From Commitment to Stewardship: The Case for Garanti Bank on Carbon Pricing
The momentum for climate action is strengthening across the financial sector, with pension funds, banks and asset managers embedding climate change impacts into mainstream finance activities. On the one hand, the financial industry is reacting to carbon pricing regulations, which exposes investments in fossil-fuel companies and other carbon-intensive industries to previously unforeseen costs. On the other hand, the recognition that physical climate change impacts are becoming a systemic risk across the broader economy makes powerful stakeholder groups, risk departments and valuation teams more attentive to the link between a changing climate and asset value. Finally, the need to disclose climate change-related risks by corporates is also being advocated or required by regulators, encouraged by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Given the Turkish government’s considerations of introducing national carbon pricing legislation at some point, the case for pricing exposure to carbon for an institution like Garanti Bank is apparent.
In line with these developments, Garanti published its Climate Change Action Plan which focuses on carbon pricing, reducing deforestation, managing climate-related water risks and implementing green office standards in October 2015, and made Garanti the first bank in Turkey to commit to a carbon price.
Carbon Pricing as a Tool to Prioritize Low Carbon Investments
A strategic shift towards financing investments with lower carbon intensity than peers may also generate opportunity costs over the short- to mid-term. In the long-term, an ‘environmentally cleaner’ balance sheet is likely to mitigate exposure to climate change risks and thereby bolster performance of the bank.
As of 1H 2017, Garanti Bank maintained a 30% share in Turkey’s operating installed wind power capacity. The amount of cumulative financing provided to renewable energy investments exceeded USD4.8 billion.
Garanti also offered products to increase the move towards renewable energy resources. As well as Garanti’s pioneering position in the wind power market, the Bank focused on developing alternative products in the solar energy market. In 2014, Garanti Bank launched its credit product specially designed for solar energy systems.
As a pioneer in financing renewable energy projects and being by far the largest lender for wind projects in Turkey, setting a carbon pricing scheme allowed Garanti to further prioritize renewable investments.
In 2015, the Bank pledged that a minimum of 60% of the total funds allocated to greenfield energy production facilities will be directed to renewable investments through internal carbon pricing. In 2016, Garanti Bank took its pledge a step further and committed to a renewable energy share at a minimum of 70% of the greenfield power sector financing to be provided by 2020 in project finance transactions.
In 2016 and 2017, Garanti Bank far exceeded its goal of prioritizing renewables in project finance as 100% of the total resources allocated to greenfield energy investments was allocated to renewable investments. In order to increase transparency on environmental data, Scope 3 emissions of greenfield investments in project finance activities were disclosed in Garanti’s CDP Climate Change Report for the first time in 2017.
In 2017, Garanti diversified financial instruments provided for low-carbon and inclusive growth, and cooperated with international finance institutions focusing on sustainable development. The Bank signed the first ever residential mortgage covered bond agreement with IFC in Turkey to support Green Mortgages in 2017.
Garanti will continue to promote Turkey’s transition to a low carbon economy and sustainable finance through existing solutions along with innovative products and services. The bank will also look into implementing the Financial Stability Board’s Task Force on Climate-related Financial Disclosure recommendations including climate change scenario analysis and environmental stress testing in order to further manage climate-related risks and opportunities.
Internal Capacity Building to Enhance Implementation
Garanti paid attention to use internal communication resources in order to build capacity on sustainability among its employees.
Alongside common sustainability trainings, the Bank organized thematic trainings regarding financing solar power projects, emission trading schemes, carbon pricing and environmental and social impact management in the loan processes for relevant employee groups.
In 2016, Garanti organized a workshop to discuss its strategy on carbon pricing and finalized its strategic roadmap for the coming years in 2017.
External Capacity Building and Awareness Raising to Extend the Impact
For many years, Garanti has been participating in local and international organizations which allowed for widespread, high-leverage engagement of the business community with numerous national and international organizations, including governments and policymaking bodies.
These included participating the annual general meetings of United Nations Environment Program Finance Initiative (UNEP FI), and at least semi-annual WG meetings of the United Nations Global Compact (UNGC), the Turkish Business Council for Sustainable Development (BSCD Turkey), the Banks Association of Turkey (TBA) Role of the Financial Sector in Sustainable Growth Workgroup and Carbon Pricing Leadership Coalition (CPLC). Garanti believes in collective effort when it comes to climate change adaptation and financing; therefore, greatly values platforms such as CPLC for achieving 2-degree target and transition to a low carbon economy. All efforts are bound to fail, unless a worldwide holistic approach is taken. CPLC allows companies to keep up with the latest and emerging trends, share experience with sector peers across the world, and learn from each other.
Garanti has also been a member of TUSIAD (Turkish Industry and Business Association) Climate and Environment Working Group, and was in the Executive Committee of “Climate Change from the Economy Perspective” study that revealed the financial impacts of climate change in Turkey.
Topics discussed in such WG meetings typically included sharing of best practices, integration of sustainability and governance into operations and high-level advocacy for policy, including specific measures focused on climate change. Garanti has been actively involved in several working groups of these organizations and, through these, aimed to play a role in raising overall stakeholder awareness, actively contributing to policy efforts and helping to disseminate and assimilate best practices, particularly as they relate to finance of a low-carbon economy.
As a result of such efforts, a ground-breaking declaration, namely Declaration on Sustainable Finance, was launched at the V. Sustainable Finance Forum, jointly organized by BCSD Turkey, UNEP Finance Initiative (UNEP FI) and Global Compact Türkiye, in 2017 with the support of development and commercial banks including Garanti. The main theme of this year’s Forum was “The Fight Against Climate Change and the Financial Sector”. The Forum was graced with the presence of the Deputy Prime Minister Mr. Mehmet Şimşek, who delivered an exceptional presentation on the importance of tackling climate change and urged all Turkish banks to sign the Declaration. The Forum was a huge success on raising awareness of environmental and social risk management and impact assessment for financial institutions. Following the keynote speeches, the Executive Vice Presidents of the seven signatory banks organized a panel to explain why they signed this Declaration and how they benefited from implementing such standards. In the second half of the Forum, another panel was organized to delve into Turkey’s potential and current status regarding the climate and sustainability funds with speakers from EBRD, IFC, and Borsa Istanbul.
The declaration, prepared under the leadership of the Global Compact Türkiye, aimed at amending the lending processes with the evaluation of the environmental and social risks and integrating these assessments to relevant policies, including the consideration of the cost of carbon in emission-intensive projects. Garanti has been one of the leading contributors to the development of this Declaration undertaken by the Sustainable Finance WG of Global Compact Türkiye, as the WG chair.
In addition those efforts, Garanti organized its 3rd Sustainability and Risk Management Workshop which took place on September, 2017 in Istanbul, in order to build capacity on climate risks among the real sector players. The Workshop focused on sustainable finance, impacts of TCFD recommendations on business, carbon pricing and emerging technologies in order to inform the private sector players from energy and infrastructure sector.
The Bank is committed to continue its capacity building activities and to introduce new practices to Turkey that go beyond common practices moving forward, as per its Sustainability Strategy launched in 2014.
About Garanti Bank:
Established in 1946, Garanti Bank is Turkey’s second largest private bank with consolidated assets of US$ 95.7 billion as of June 30, 2017.
Garanti is an integrated financial services group operating in every segment of the banking sector including corporate, commercial, SME, payment systems, retail, private and investment banking together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage, and asset management besides international subsidiaries in the Netherlands and Romania.
Garanti is a constituent of the Dow Jones Sustainability™ Emerging Markets Index, FTSE4Good Emerging Index, Bloomberg Financial Services Gender-Equality Index and BIST Sustainability Index.
In 2016, the Bank was also entitled to receive the “CDP 2016 Climate Leader Award” and the “CDP Turkey 2016 Water Leadership Award”.