Developments in the Climate and Sustainability Ecosystem

Climate Change Mitigation

In recent years, extreme weather events around the world"such as floods, wildfires, droughts and heatwaves"have indicated a significant increase in the frequency and severity of climate-related natural disasters. Assessments by the Intergovernmental Panel on Climate Change (IPCC) and the World Meteorological Organization (WMO) show that with rising global temperatures, both the prevalence and intensity of extreme weather events have increased. This trend has heightened economic uncertainties and created multi-dimensional risks for society, the real sector and the financial system.'?

The impacts of climate change extend beyond financial markets, generating direct consequences for agriculture and food security, water resources, public health, infrastructure resilience and social welfare. A study published through the collaboration of the United Nations (UN) and the WMO emphasizes that climate-related disasters lead to fluctuations in food supply, disruptions in trade flows, forced migration and deepening socioeconomic vulnerabilities.'• This situation has created new risk channels for the banking sector in areas such as credit risk, operational risk, fluctuations in collateral values and portfolio resilience.

Meanwhile, investors interest in environmentally responsible investments has been accelerating, with the issuance of green bonds, sustainable finance instruments and climate-themed investment funds reaching record levels globally. Strong growth trends are particularly evident in solar and wind energy investments, rapid innovation in energy storage technologies and the wider adoption of solutions such as regenerative agriculture and waste reduction. This transformation highlights the critical importance of concrete investments and partnerships in addressing climate change, protecting natural resources and transitioning to a development pathway aligned with the 1.5"C target."'

During COP30, held in Bel"m, Brazil between 10"21 November 2025, new and updated Nationally Determined Contributions (NDCs) submitted by 119 Parties were assessed, and the alignment of these commitments with the total mitigation effort required to limit global temperature increase to 1.5'C was analyzed.

COP30 negotiations also highlighted issues such as nature-based solutions, forests and land use, just transition policies, carbon markets and the operationalization of market mechanisms under Article 6 of the Paris Agreement. Negotiations focused on strengthening the technical infrastructure of carbon markets, enhancing monitoring-reporting-verification (MRV) systems and activating international cooperation mechanisms. In this context, the financing and implementation dimensions of climate action are expected to occupy a more prominent place in the negotiation and policy agenda.

'? AR6 Synthesis Report, Climate Change 2023, IPCC
'• State of the Climate, Update for COP30, WMO
'• Already a MultiTrillion-Dollar Market: CEO Guide to Growth in the Green Economy Annual Report, 2025, WEF

New Regulatory Developments and Regulations

Global Developments in Climate Change Mitigation

As of 2025, regulation-driven transformation aimed at climate change mitigation has accelerated globally, with new regulatory frameworks"particularly those directly affecting trade, finance and manufacturing sectors"entering into force.

With the EU Deforestation Regulation (EUDR) adopted by the European Union, it has become mandatory to demonstrate that certain commodities and derivative products placed on the EU market or exported from the EU are sourced from areas not subject to deforestation after 31 December 2020. This regulation significantly strengthens companies' obligations related to supply chain traceability, risk classification and due diligence processes.

In line with the proposal for simplification and postponement to ensure the smooth implementation of the EUDR, the European Parliament and the Council of the EU reached an agreement in December 2025 on the revision of the regulation. Accordingly, the implementation date of the EUDR was updated to 30 December 2026 for large and medium-sized enterprises and to 30 June 2027 for micro and small-sized enterprises, aiming to ensure a gradual transition to implementation. This approach enables companies to strengthen their supply chain infrastructures and adapt their data monitoring systems.

The EU's climate policies strengthen the economic and governance dimensions of the sustainable transition by enabling the comprehensive assessment, reporting and integration of the operational, financial and regulatory impacts of climate risks into decision-making processes.

As of 2025, the EU has entered a new implementation phase aimed at simplifying sustainability reporting obligations, encouraging investments and accelerating transition finance. In this context, the simplification package published by the European Commission on 26 February 2025 as the Omnibus Package²² introduced amendments to the Corporate Sustainability Reporting Directive (CSRD) and defined steps to make sustainability reporting more efficient and easier to implement. With the Omnibus Package²², reducing administrative burdens by 25% for all companies and by 35% for SMEs has been set as a policy objective.

This framework maintains the alignment of sustainability reporting with climate objectives while enabling a balanced management of the operational burden on businesses and reducing compliance costs in practice.

²² Omnibus Package
²³ Climate Law
'4 Draft Regulation on the Türkiye Emissions Trading System (ETS)

Regulatory Developments and Progress in Türkiye

In Türkiye, 2025 marked a critical turning point in the fight against climate change, as the regulatory framework became institutionalized and policy instruments gained a legal basis. Türkiye's first Climate Law²³ entered into force on 9 July 2025 following its publication in the Official Gazette. With the enactment of the law, the net-zero emissions target, the green growth vision, the monitoring of greenhouse gas emissions and the establishment of market-based mechanisms were brought under a legal framework. Thus, climate policies were, for the first time, consolidated under a comprehensive and binding legislative structure.

Following the enactment of the Climate Law, the Draft Regulation on the Türkiye Emissions Trading System (ETS)²⁴ , published by the Directorate of Climate Change on 22 July 2025, initiated the secondary legislation preparation process for the national carbon market. The draft regulation defined the framework for emission permits, allowance allocation, monitoring-reporting-verification (MRV) processes and market functioning, representing a significant step toward integrating a carbon pricing mechanism into the Turkish economy. This regulation is expected to enhance companies' carbon management capacities and encourage investments in low-carbon production.

As a complementary element of the national carbon market infrastructure, the Draft Regulation on Carbon Crediting and Offsetting, published by the Directorate of Climate Change on 1 August 2025, established the Türkiye Carbon Offsetting System (TR COS) and created the legal framework for the generation and use of national carbon credits through greenhouse gas reduction and removal projects. Through this regulation, carbon credits generated from projects implemented domestically can be utilized both for voluntary commitments and for offsetting ETS obligations. The development of just transition policies and the expansion of green financing mechanisms have been positioned among the key policy instruments.

In order to strengthen the national policy framework in the areas of climate action and sustainable finance in Türkiye, the Draft Regulation on the Türkiye Green Taxonomy²⁵ was published in August 2025. Within this framework, the sectors and activities included in the taxonomy, along with their technical screening criteria, were presented for public consultation. The draft regulation represents a critical step toward classifying environmentally sustainable economic activities and identifying green investments.

In order to enable the monitoring of sustainable finance policies through concrete indicators in Türkiye, the Regulation on the Calculation of the Green Asset Ratio of Banks²⁶ issued by the Banking Regulation and Supervision Agency (BRSA), was published in the Official Gazette on 11 April 2025. With the publication of the criteria and standards to be applied in the calculation of eligible assets, a standardized methodology was established to measure the alignment of assets within banks' credit and investment portfolios with environmentally sustainable economic activities. Accordingly, it is aimed to report transparently, comparably and in a traceable manner the extent to which financial resources are directed toward the green transition.

Within the scope of the regulation, Green Asset Ratio (GAR) reporting was effectively launched as of 30 June 2025. Since that date, banks have been calculating their GAR based on the level of alignment of assets in their credit and investment portfolios with green asset criteria and reporting these calculations regularly to the BRSA. GAR reporting is positioned as a strategic tool for the banking sector in monitoring the transformation of climate risks into financial risks, evaluating the effectiveness of transition finance and measuring sustainable finance performance. In this context, GAR stands out as a strategic indicator that supports banks in restructuring their green lending and investment decisions in alignment with climate targets, encourages the financing of low-carbon and sustainable investments and facilitates portfolio transformation in the journey toward net zero.

Another critical development aimed at strengthening the national policy framework was the submission of Türkiye's Second Nationally Determined Contribution (NDC 3.0)²⁷ to the United Nations Framework Convention on Climate Change (UNFCCC) as of December 2025.

With the updated NDC, Türkiye has presented a more comprehensive roadmap that addresses its greenhouse gas emission limitation target by 2035 together with sectoral transformation, climate finance, technology transfer and capacity-building dimensions. Within this framework, the establishment of a national ETS, the development of just transition policies and the expansion of green finance mechanisms have been positioned among the key policy instruments.

Türkiye to Host COP31

One of the most important outcomes of COP30 for Türkiye was its selection as the host country for COP31. As part of the decision, it was agreed that Australia would assume the presidency of the COP31 negotiations and that the Pre-COP meeting would be held in one of the Pacific countries. Accordingly, it was decided to proceed with a hybrid model in which the roles of host country and presidency of the negotiations are shared between two countries for the first time in the history of the COP process.

Türkiye's hosting of COP31 in Antalya presents not only a significant opportunity for regional climate diplomacy as an emerging economy and a bridge country but also entails an important responsibility.

This development is expected to enhance Türkiye's potential to accelerate progress toward its net-zero targets and strengthen regional cooperation. At the same time, from the perspective of the financial sector, it is likely to reinforce implementation momentum in areas such as transition finance products, carbon market infrastructures, and data and reporting capacities. For Australia, the role of COP31 Presidency is particularly critical in ensuring that the priorities and expectations of Pacific Island states are reflected in the COP31 agenda.

²⁵ Draft Regulation on the Türkiye Green Taxonomy
²⁶ Regulation on the Calculation of the Green Asset Ratio of Banks
²⁷ Türkiye's Second Nationally Determined Contribution (NDC 3.0)

Green Transition

The green economy, which has reached a global annual size exceeding USD 5 trillion, is expected to surpass USD 7 trillion by 2030. Low-carbon technologies, energy transition, circular economy solutions and climate adaptation investments play a decisive role in positioning the green economy as the second fastest-growing market in the world after the technology sector.

Global renewable energy capacity is projected to grow by more than 10% annually on average between 2024 and 2030, while solar and wind energy are expected to account for over 80% of new installed capacity additions. Regenerative agriculture practices are anticipated to expand to 20% of global agricultural land by 2030, with the aim of both increasing carbon sequestration capacity and strengthening soil health and water efficiency.28 These developments are contributing to the rapid expansion of global emission reduction potential.

Environmental and Social Risk Management

The Global Risks Report 2026'?,published by the World Economic Forum (WEF) highlights that environmental degradation, the impacts of climate change and growing social vulnerabilities will be at the center of the global risk agenda over the coming decade. In the short-term risk ranking covering a two-year period, it is observed that 40% of the risks expected to have the greatest impact are social and societal in nature. Environmental risks such as extreme weather events, biodiversity loss, natural resource depletion and pollution rank among the top risks in both short- and long-term risk assessments, with half of the top ten risks in the long-term ranking covering a ten-year horizon consisting of environmental risks. These risks create multi-dimensional impacts on agriculture, food security, energy supply, infrastructure resilience and supply chain continuity, posing a threat to economic stability and social welfare.

Within this comprehensive risk landscape, environmental and social risk management strategies enable companies and financial institutions to manage the impacts on financial performance, reputation, customer trust and regulatory compliance in an integrated manner, while facilitating the stronger integration of sustainability-oriented decision-making processes into corporate governance structures.

²⁸ Already a MultiTrillion-Dollar Market: CEO Guide to Growth in the Green Economy Annual Report, 2025, WEF
²⁹ 2026 Global Risks Report

Corporate Sustainability Reporting

The Türkiye Sustainability Reporting Standards (TSRS), which form the basis of the regulatory framework for sustainability reporting in Türkiye, entered their second reporting period as of 2025.

With the Board Decision published by the Public Oversight, Accounting and Auditing Standards Authority (POA) on 30 December 2025, it was decided to extend for one year the exemptions granted for certain sustainability-related disclosure topics. This regulation aims to facilitate the adaptation of companies within the scope of the reporting obligation to the implementation process, strengthen their data infrastructures and enhance institutional capacity.

At the international level, the International Sustainability Standards Board (ISSB) published target amendments to the IFRS S2 standard in response to feedback received from market participants. These amendments introduce transition reliefs and clarifications that facilitate implementation, particularly in areas such as greenhouse gas emissions disclosures, data collection processes and reporting scope. With these changes published in December 2025, it is aimed to make institutions' emission calculation, data acquisition and reporting processes more manageable and comparable, thereby supporting stronger alignment between TSRS and IFRS S2. These efforts contribute to enhancing sector-specific comparability, consistency and data quality within the TSRS framework, while strengthening the operational integration of reporting processes.