Carbon Pricing:

Gaining a Competitive Edge in a Climate-Constrained World

Derya Özet Yalgı, Sustainability Manager

Ceren Solak Yılmaz, Sustainability Supervisor 25 April 2018

About Garanti

Sustainability at Garanti

Climate Finance

Climate Change Action Plan

Internal Carbon Pricing

Climate Change Disclosure

Agenda

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About Garanti

About Garanti

ROAE

16.6%BASEL III CAR

16.8%

15.4 MILLIONCUSTOMERS

2nd LARGEST PRIVATE BANK

by assets of

US $94 billion

#1in NIM &

Net F&C base*

Note: Figures are based on BRSA consolidated financials as of December 31, 2017

Mcap, number of branches, ATM and customer numbers are as of February 6, 2018

Broad Geographical Coverage &

Omni-Channel Distribution Network

• ~940 branches

• Leading internet and mobile banking

• Largest financial call center

• More than 5,000 ATMs

• Targeted investments to digital platforms

Shareholding Structure

• ~50% free float

• Majority shareholder is

BBVA

• The most traded stock of

Borsa Istanbul

• Shareholders from around

35 countries

• ~60% of the institutional

investors are UN PRI

signatories

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Sustainability at Garanti

Our Value Creation Model

Sustainability Index

6

Sustainability Governance7

Board of Directors

Responsible Banking Committee

Sustainability Committee

ESG Risk Management

Sustainable Finance

Climate Finance

Sustainability Reporting

Stakeholder Engagement

Policy Development

Climate Finance

3.

Green Office Standards

2.

Reducing Deforestation

4.

Adaptation to Climate Change:

Mitigation of Water risks

1.

Prioritizing Low Carbon Investments

Climate Change Action Plan

4 Pillar Approach

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Carbon Pricing Combined Sensitivity Analysis Decrease the dark/spark spread through

increasing the cost of NG & coal in

the mid-long term

Implement shadow carbon price

Positive pricing on RE

Outcome

min. 70% renewable share by 2020 in PF transactions*

Project Finance Transactions

The amount of cumulative financing** provided

to renewable energy investments over US$ 4.9

billion.

30% share** in Turkey’s operating

installed wind power capacity

*for greenfield power plant installations

**as of 2H 2017

Pledge for

2020

Prioritizing Low Carbon

Investments ( I / III )

Detailed evaluation of non-financial

risks of carbon-intensive projects

E&S Risk Mgmt System

100% renewable energy financing in

all new PF greenfield loans since

2014

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Green Finance Initiatives – Key developments over the past 10 years

Environmentally-Friendly

Bonus Credit Card

2006

The first wind power plant

financed, still the market leader

Small Scale Solar PP

Product launched

2014

2007 2012

US$ 60 mio disbursed

to SMEs for EE

Agricultural Irrigation

Systems Loan

launched

2015

Residential mortgage covered

bond to support green

mortgages

2017

Prioritizing Low Carbon

Investments ( II / III )

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2018

New Products & Risk

Management Systems

under development

Green Mortgage

Energy Efficiency

Renewable Energy

> Agreement Date: 2017

> 75 mio €

> Eligible Projects

> Green Mortgage Loans

> Mortgage Loans

> Agreement Date: 2017

> 150 mio US$

> Eligible Projects

> Green Mortgage Loans

> Agreement Date: 2016

> 100 mio €

> Eligible Projects

> Renewable Energy

> Energy Efficient Production

> Green Mortgage Loans

> Other projects with prior

consent of Proparco

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Prioritizing Low Carbon

Investments ( III / III )

Green Credit Lines

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Reducing Deforestation

> Our exclusion list includes unsustainable forestry activities

> Additionally, for projects that are subject to our Environmental and Social Impact Assessment Model;

> We make sure that the borrowers make every effort to mitigate deforestation effects

> Above a certain monetary limit and E&S risk rating, we ask our customers to implement voluntary

forestation projects.

Garanti Bank customers pledged to implement forestation projects amounting to

~40 million trees by 2025

A photo of a forestation project implemented by Garanti Bank’s customer as per the Environmental and Social Impact Assessment Model

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Internal Carbon Pricing

Carbon Pricing in Turkey

• Turkey signed the Paris Agreement on April 22nd, 2016

• Ratification is on hold

• Negotiations regarding the status change continue

• An active member of PMR Project led by the World Bank

• Turkish GHG Emissions MRV Regulation came into force in 2014

• First mandatory reporting cycle was in 2017

• Pilot MRV implementation for energy, cement and refinery sectors in 2016

• Pilot ETS scheme to be implemented

• The Energy Exchange Istanbul (EXIST) announced to work on an ETS

design in 2019

• A draft regulation to establish Renewable Energy Certificate Trading

Scheme (RETS) is being developed

Possibility of a carbon tax & other market mechanisms

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Carbon Pricing at Garanti

First Pilot

implementationClimate Change

Action PlanSector Norms

2011 2015 2018

Pricing Scope: PF greenfield commitments

Pricing Range:

2011-2020: 5-10 US$/tCO2e

Envisaged after 2020:

• 22 US$/tCO2e 2020

• 48 US$/tCO2e 2025

• 74 US$/tCO2e 2030

# of Projects: 7

Average Impact on EBITDA: 35%

in new PF greenfield commitments

17%

2013 2014 2015 2016 2017

100%100%100% 100%

Share of Renewables in Energy Portfolio

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Positive pricing on RE: < 5 US$

Internal Pricing

Research

2017

Carbon pricing report release

CIB Policies & Sector Norms

• Exploration, drilling, transport

and refining of oil and gas

• Renewable energy projects:

wind, solar, hydropower,

biomass and biofuel

• Thermal power stations

(combined & coal power plants)

• Nuclear power plants

• Electric power transmission and

distribution

• Development and/or expansion

of existing projects

• Planning and development of

mines

• Operations, onsite processing

of extracted minerals

• Closing and restoration of

mines

• Transport: Highways, ports, terminals,

airports, subway, tramway and railway

• Environmental: Waste and water

management (treatment, management

and distribution)

• Social: Education and health related

• Telecommunication: Cables and

communication networks

Energy Sector Norms Mining Sector NormsInfrastructure Sector Norms

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Challenges to Overcome

• Lack of clarity in green

definitions

• Communicating carbon pricing

• GHG MRV Regulation recently

came into force

• No common carbon pricing

implementation in the Turkish

financial sector

• Lack of analytical capability

• Lack of awareness

• National & regional practices

• The true cost of carbon

• How to implement in corporate

loans

Signed by 7 Turkish banks

representing 50% of the total asset size of

Turkish banking sector

Sustainable Finance Declaration

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Internal & External Capacity Building

•A full-day workshop organized in collaboration with:

•CDP

•EBRD

•Climate Wedge

•Climate Focus

•GAIA Carbon Finance

Internal Carbon Pricing Workshop

•CPLC Steering Committee Member

•UNGC Business Leadership Criteria on Carbon Pricing Signatory

•UNEP FI Banking Principles Core Group Member

•TCFD Supporter

Advocacy

•UN Global Compact Turkey Network

•Business Council for Sustainable Development Turkey

•Turkish Banking Association

•Turkish Industry & Business Association

Sustainable Finance Platforms

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Climate Change Disclosure

Thematic Area Recommendations What we have

GovernanceDescribe the board's oversight of climate-related risks and opportunities

Describe management's role assessing and managing climate-related

risks and opportunities

StrategyDescribe the climate-related risks and opportunities the organization has

identified over the short, medium, and long term

Describe the impact of climate-related risks and opportunities on the

organization's business, strategy and financial planning

Describe the resilience of the organization's strategy, taking into

consideration different scenarios, including a 2°C or lower scenario

Risk

Management

Describe the organization's processes for identifying and assessing

climate-related risks

Describe the organization's processes for managing climate-related risks

Describe how processes for identifying, assessing, and managing these

risks are integrated into the organization's overall risk management

Metrics and

Targets

Disclose the metrics used to assess climate-related risks and

opportunities in line with its strategy and risk management process

Disclose Scope 1, Scope 2, and if appropriate Scope 3 greenhouse gas

(GHG) emissions

Describe the targets used by the organization to manage climate-related

risks and opportunities and performance against targets

Disclosure on Climate Change

> One of the first supporters

> Developing internal capacity

To be developed

> 2017 Water A List

> 2015 & 2016 Climate Change A List

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For Questions:

sustainability@garanti.com.tr

For more information:

www.garantiinvestorrelations.com

Thank You