Impact Investing Opportunities In Turkey

Head of the Impact Investing Advisory Board (EYDK) Şafak Müderrisgil talks about impact investing, the opportunities it provides in Turkey and its synergy with Islamic finance in this issue of Katılım Finans.

Impact investings are focused on creating a positive, measurable and transparent social and/or environmental impact at every step with expectations of a financial return. The three basic steps of impact investing, which can be applied across many asset classes, consists of strategic, impact-oriented material, in-kind contribution, impact measurement and management based on the Sustainable Development Goals, intending to find solutions to social and/or environmental issues.

The five pillars of impact investings are: impact entrepreneurs demanding capital, capital offered to impact initiatives, funds and instruments that mediate impact capital supply/demand, policymaking, and stakeholders that play a facilitating role in the ecosystem.

Social and environmental areas can generally play a secondary role in conventional investments. For this reason, the effect created by investors in these fields is not measured, and they are predestined to be short-term and limited. However, putting the impact at the centre of investments does not just open doors to the modern economy and its possibilities but also creates a long-term and wide-scale impact.

IFC recently released its 2020 global impact investing report. The report shows that the cumulative size of investments realized to influence or impact measurement  boand management reached $2.3 trillion. 2020 also marks the first year that emerging countries have left behind in new impact investings.

EYDK will play a role in market, policy, information and communication development and will be positioned as a national platform representing our country in the global impact investing ecosystem

TURKEY AND IMPACT INVESTING

Since April 2019, considerable progress has been made in the area of impact investing in Turkey. The Impact investing Ecosystem in Turkey report was published in November 2019 by the UNDP and the Republic of Turkey Presidential Investment Office. The report mainly focused on renewable energy, financial inclusion, healthcare technologies, refugee livelihoods and women empowerment. The SDG Turkey Investors Map was launched in March 2021 as the continuation report of the UNDP, which provides further detailed insight. President Recep Tayyip Erdoğan took part in the launch at the 11th Bosphorus Summit with a video message and reiterated his support for Turkey's impact investings. In April 2021, the Impact investing Advisory Board (EYDK) was established and started to work with 30 leading member institutions from public, private and third industries to make impact investing a mainstream investment model in Turkey. The founding sponsors of EYDK are the Republic of Turkey Presidency Investment Office, the Turkish Development and Investment Bank, Etkiyap, UNDP Turkey, UNDP IICPSD and Technology Development Valley. EYDK will play a role in market, policy, information and communication development and will be positioned as a national platform representing our country in the global impact investing ecosystem.

ISLAMIC FINANCE AND IMPACT INVESTING

Consensus between the fundamental principles of Islamic finance and impact investing offers a chance to create more comprehensive value at the intersection of these two rising values. The promising steps taken in the issuance of sustainable Sukuk only make up the tip of the iceberg in terms of consensus.

The SDG Turkey Investor Map report provides an increase in the accessibility of licensed warehouses. As one of the 27 priority areas in the report, it is of great importance in terms of food safety. This is because the losses incurred during the harvest and storage process harm small-scale farmers and low-income consumers. More than 26 million tons of food are wasted every year in Turkey, which is both an economic and ecological loss. Projects in this area are estimated to achieve internal profitability of 20%. Licensed warehouse investments have also been included in the 11th Development Plan, and they are not only accessible for development but are also offering various rent, logistics and transportation supports. The Islamic finance principle of using tangible activities based on labour and trade, rather than capital in profit and loss partnerships, coincides with many such impact investing opportunities. Funds and financial instruments are just as necessary as the investment areas at the intersection. Private equity companies and venture capital funds are essential as they serve as a bridge between the supply and demand of capital and account for half of the volume in developing countries in the IFC's report. With the strength it gets from its Islamic geography, which is worth $1.6 billion, and from Islamic financial assets exceeding $2 trillion, establishing Islamic impact funds in Turkey is an opportunity for Turkey to develop and stand out in the competition. Considering that an Islamic impact fund was established in the UK in

March to invest in small businesses and projects in the fields of agriculture and renewable energy, the urgency of taking advantage of this opportunity for our country, which has big goals in Islamic finance, can be understood. Social Impact Bonds can also be a vital instrument to include Islamic finance in the impact investing ecosystem. Thus, a model can be articulated where the state seeks solutions, makes performance-based payments to the issuer organization for social problems such as youth unemployment or women's employment, and the issuer funds the relevant service providers with the capital obtained from the investors during the project. As a result, the public, the issuer, the investors and the service providers win together.