In parallel with the rapid population growth in the world, urbanization and industrialization, as well as the increasing trade and production opportunities, have caused us to face significant environmental problems due to the unplanned and unbalanced use of natural resources. In addition to the fact that climate change has become visible and has a negative impact on human life, the physical effects it creates have also led to some legal regulations both nationally and internationally.
Here, the Taxonomy Regulation, which is called the Green Taxonomy and was first put into effect in the European Union (EU) as of July 2020 to promote sustainable finance, has been instrumental in creating some legal changes in the countries of the world.
So, what exactly does this regulation, referred to as the Green Taxonomy, aim and aim for?
This Regulation, which aims to increase transparency in the market, introduces a classification system that helps determine which activities are compatible with the net zero target and in line with the Green Deal goals. In other words, this Regulation does not set out what is prohibited or permitted, but rather which activities are compatible with the Green Deal and net-zero targets and therefore should be encouraged within the scope of sustainable finance. In other words, the regulation in question serves as a classification tool that covers financial institutions and a wide range of financing instruments and helps define which activities are sustainable for these financial services. According to the European Commission, the Taxonomy Regulation (Regulation) constitutes the cornerstone of EU sustainable finance studies. In order for an economic activity to be considered sustainable, it must: “Make a significant contribution to at least one environmental objective”, “Do not cause serious harm to other environmental objectives”, “Comply with minimum social standards”.
When looking at world examples;
1. EU Taxonomy; It is a classification system developed by the European Union to encourage sustainable investments. This system determines how economic activities will be evaluated in terms of environmental sustainability and creates the green finance framework. It entered into force in 2020 and is still being updated.
-
-
- The Objectives of the EU Taxonomy: To encourage green investments – Facilitates the provision of financial resources for sustainable projects.
- Reducing the risk of greenwashing – Helps to determine whether companies are truly environmentally friendly.
- Achieving sustainability goals – Directs investments in line with the EU’s 2050 carbon neutrality goal.
- Providing transparency in financial markets – Requires companies and investors to report their sustainable activities.
-
The 6 Environmental Goals Covered by the EU Taxonomy: “Reducing climate change”, “Adapting to climate change”, “Sustainable use of water and marine resources”, “Transition to a circular economy”, “Preventing and controlling pollution”, “Protecting biodiversity and ecosystems”, etc.
However, the EU Taxonomy is a structure that addresses and includes sectors such as “Renewable energy”, “Construction and building renovation”, “Transportation”, “Manufacturing”, “Agriculture and forestry” and “Financial sector”.
2. China Green Taxonomy; Updated in 2021. A system called “Green Projects Catalogue” has been developed. An EU-China joint working group has been established to harmonize it with the EU. It is a guiding system for the financial sector in line with China’s carbon neutrality targets. Featured Sectors: Energy, transportation, agriculture, forestry, manufacturing.
3. United Kingdom (UK) Taxonomy; Announced in 2021 and still under development. It was created based on the EU Taxonomy and is customized according to local conditions. It aims to guide sustainable investments within the scope of the Green Finance Strategy. Special labeling systems are being developed for financial products compatible with the taxonomy. Featured Sectors: Finance, energy, construction, transportation.
4. US Taxonomy (SEC Climate Disclosure Rules); Although it is not a definitive taxonomy system, sustainability disclosures have been made mandatory by the SEC (Securities and Exchange Commission). There are “Voluntary Taxonomy Framework” proposals for green bonds and sustainable finance. States such as California are developing independent sustainable finance taxonomies. The IFRS Sustainability Standards (ISSB) developed by the private sector are increasingly being adopted in the US. Featured Sectors: Energy, manufacturing, technology, finance.
5. Canadian Taxonomy; Launched in 2021, the first framework was published in 2023. It includes special regulations that take into account Canada’s natural resource-based economy. The concept of transition to a low-carbon economy is emphasized. (e.g., carbon capture and storage projects are supported). It is a guide for sustainable investment funds. Featured Sectors: Energy, mining, forestry, transportation.
6. South African Taxonomy; Entered into force in 2022. It is largely compatible with the EU taxonomy. It includes an emphasis on social inequality and just transition. (e.g., encouraging green projects in low-income regions). It includes special criteria on reducing greenhouse gas emissions, water management and waste management. Featured Sectors: Energy, water management, waste recycling, transportation.
7. ASEAN (Southeast Asia) Taxonomy; Announced in 2021. A “multi-layered system” is applied. (different criteria according to different development levels of countries). It includes a “transition finance” mechanism for developing countries in the ASEAN region. Disaster-resistant infrastructures and water management projects are supported. Featured Sectors: Infrastructure, energy, forestry, water management.
The Green Taxonomy developed by Turkey is largely compatible with the EU model and is planned to enter into force in 2027.
The Turkey Green Taxonomy Draft Regulation aims to classify economic activities in terms of environmental sustainability in line with sustainable development goals and to encourage the flow of finance to these activities. The draft regulation was prepared in line with the European Union Green Taxonomy and aims to support Turkey’s transition to a low-carbon economy.
| COUNTRY/REGION | GREEN TAXONOMY | APPLICATION DETAILS |
| EUROPEAN UNION (EU) | EU Green Taxonomy (2020) | Specific sectors and activities were defined to encourage environmentally friendly investments. It entered into force in 2021. |
| CHINA | China Green Taxonomy (2021) | Developed a system to define environmentally friendly projects for green financing. |
| JAPAN | Japan Green Taxonomy (2020) | Launched a green taxonomy application to encourage green financing. |
| CANADA | Canada Green Taxonomy | Steps have been taken for green certification of financial products. |
| SOUTH KOREA | South Korea Green Taxonomy | The aim is to classify environmentally friendly investments to encourage green investments. |
The Basic Content of the Draft Green Taxonomy Regulation of Turkey:
- Purpose and Scope: Supporting economic activities compatible with sustainable development goals, encouraging the flow of finance to sustainable investments, preventing greenwashing practices.
- Environmental Goals: Reducing greenhouse gas emissions, adapting to climate change, sustainable use and protection of water and marine resources, transition to a circular economy, preventing and controlling pollution, protecting biodiversity and ecosystems.
- Taxonomy Compliance Criteria: The economic activity must contribute significantly to at least one environmental goal, not significantly harm other environmental goals, comply with minimum social security measures, and meet the specified technical screening criteria.
- Technical Screening Criteria: Specific environmental performance criteria have been determined for each economic activity. For example, there are detailed criteria such as greenhouse gas emission limits for energy production or energy efficiency standards for the construction sector.
- Reporting and Verification: Institutions and organizations that are obliged to report within the scope of the Turkish Sustainability Reporting Standards must report their activities that are compliant with the taxonomy. Reporting will be recorded in the “e-taxonomy” system of the Climate Change Presidency. Reporting will become mandatory as of January 1, 2027; voluntary reporting is encouraged until this date.
As a result; When the whole picture is examined with the Taxonomy and corporate sustainability reporting regulations, the designed path to reach net zero in 2050 is as follows:
- First, define which activities are sustainable,
- Encourage investment in environmentally friendly and Taxonomy-compliant activities,
- Then, with reporting obligations, companies will transparently share the impacts of their activities on the environment, human rights and society, specific to their sustainability targets.
As a result of all these steps and finally reporting, it is aimed to provide the desired transparency in the markets. Thus, consumers will be able to see the impacts of the product or service they receive on the environment, society and people while making their purchasing choices and make decisions. In addition, investors will of course benefit from the same transparency and prioritize sustainable companies in their investments. And finally, manufacturers will prefer more sustainable production, supply, distribution and finance models in order to attract investment and turn consumer preferences in their favor.
Sources;
https://ec.europa.eu/sustainable-finance-taxonomy/
Taxonomy Framework Document;
https://ticaret.gov.tr/dis-iliskiler/yesil-mutabakat/surdurulebilir-finansman/taksonomi
https://yesilbuyume.org/ab-taksonomi-tuzugune-uyum-saglamanin-onemi/
She graduated from Çankaya University Faculty of Law in 2005. In the same year, she completed her master’s degree in Constitutional Law at Çankaya University, Department of Public Law. Until 2011, she worked as an ODY-ÜDY Instructor at Vocational Training Centers affiliated with the Ministry of Transport. For approximately 15 years, she has been working as a legal expert at the Union of Chambers and Commodity Exchanges of Turkey (TOBB). Initially, she was involved in Foreign Trade and International Logistics at TOBB and represented the United Nations for nearly seven years. She is currently serving as a legal expert in the SME Policies Directorate within the TOBB Department of Real Sector R&D and Implementation.
Meanwhile, she is working on completing her doctoral dissertation in Administrative Law at Gazi University, Department of Public Law-Administrative Law. After completing her thesis on TOBB, which is recognized by the Council of Higher Education (YÖK) in Turkey, she plans to publish it as a book.
Additionally, since 2023, she has been writing columns in the London section of “DÜNDAR HUKUK” and “DÜNDAR LEGAL SERVICE CONSULTANCY,” which have established themselves internationally, particularly in the field of energy and renewable energy.