The Legal Framework for Sustainable Finance: Part I - Green Transition and Capital Markets
Introduction
Sustainable finance has become a matter of growing importance in Türkiye, just as it has on the global legal agenda in recent years. Initially viewed as a technical concept in financial markets, this field has evolved into a multifaceted area of legal transformation encompassing corporate law, capital markets law, banking regulations, corporate governance, and disclosure obligations.
At the heart of this green transition lies the need to make investment and financing decisions, while taking into account their environmental, social and governance (ESG) related consequences and impacts, and to report on these impacts in a measurable, comparable and verifiable manner.
As Türkiye gets ready to host COP31, the sustainability agenda has extended far beyond the scope of environmental policy alone. Indeed, the topic of the green transition has been thoroughly addressed both in the National Green Finance Strategy and Action Plan[1] announced in July 2026 under the coordination of the Ministry of Treasury and Finance, and in the Medium Term Program[2] (“MTP”) released in September 2026, which outline the roadmap for the Turkish economy over the next three years.
Under the Green Transition Program, which is detailed in the MTP, legal compliance with sustainability requirements has become a prerequisite for access to financing and to increase competitiveness—for companies, financial institutions, and investors alike.
This article aims to highlight the legal implications of this transformation in the field of sustainable finance. The first section of the article, titled “Green Transition and Capital Markets,” addresses the legal nature of sustainable finance and developments in Türkiye’s capital markets. In the second section, to be published in October, under the heading “Green Transition and the Compliance Agenda for Financial Stakeholders,” the article will examine the implications of sustainable finance for the banking sector, as well as the effects of European Union-centered regulations on Turkish companies and financial institutions.
The Legal Nature of the Concept of Sustainable Finance
For a long time, sustainable finance was treated as a technical subject limited solely to the financing of activities that generate environmental and social benefits. Today, however, the concept encompasses broader and more multifaceted elements; such as the identification, pricing, and management of risk within the financial system. Consequently, sustainability—and particularly ESG (environmental, social, and governance) criteria—have emerged as standards that must be considered over time in investment decisions, credit allocation processes, offering documents, prospectuses, reporting documents, and corporate governance practices.
The primary legal consequence of this transformation is that sustainability statements are now evaluated not merely as expressions limited to marketing language, but as verifiable and auditable commitments. Consequently, preventing “greenwashing,” ensuring investors are properly informed, and auditing the sustainability claims of financial products against objective criteria stand for the legal pilars of this green transformation and are of strategic importance.
Capital Market Regulations in Türkiye
The most significant legal developments in the field of sustainable finance in Türkiye are taking shape through capital markets regulations. The Capital Markets Board (“CMB”) has published guidelines regulating project selection criteria, management of fund usage, reporting, and external evaluation processes for green debt instruments, sustainable debt instruments, green lease certificates, and sustainable lease certificates. This framework aims to ensure that issuers anchor their sustainability claims to concrete criteria and that investors have access to reliable and transparent information during the decision-making process.
Following the draft guidelines announced in 2024, the CMB adopted two separate guidelines in the field of sustainable finance via Board Decision No. 49/1500 dated August 13, 2026: (i) the Guide on Green, Sustainable, and Social Capital Market Instruments; and (ii) the Guide on Sustainability-Linked Capital Market Instruments.
- The Guide to Green, Sustainable, and Social Capital Market Instruments was prepared by expanding the scope of the “Guide to Green Debt Instruments, Sustainable Debt Instruments, Green Lease Certificates, and Sustainable Lease Certificates,” which was adopted in 2022. With this new regulation, in addition to the existing principles regarding green and sustainable capital market instruments, capital market instruments aimed at financing social projects have also been included within the scope of the guide. The guide sets forth the fundamental principles regarding green, sustainable, and social capital market instruments; green and social projects; capital market instrument framework documents; reporting obligations; and third-party assessment services. During the preparation process, the International Capital Market Association’s (ICMA) Green Bond Principles, Sustainable Bond Principles, and Social Bond Principles, as well as the European Union’s Green Bond Standards Regulation (2023/2631), were taken into consideration.
- The Guide on Sustainability-Linked Capital Market Instruments is a new regulation adopted to diversify sustainability-themed issuances. This Guide was prepared in accordance with ICMA’s Sustainability-Linked Bond Principles and the European Union’s Green Bond Standards Regulation (2023/2631), and is based on the link between the sustainability goals and key performance indicators set by the issuer and the financial or structural characteristics of the capital market instrument.
In this regard, the two Guides regulate two distinct, yet complementary models in the field of sustainable finance: While the first Guide focuses on “how” the proceeds from the issuance will be used (specifying which green, sustainable, or social projects the funds may be used to finance), the second Guide outlines the legal framework for a “performance-linked” financing model, in which the terms of the capital market instrument are shaped based on the issuer’s achievement of its sustainability performance targets.
Sustainability Reporting and Disclosure
For sustainable finance to function effectively, it is not sufficient for companies to merely state their goals. It is also critical to specify which data is used to measure these goals, which internal control mechanisms are used to monitor them, how they are audited by management bodies, and through which methods they are disclosed to investors. For this reason, sustainability reporting is increasingly becoming an integral part of corporate governance and the process of informing investors in publicly traded companies.
For publicly traded companies, compliance with sustainability principles is presented to investors for evaluation under the “comply or explain” approach. While this approach grants companies a certain degree of flexibility, it may also entail the risk of legal liability if disclosures are incomplete, misleading, or inconsistent.
Conclusion
Sustainable finance is not merely about the development of new products in financial markets. The concept represents a comprehensive area of legal transformation that reshapes companies’ approach to corporate governance, their communication with investors, their reporting obligations, their risk management processes, and their contractual commitments.
When sustainability in Türkiye is evaluated in conjunction with capital markets regulations and the EU sustainable finance framework—which we will discuss in greater detail in October—it appears set to become a central issue for companies and financial institutions in the coming period.
It is anticipated that compliance in this area will not be limited to mere documentation; sustainability claims will need to be supported by data, governance, internal controls, and legal accountability mechanisms. These mechanisms will become decisive for both financiers and those seeking financing in terms of both access to financing and the management of legal risks.
- Republic of Türkiye Ministry of Treasury and Finance. (2026). National green finance strategy and action plan (2026–2029). https://ms.hmb.gov.tr/uploads/2026/07/Ulusal-Yesil-Finans-Stratejisi-ve-Eylem-Plani-dab37989ecb6851c.pdf
- Presidency of the Republic of Türkiye, Presidency of Strategy and Budget. (2026). Medium-term programme (2027–2029). https://www.sbb.gov.tr/wp-content/uploads/2026/09/Orta-Vadeli-Program-2027-2029.pdf
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