The finance sector has a business model that requires being connected to all sectors; therefore, its potentiality and speed to be affected by changes are higher than other sectors. We care about analyzing global, regional, and local trends with the awareness of this situation specific to the banking sector. Thus, we aim to take precautions in advance upon potential risks created by changes and seize opportunities on time. With the idea that natural resources, technology, and labor are at the core of the value creation process, we closely monitor local and global developments and acknowledge them when determining our priorities.

We anticipate rising energy prices all around the world, adverse financial circumstances, supply chain disruptions, and an inflationist environment pervading the world to exert further pressure on economic activities for the short term. In the mid and long term, however, we consider "Combating Climate Change" and "Technology & Digital Transformation" as the key trends that will have a defining impact on the sector.

Combating Climate Change

Developments linked with climate change, which threatens the future of Planet Earth and poses significant environmental, social, and economic implications, are strong signals that urge us, humankind, to take serious action. Countries must promptly take measures to make sure these developments affect us in the most limited manner possible. Global cooperation with all segments of society is an urgent need for an effective fight against climate change. We believe that policies aimed at low-carbon and inclusive growth must be adopted and sustainable investments that can make societies more resilient must be promoted for this fight to be effective.

In this context, the Paris Climate Agreement entered into force on 4 November 2016, being the first of its kind to be ratified by at least 55 parties, which together account for 55% of global greenhouse gas emissions, as of 5 October 2016. The main goal of the agreement was determined to limit global warming to well below 2 degrees Celsius, with emission reductions in the states parties’ national contribution statements, preferably to 1.5 degrees Celsius, and to achieve a carbon-neutral target on the entire planet by 2050.

The 27th edition of the UN Conference on Climate Change, which has been running since 1995, was held in Egypt this year. Also known as COP27, this conference addressed a variety of topics including emission reduction, supporting countries in their efforts to prepare for, and combat, climate change, and provision of technical assistance and finance to developing countries for these activities. A relatively successful deal was struck to provide a "loss and damage" fund for developing countries. The "Loss and Damage Fund" to be established in line with this deal was one of the key gains of this year's summit. No consensus was reached again to reduce and incrementally opt out of fossil fuels and reduce GHGs as described in the declaration. Instead, a call was made to phase down the use of coal and incrementally reduce subsidies for inefficient fossil fuels, while highlighting the importance of low-emission energy.

The final declaration also provides the decisions taken to develop natural solutions and approaches that place cohabitation at the center, expand climate financing provisions urgently and significantly, and enable developed economies to promote developing countries in their capacity-building efforts. No new targets would be included nor would sanctions be imposed in this fight against climate change, and countries' national sovereignty and circumstances would be respected and facilitated, the declaration also emphasized.

According to the 13th Global Emissions Gap Report of the UN, which was issued in light of this conference, the existing emissions policies in place would not make it possible to reach the 1.5-celsius temperature rise target set out in the Paris Climate Agreement Framework; a rapid transformation is a must; and necessary action must be urgently taken by conducting analyses required for electricity supply, industry, transformation, buildings, and food supply and financial systems. The necessity for every state to take decisions for reinforcing its Nationally Determined Contributions was also highlighted.

In addition, climate change-related environmental risks were among the top ten risks with the strongest probability and impact as described in the 2022 Global Risk Report issued by World Economic Forum. New risks arising from climate change pushed central banks to take action as their impacts were being felt in the economy, financial system, and financial stability more heavily. Authorities such as the International Monetary Fund (IMF), US Central Bank (Fed), European Central Bank (ECB), and the Bank of Japan (BoJ) adjusted their monetary policies from a sustainability perspective by taking climate change into account.

Meanwhile, Türkiye officially ratified the Paris Climate Agreement and signed COP26 in 2021, announcing its up-to-date nationally determined contribution during COP27. Accordingly, Türkiye announced a 41% GHG emission reduction target by 2030, up from the initially-announced 21%, in addition to its plans to give momentum to its green transformation vision. This way, Türkiye's net zero emission and green development targets by 2053 were declared to the world.

On the other hand, the financial sector is one of the most important sectors for managing climate-related risks. In this context, the Turkish Banking Sector is taking important steps. In 2014, the Banks Association of Türkiye (TBB) published the “Sustainability Guide for the Banking Sector.” Borsa Istanbul (BIST) subsequently created the "BIST Sustainability Index." In 2021, the Banking Regulation and Supervision Agency (BRSA) announced the 2022-2025 Sustainable Banking Strategic Plan regarding the action of “3.2.5. Determining a roadmap for the development of sustainable banking” of the “Green Deal Action Plan” at the end of 2021. In addition, a "Sustainable Finance Workshop" was organized by the Banks Association of Türkiye (TBB) in partnership with the Institute of International Finance (IIF). Consequently, our country and the Turkish banking sector continue to make significant efforts to manage environmental and social risks as part of the combat against climate change.

Technology and Digital Transformation

Digital transformation propelled by rapid technological advances has become an indispensable component of day-to-day lives at businesses and organizations. Technology utilization combined with digitalization contributes to social development and supports the sustainable development of countries and businesses alike. In addition, it provides significant advantages when it comes to accessing information and attaining competitive advantage both within businesses and among employees. Therefore, it is essential for businesses and organizations to closely monitor technological innovation and integrate such changes into their processes. It is one of the highlighted facts in recent years that digitalized companies grow faster and are more resilient to crises.

To catch up with digitalization, which offers efficiency, speed, and cost savings in all fields, companies formulate their digital transformation strategies and revise their organizational structures accordingly. Digital transformation goes beyond the scope of new technologies and represents a broader framework for a new economic model, way of life, way of thinking, and culture of doing business.

Türkiye's net zero emission and green development targets by 2053 were declared to the world.

New capabilities, skills, and services are increasingly needed day after day to take advantage of digital technologies and create more value. In this respect, businesses must adopt more flexible and agile business models to adapt themselves to rapid change. Simultaneously, a corporate culture featuring a system that encourages change and innovation has become imperative. Inevitably, businesses that do not have a corporate culture promoting change or whose business models are not flexible and agile will have adaptation problems in the face of disruptive technological developments.

Mobile, the Internet, artificial intelligence, the Internet of Things, machine learning, autonomous and robotic technologies, voice and image recognition and processing systems, cloud computing, and blockchain infrastructures will be among the highlights of the coming period since technology brings along significant competitive advantages to companies.

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