Green Finance Project

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The project’s objective will be achieved through one component and an innovative design. The project aims to simultaneously support (i) firms’ decarbonization and investments in green technologies, (ii) development of the PE industry through a demonstration green fund, (iii) financial sector diversification and development of firms’ access to diversified sources of long-term finance, (iv) lowering high corporate leverage, and (v) accelerate financing for the green transition and enhanced climate action. The idea is to pioneer green private equity investments, therewith enhancing local green and climate investment capacity and creating markets for private players so that the private sector can take over eventually. By doing so, the project will ultimately support the transition to a low-carbon and climate-resilient economy, contribute to financial sector diversification and support the development of domestic sources of long-term finance and capital markets. The project will support the partial capitalization of a Turkiye Green Fund (TGF). TGF’s objective will be to support investments in green and greening firms and promote greening of the private equity industry through establishing a demonstration green fund in Turkiye. The fund will have a double bottom line mandate, with non-concessional returns and sustainable impact maximization. TGF will be established as a local PE fund regulated by the CMB, with the IBRD contribution to be channeled through TSKB, Turkiye’s private development bank, and managed by a fund manager. TGF will be able to support equity and quasi-equity (mezzanine) direct investments and invest in sub-funds, with a clear Investment Policy Statement, and have all exit options. The project will specifically target innovative green or greening firms, primarily SMEs and mid-caps that are already green or intend to adopt green technologies in priority sectors. Priority sectors will be aligned with those identified in the CCDR, namely power and energy, transport, forest landscapes, and agriculture. Eligible green firms’ activities will primarily include renewable energy, energy efficiency, and circular economy adapted products. The Project Appraisal Document includes a clear definition of green and greening firms for the purpose of this project. An Investment Policy Statement (IPS) to be developed by TGF will include an eligibility list which will clearly detail the green sectors in which TGF can invest, in pursuance of the policy mandate - consistent with any green taxonomy the authorities are establishing, prevailing international taxonomies (such as the EU version), with considerations of local sector development and priority sectors identified in the CCDR. The IPS and eligibility list will be fairly comprehensive to minimize the risk of greenwashing. Minimum portfolio allocation to specific subsectors can be considered and will be detailed in the Project Operations Manual (POM). The carbon footprint of the main product or service offering of the firms will be carefully evaluated, carbon emission reduction potential estimated, and then tracked over the course of the investment. TGF will also develop its own Green Investment Framework and follow international standards for impact measurement and disclosure.The project is aligned with the current Country Partnership Framework (CPF) for Turkiye, approved in July 2017, and extended through the Program and Learning Review (PLR) in 2020. The project will contribute to the achievement of CPF/PLR objectives under, respectively, Focus Areas I and II, more specifically enhancing access to finance for underserved markets and improving competitiveness and employment in selected industries. The project will also contribute to CPF/PLR objectives under Focus Area III on sustainability as the project aims at supporting firms across sectors to improve their resource efficiency, sustainability, and green transition. The project also contributes to the inclusion pillar of the CPF/PLR through its focus on women-inclusive firms. A new SCD for Turkiye is currently b eing prepared, structured around growth, inclusiveness, and sustainability. Financial sector themes are embedded in all three pillars and the project will therefore be directly linked with these SCD themes.