Turkey Developing Framework for Sovereign ESG Bonds by Year-End

Turkey’s Treasury is working on a framework that will allow it to sell bonds abroad for the first time with pricing tied to environmental and social goals.

The Treasury aims to finalize the legal requirements by the end of this year to be able to issue sustainability-linked social and green bonds, according to a Treasury official, who asked not to be named because they’re not authorized to speak publicly on the issue.

The country may tap markets before the end of the year, depending on market conditions, the official said. The framework will allow the Treasury to sell a variety of ESG bonds in different currencies, especially social and “dark green” securities, the latter linked to projects that promote a low-carbon future such as wind farms.

Turkey aims to tap into a market that is growing fast. Already, more than half of the money flowing into European exchange traded-funds is going to vehicles that say they’re following ESG principles, according to data from Morningstar Inc., while nearly a quarter of all bond sales in the region were ESG-linked. The European Union will sell 225 billion euros of green securities as part of its pandemic recovery fund.

The leaders of the biggest economies have pledged massive cuts on greenhouse gas emissions, paving the way for a torrent of regulation that is set to benefit green stocks and bonds. U.S. President Joe Biden announced a goal to halve emissions by 2030 on 2005 levels, while Canada and Japan raised target cuts to 40%-46% by 2030 and the U.K. topped that with a vow to slash 78% by 2035.

Turkey’s Treasury has stepped up foreign borrowing to help fund its burgeoning budget deficit fueled by the pandemic. It has already borrowed $3.5 billion in the Eurobond market this year, against its forecast of $10 billion.

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