stock exchange, investment firms, portfolio management companies, financing companies, central clearing and custody institutions, and data storage entities. However, the Public Oversight, Accounting, and Auditing Standards Authority periodically issues decisions that may alter this scope. Therefore, it is essential to monitor the decisions of the Public Oversight, Accounting, and Auditing Standards Authority to stay informed about any changes in this regard.
Consequently, institutions and organizations subject to reporting obligations under TSRS are also included within the scope of application of the Draft Regulation. As a result, new disclosure and reporting obligations have been introduced for companies covered by TSRS.

What Are the Eligible and Aligned Economic Activities Under Türkiye’s Green Taxonomy?

Under the Draft Regulation, economic activities are classified as either “eligible economic activities” or “aligned economic activities”. This classification aims to establish a structured evaluation process for determining the sustainability of an activity.

An eligible economic activity refers to an economic activity listed in the Draft Regulation that has the potential to contribute to environmental objectives. These activities have been specifically outlined in Annex-2 of the Draft Regulation, titled “Economic Activities Under Türkiye’s Green Taxonomy”, and have been submitted for public consultation.

An aligned economic activity refers to an eligible economic activity that meets the specific conditions set forth in the Draft Regulation. To be classified as an aligned economic activity, an eligible economic activity must cumulatively satisfy the following four fundamental criteria:

• Make a significant contribution to at least one of the designated environmental objectives.
• Not cause significant harm to any other environmental objective.
•  Comply with minimum social safeguards.
• Meet the technical screening criteria established for the first two conditions (a and b)

In summary, an aligned economic activity is an eligible economic activity that has been verified to comply with all the above criteria. Consequently, not all eligible economic activities qualify as aligned economic activities, as each must undergo a compliance assessment.

The second section of the Draft Regulation, titled “Determining Taxonomy Alignment,” provides detailed explanations regarding the requirements for meeting these conditions.

What Are the Obligations of Institutions and Organizations Within the Scope?

Institutions and organizations within the scope of the regulation are required to:

• Utilize the Online Taxonomy Management System (e-Taxonomy) for all processes related to taxonomy compliance. Accordingly, the following financial indicators must be calculated and reported annually in the system:

a) The ratio of revenue derived from aligned economic activities to total revenue.
b) The ratio of capital expenditures (CapEx) allocated to aligned economic activities to total capital expenditures.
c) The ratio of operational expenditures (OpEx) related to aligned economic activities to total operational expenditures.

The data entered into the system will then be used to automatically calculate the compliance ratio. The information related to the calculated compliance ratio will be reported as part of the sustainability report, in accordance with the Taxonomy Disclosure Tables, which have been submitted for consultation as Annex-2 of the Draft Regulation.

• It is important to emphasize that the above calculations must be based on general-purpose financial statements prepared and presented in accordance with Turkish Financial Reporting Standards (TFRS).
• In addition to the sustainability report prepared under TSRS, verified data on eligible economic activities conducted in the previous year must be recorded in the e-taxonomy system.
• Finally, all reports must be verified and validated by organizations accredited by TÜRKAK (Turkish Accreditation Agency).

What Transition Period Has Been Envisioned?

Institutions and organizations within the scope will be required to submit reports under the Draft Regulation in addition to their sustainability reports prepared under TSRS. These reporting obligations will be voluntary until December 31, 2026, but will become mandatory as of January 1, 2027.

Are There Any Sanctions Prescribed?

Pursuant to Article 18 of the Draft Regulation, institutions and organizations subject to reporting obligations will face administrative fines in accordance with the relevant provisions of Law No. 2872, should they fail to fulfill their notification, information, and documentation obligations required for reporting.

III. CONCLUSION

First and foremost, the adoption of a national taxonomy framework represents a significant step toward fostering the development of capital markets for sustainable finance and enhancing long-term financing opportunities. Additionally, the taxonomy mechanism will undoubtedly increase transparency regarding sustainable activities and serve as an objective and effective tool for evaluating the environmental impact and sustainability of economic activities.

In this regard, the Draft Regulation has the potential to support companies’ investment planning and financing efforts, while also facilitating access to financing for projects that are already sustainable in nature or are in a transition phase. Furthermore, the monitoring mechanism introduced by the Draft Regulation is expected to mitigate and control greenwashing risks.

Lastly, while the inclusion of institutions and organizations covered under TSRS within the scope of the Draft Regulation introduces additional reporting and disclosure obligations, the alignment of reporting timelines and methodologies between the Draft Regulation and TSRS will allow relevant entities to effectively and strategically manage the transition process.

You can access the Draft Regulation and its annexes via this link.