Turkey Has Pressed the Button for Impact Investing
Impact investing is relatively a new concept for Turkey. The day we decided to establish a platform for impact investing in and for Turkey back in March 2020, we thought such platform would be pivotal for raising awareness and creating an ecosystem for impact investing. At that time, the Impact Investing Ecosystem Report launched dated November 2019 by UNDP IICPSD and the Investment Office of the Presidency was the only roadmap that provided content for the country.
Since the day we located ourselves to advocate for impact investing, we have been in touch with key stakeholders to start the conversation regarding impact investing. Framing the need of new economic models and instruments that cover creating a positive impact in other people’s life and the environment is necessary for our country to follow the global investing trends where making profit and managing risk is not enough anymore.
The 11th Bosphorus Summit in Istanbul on March 8th, 2021 hosted a groundbreaking event to observe Turkey’s intention and motivation to step into impact investing and impact economy through President Erdoğan’s honorary keynote speech where he mentioned the significance of impact investing and his support to the concept both individually and as the Presidency.
The launch of the SDG Investment Map of Turkey is also a significant step in accelerating SDG private investments, hence impact investments. The Map is a perfect tool that provides detailed information on how specific investments and business models advance the Sustainable Development Goals. The launching of the SDG Investor Map was followed by the Policy Dialogue Panel that accomodated key speakers acknowledging the need for change in the investment mindset: not to invest for a financial return only, but for the good as well. This whole event marked Turkey’s readiness and motivation to facilitate a productive discussion and ongoing action among local and international capital holders regarding SDG private investments and impact investing.
In a world exposed to the Covid-19 pandemic in addition to the existing global challenges in achieving the sustainable development goals, collaboration and partnership is necessary more than ever. Bridging the 2.5 trillion dollar funding gap requires collaboration in order to alleviate the financing burden on governments, donor agencies and development banks. Despite the difficulties, there is also a growing interest among investors to mobilize capital into activities that deliver strong financial returns while reducing poverty and inequality, advancing health and education, and protecting the environment.
Speaking of the SDG related investments, it is vital to inform the asset owners on how to create measurable and positive social and environmental impact through their investments. A major challenge constraining SDG related investmests is the difficulty of identifying bankable projects for investors.
The SDG Investor Map is an evidence-based tool that provides impact intelligence by specifying national priorities and development needs, particularly figuring out sub-sectoral and sub-regional development needs while informing policy-makers.
The SDG Investor Map of Turkey was initiated by UNDP Turkey and UNDP Private Sector Center in collaboration with the Investment Office of the Presidency. This map has been developed as a guide that includes 27 investment opportunity areas identified across 9 priority sectors and 14 sub-sectors.
As of 2020, the assets under management for impact investing have reached 715 billion dollars globally. However there are still wide discrepancies in the geographical allocation of impact assets. In 2020, the Middle East and North Africa region and the Eastern Europe, Russia and Central Asia region accounted for only 2% and 6 % respectively. Despite the low regional share, the Middle East and North Africa region experienced the highest growth in impact investments with a 43% compound annual growth rate over the last couple of years.
Located in a strategic location bridging multiple continents, Turkey appeals to impact investors who are interested in both the Middle East and North Africa region and the Eastern Europe, Russia and Central Asia region markets. There is also great potential for Turkey in the Social Impact Bonds and Green bonds, and the Islamic finance market. Green Sukuk is also an innovative financial instrument which has great potential in Turkey as it attracts all type of investors: conventional investors, green investors and Islamic investors.
While the country enjoys a relatively developed financial market, it still presents many opportunities to generate social and environmental impact to alleviate the development challenges observed in the region. Alongside a growing entrepreneurship ecosystem, Turkey also hosts an emerging social entrepreneurship network which deserves closer examination to lay the baseline for incorporating financial profit with a positive development impact.
The Impact Investing Ecosystem Study Report indicates five key areas where the highest impact may be generated in Turkey which are refugee livelihoods, women’s empowerment, renewable energy, health- tech and financial inclusion. Aligning these key areas with entrepreneurship activities in Turkey is critical to raising capital for businesses with and for impact and scale-up models.
When we look into the supply side of impact investing in Turkey;
we observe that a strong supply of financial capital with a variety of players from Development Finance Institutions to banks and private equity.
There is significant access to major global funds such as the Clean Technology Fund (CTF), EU Instrument for Pre-Accession Assistance (IPA) funds, Global Environmental Facility (GEF) funds, and Swedish International Development Cooperation Agency (SIDA) Gender Funds.
We can see that the Turkish banking sector displays a strong tendency to contribute to social and environmental sustainability.
In 2019, six big Turkish banks became part of the 130 banks managing over 47 trillion dollar assets that adopted the responsible banking principles backed by the United Nations Environment Programme Finance Initiative.
Turkey has a younger population compared to advanced economies and has potential to support a relatively young social entrepreneur network in the economy. Private Equity and Venture Capital are in the rise as well as angel investments- thanks to the recent tax reliefs provided by the government.
Investments in sectors with high impact potential such as health and well-being, education, cleantech, agritech, energy and social good— account for an increasing share in the number of investment deals per year.
The public sector is the biggest source of early-stage investments in which KOSGEB, TUBITAK and the Ministry of Industry and Technology are key providers.
A total of 5,636 foundations that operate in Turkey manage large sums of assets that can be channeled into impact investing, which greatly overlaps with the social welfare mandate of most foundations.
On the demand side of impact investing;
Turkey is positioned as the largest startup hub in South-Eastern Europe, more than 550 startups are established per year. Startup investment is projected to reach a high of 200 million dollars per year.
The entrepreneurship ecosystem is one of Turkey’s strengths in variation of Entrepreneurship Indicators from the EU Average in comparison to the EU.
The Turkish impact-creating enterprises focus particularly on Good Health and Well- Being (SDG3), Quality Education (SDG4), Affordable and Clean Energy (SDG7), and Responsible Consumption and Production. Among social enterprises 47% are young people, 55 % are women and 83% are highly educated.
When it comes to enablers;
There is a a robust enabler environment that serves investment activities with and for impact. Incubators , accelerators and technoparks for tech-based ventures are well-positioned to be aligned with the impact investing mandate. There is a tendency in Turkish universities to promote impact investing activities.
Although the country’s culture of charity giving and entrepreneurship has laid the foundations for a great potential for impact investing, Turkey can fulfil its high potential in particular in terms of mobilizing private funding for impact.
The Impact Investing Ecosystem Report defines Turkey as a country offering a promising context to initiate an impact investing ecosystem that will mobilize finances to alle viate serious development challenges in both the local and regional context. The Turkish market offers many first-mover advantages for impact investing and being involved in building this ecosystem has a lot to offer for both the government and the private sector.
In order to leverage the opportunities and manage the transition to the impact economy in Turkey, establishing a National Advisory Board for Impact Investing was a crucial step. The Turkish National Advisory Board for Impact Investing will be established by the end of March this year. Among the founders of the Turkish National Advisory Board are : The Development and Investment Bank of Turkey, Impact Investing Platform Etkiyap, the Investment Office of the Presidency, UNDP Private Sector Center and UNDP Turkey.
The Turkish National Advisory Board shall act as a platform and facilitate the development of impact investing in Turkey. The core aim is to create an enabling environment to facilitate the growth of impact investing and to establish a well-functioning ecosystem with a vision to make impact investing to become a mainstream investing choice in Turkey.
The Turkish National Advisory Board will be mobilizing government agencies and private sector stakeholders for developing a regulatory system to define and incentivize impact investing. Capacity building activities prioritizing government agencies, public sector capital and private sector capital will be at the core of activities as well as raising awareness and creating a common language for impact investing. Finally, developing a clear understanding of impact measurement and management among all sectors and establishing a national impact management framework is another priority.
Etkiyap has a role in the making of the National Advisory Board. Etkiyap is the Impact Investing Platform of Turkey established solely to advocate for impact investing, and to create an ecosystem for impact investing. Etkiyap also aims for introducing impact measurement and management tools and metrics, and designing impact bonds in Turkey. Members of the Impact Investing Taskforce have had a consensus to designate Etkiyap as the leading organization to host the Turkish National Advisory Board. The National Board will have its first meeting soon and announce its incorporation very soon. Creating an eco-system for impact is one of the goals that Etkiyap is committed to, and such goal will be met in Etkiyap’s first year.