What is Sustainable Finance? Green Finance Technologies

In today’s world, environmental issues, social inequalities, and a lack of corporate transparency are forcing the financial sector into a profound transformation. This shift not only presents new opportunities for both individual and institutional investors but also redefines the future of the financial world. In this article, we examine the concept of sustainable finance, including the tools employed, technological advancements, and regulatory frameworks in detail.

What is sustainable finance?

Sustainable finance refers to making financial decisions that consider not only short-term profits but also environmental, social, and governance (ESG) criteria. ESG criteria aim to make the financial sector more responsible and socially conscious, promoting more informed financial decisions. These conscious decisions contribute to the construction of an economy that can adapt to both environmental and social crises. The ESG criteria, consisting of environmental, social, and governance components, can be listed as follows:

* Environmental: Use of natural resources, carbon emissions, biodiversity, and similar topics
* Social: Labor rights, social equality, health and safety, and similar areas
* Governance: Transparency, ethical management, accountability, and similar factors

One of the most important topics related to sustainability is the carbon footprint. You can find answers to your questions about carbon footprints in our article titled “What is a Carbon Footprint?”

Sustainable finance tools and investments

One of the main tools of sustainable finance is green bonds. Green bonds are special debt instruments used to finance projects that will provide solely environmental benefits. Typically issued to support projects such as renewable energy, energy efficiency, clean water, and waste management, green bonds are becoming widespread in both the public and private sectors in Turkey. For example, TSKB was the first institution in Turkey to issue a green bond; other notable institutions, such as the Ministry of Treasury and Finance, Istanbul Metropolitan Municipality, Arçelik, and Limak, have also taken steps in this area in recent years. In this context, the funds raised through green bonds must be utilized and their environmental impact reported transparently by international standards. The most well-known standards in this field include the Green Bond Principles (GBP) set by ICMA and the Climate Bond Standard (CBS).

ESG investments are another sustainable finance tool, referring to types of investments based on environmental, social, and governance criteria. ESG investing considers not only a company's financial performance but also its environmental impact, social responsibility, and adherence to corporate governance principles. These investments are typically made through funds, bonds, or publicly traded company stocks created based on ESG criteria. Among ESG bonds, new-generation instruments, such as “sustainability-linked bonds,” tie the issuer to specific sustainability targets. If these targets are not achieved, higher interest payments may be applied as penalties. In recent years, ESG investments have become a crucial tool for both institutional and individual investors to mitigate risks and achieve long-term, sustainable returns. However, since these investments carry risks of “greenwashing”—where unsustainable practices are misrepresented as sustainable—regulatory authorities have increased oversight.

The role of green finance technologies

Green finance technologies, which are transforming the field of sustainable finance both conceptually and operationally, can be summarized as follows:

Transparency and trust (Blockchain – DLT)

Blockchain-based systems create a transparent and credible structure by recording the sources, expenditures, and results of funds allocated to green projects in an immutable ledger. In this way, investors can verify that their funds are indeed going to the promised projects. Additionally, blockchain systems offer secure and automated platforms for tracking and trading assets such as carbon credits.

Data analysis and risk management (Artificial intelligence & big data)

Artificial intelligence (AI) and big data analyze in-depth information, including companies’ environmental impacts, sustainability performance, and supply chain processes, to inform and improve investment decisions. They also identify financial and ecological risks more quickly, model climate scenarios, and build ESG-aligned portfolios.

Digital platforms and accessibility

Thanks to mobile and web applications, individuals and institutions can now directly invest in specific sustainable projects, such as those focused on energy efficiency, carbon reduction, or social benefits. Smart contracts can also automatically measure KPI performance, and penalties can be applied to institutions that fail to meet sustainability targets based on valuation.

Smart grids and IoT integration

In smart grids, energy production and consumption data are monitored in real time using IoT sensors. AI integrates this data to optimize energy flow, support prosumer models, and increase the sustainability of energy investments.

Regulatory standards and ESG-aligned financial products

With the help of technology, financial institutions can classify their portfolios according to regulations, such as the EU Taxonomy, and automatically calculate metrics, including the “green asset ratio.” This minimizes both regulatory non-compliance and greenwashing risks.

Impact measurement and performance tracking

The combination of AI and Blockchain enables real-time monitoring of a project’s environmental and social impacts (such as emission reduction, water savings, and social benefits). When performance targets are not met, automatic alerts and penalty mechanisms are triggered.

Regulations and standards in sustainable finance

The global and Turkish regulatory frameworks and standards for sustainable finance can be listed as follows:

Global regulatory frameworks

* ISSB – International Sustainability Standards Board: Developed by the ISSB and created under the IFRS Foundation, these sustainability reporting standards combine financial and sustainability data for stock exchanges worldwide. They are becoming mandatory in over 25 major markets starting in 2025.
* EU Taxonomy: This classification system, which defines which economic activities are “environmentally sustainable,” came into effect in 2020. It addresses six environmental objectives, including climate change, biodiversity, and the circular economy.
* SFDR – EU Sustainable Finance Disclosure Regulation: Sets mandatory transparency rules for funds and financial advisors to enhance the accuracy of ESG claims.
* TCFD – Task Force on Climate-Related Financial Disclosures: A recommendation framework that ensures companies disclose their climate-related risks and strategies. Reporting will become mandatory in many countries starting in 2025.
* SASB → ISSB integration: ESG accounting standards developed by SASB have gained international validity through their integration into ISSB rules.
* NGFS – Network for Greening the Financial System: A global platform coordinating sustainable finance practices among central banks and regulators; it has ~75 members even after the Fed’s departure in 2025.

Regulatory frameworks in Turkey

* TSRS – Turkish Sustainability Reporting Standards: According to the Official Gazette published on December 28, 2023, these standards are mandatory as of January 1, 2024, for companies exceeding certain thresholds (₺500 million+ in assets, ₺1 billion+ in revenue, 250+ employees). KGK publishes these standards in alignment with global frameworks like ISSB, GRI, and CSRD.
* Borsa Istanbul Sustainability Guide: Provides transparency and ESG reporting recommendations for corporate firms through a collaboration between KGK and Borsa Istanbul.
* EU taxonomy alignment efforts: The Ministry of Trade is developing a taxonomy infrastructure in Turkey to ensure compatibility with the EU Green Deal and to facilitate sustainable financing.
* Regulations by the Energy Market Regulatory Authority & Capital Markets Board: Financial institutions are required to report on carbon regulations (ETS), carbon border adjustment mechanisms (CBAM), and green loans.

Sources: 1, 2.