Climate Risk Due Diligence for Energy Investments in Turkey 2026: Complete Legal Guide for Foreign Investors

Learn how climate risk due diligence affects energy investments in Turkey in 2026. Discover climate law obligations, ETS risks, CBAM exposure, ESG reporting, carbon accounting, physical climate risks, and legal due diligence strategies for energy investors.Climate risk due diligence has become a critical part of energy investment transactions. Investors can no longer evaluate energy assets only through financial statements, permits, land rights, technical capacity, and revenue forecasts. Climate-related risks now affect project value, financing access, regulatory compliance, insurance coverage, carbon exposure, ESG performance, and long-term investment returns.

Turkey’s energy sector is entering a new regulatory period. The Climate Law adopted in July 2025 established the legal basis for national climate governance, carbon market mechanisms, and a national Emissions Trading System. This means that energy investors should now treat climate risk due diligence as a core legal and commercial review area before acquisitions, joint ventures, project finance transactions, renewable energy investments, hydrogen projects, and infrastructure deals.

What Is Climate Risk Due Diligence?

Climate risk due diligence is the legal, financial, technical, and regulatory assessment of how climate change and climate-related regulations may affect an investment.

For energy projects, climate risk due diligence usually examines:

• Greenhouse gas emissions
• Carbon pricing exposure
• Climate Law compliance
• ETS readiness
• ESG reporting quality
• Physical climate risks
• CBAM exposure
• Carbon accounting systems
• Environmental permits
• Climate litigation risk

The purpose is to identify hidden liabilities before the investor commits capital.

Why Climate Risk Due Diligence Matters for Energy Investors

Energy investments are highly exposed to climate-related risks because energy assets often involve long operating periods, major infrastructure, environmental permits, carbon emissions, land use, and regulatory oversight.

Climate risk due diligence helps investors understand whether a project is:

• Legally compliant
• Financeable
• Insurable
• Resilient to climate impacts
• Competitive under carbon pricing
• Aligned with ESG expectations
• Protected against future regulatory changes

Without proper climate due diligence, investors may acquire assets with underestimated liabilities or declining long-term value.

Turkey’s Climate Law and Investment Risk

Turkey’s first Climate Law was adopted in July 2025 and published in the Official Gazette on July 9, 2025. The law establishes the legal foundation for a national ETS, climate governance, institutional arrangements, and finance mechanisms.

For investors, this means that energy assets should be reviewed for:

• Potential ETS coverage
• Emissions permit obligations
• Carbon allowance exposure
• Monitoring and reporting capacity
• Future compliance costs
• Administrative penalty risks

A project that appears profitable today may become less attractive if future carbon costs are not properly assessed.

ETS Readiness Review

Turkey’s ETS framework is expected to follow a cap-and-trade model similar to other carbon markets. Climate Action Tracker notes that the Climate Law sets out a legal framework for a Turkish ETS similar to the EU model, with a pilot phase set to begin in 2026.

During due diligence, investors should assess whether the target company has:

• Reliable emissions data
• Internal carbon monitoring systems
• Verification procedures
• Staff responsible for ETS compliance
• Budgeting for future carbon costs
• Contractual mechanisms for passing carbon costs to customers

ETS readiness is especially important for thermal power, industrial energy facilities, electricity-intensive operations, hydrogen projects, and export-linked energy businesses.

Carbon Accounting Due Diligence

Carbon accounting is now a core part of energy investment due diligence.

Investors should review:

• Scope 1 emissions
• Scope 2 emissions
• Scope 3 emissions
• Carbon intensity
• Reporting methodology
• Verification records
• Data reliability

Poor carbon accounting may create serious problems in project finance, ESG reporting, CBAM compliance, carbon credit generation, and future ETS participation.

TSRS and Climate Disclosure Review

Turkey’s Sustainability Reporting Standards are aligned with international ISSB standards and include climate-related disclosure obligations. TSRS 2 requires disclosure of climate-related physical and transition risks and opportunities that may affect financial reporting and business resilience.

Energy investors should review whether the target company properly discloses:

• Climate risks
• Emissions data
• Transition plans
• Sustainability governance
• Climate-related financial impacts
• Carbon reduction targets

Inaccurate or incomplete disclosures may create legal, reputational, and investor liability risks.

CBAM Exposure Assessment

The European Union’s Carbon Border Adjustment Mechanism is a major climate-related risk for Turkish energy and industrial investments.

CBAM directly affects Turkish exports of iron and steel, aluminum, fertilizers, electricity, cement, and hydrogen to the EU.

Energy investors should assess:

• Whether the asset supplies CBAM-covered sectors
• Whether electricity or hydrogen exports are involved
• Whether customers require verified emissions data
• Whether contracts allocate CBAM-related costs
• Whether the business has reliable product-level carbon data

CBAM can affect project revenue, customer demand, export competitiveness, and contract negotiations.

Physical Climate Risk Due Diligence

Physical climate risks arise from the direct effects of climate change.

Energy projects may be exposed to:

• Flooding
• Wildfires
• Drought
• Extreme heat
• Storm damage
• Water scarcity
• Coastal erosion

Due diligence should examine whether project assets are resilient to these risks.

For example, hydroelectric assets may be exposed to drought risk, solar assets may face extreme heat performance issues, and coastal energy infrastructure may face flooding or storm risks.

Water Risk Assessment

Water availability is increasingly important for energy investments.

Investors should carefully review water dependency for:

• Hydroelectric projects
• Thermal power plants
• Hydrogen production
• Industrial energy facilities
• Cooling systems
• Battery manufacturing projects

Due diligence should include water permits, basin restrictions, groundwater rights, wastewater obligations, and long-term climate-related water availability.

Renewable Energy Project Climate Review

Renewable energy projects generally benefit from climate transition trends, but they still require careful due diligence.

Investors should review:

• Land use restrictions
• Environmental Impact Assessment compliance
• Biodiversity risks
• Grid connection risks
• Carbon credit eligibility
• Renewable certificate rights
• ESG reporting claims

Renewable projects may lose value if carbon credit rights, environmental attributes, or sustainability claims are not legally protected.

Fossil Fuel Asset Transition Risk

Fossil fuel assets require enhanced climate risk review.

Investors should assess:

• Carbon pricing exposure
• Future regulatory restrictions
• Financing limitations
• Stranded asset risk
• Decommissioning obligations
• Environmental liability
• Litigation exposure

Carbon-intensive assets may become less valuable as climate regulations, carbon markets, and investor expectations become stricter.

Hydrogen and Emerging Energy Projects

Hydrogen projects may provide major climate-related opportunities, but they also carry legal uncertainty.

Due diligence should examine:

• Hydrogen production method
• Carbon intensity
• Renewable energy source
• Water usage
• Certification readiness
• Export market requirements
• CBAM exposure
• Future licensing risks

For green hydrogen projects, investors should verify whether sustainability claims are supported by reliable electricity sourcing, carbon accounting, and certification planning.

Carbon Credit and Offset Due Diligence

Carbon credit revenue can improve project value, but only if rights are clearly structured.

Investors should review:

• Carbon credit ownership
• Project registration documents
• Verification status
• Additionality analysis
• Credit transfer agreements
• Double counting risks
• Revenue-sharing arrangements

Unclear carbon credit ownership can create serious disputes among developers, investors, lenders, landowners, and offtakers.

Environmental Permit Review

Climate risk due diligence should be integrated with traditional environmental due diligence.

Investors should review:

• Environmental permits
• EIA approvals
• Waste management records
• Air emission permits
• Water discharge permits
• Administrative fines
• Pending environmental lawsuits

Environmental non-compliance may cause project delays, fines, permit suspension, financing problems, and reputational damage.

ESG and Sustainable Finance Review

Many lenders and institutional investors now require ESG due diligence before financing energy projects.

Investors should assess:

• ESG policies
• Board oversight
• Sustainability reporting
• Anti-corruption controls
• Human rights policies
• Occupational safety systems
• Community engagement processes

A weak ESG framework may reduce access to green finance, sustainability-linked loans, and international project finance.

Contractual Climate Risk Review

Climate-related obligations increasingly appear in commercial contracts.

Investors should review:

• Power purchase agreements
• EPC contracts
• carbon credit purchase agreements
• project finance documents
• offtake agreements
• joint venture agreements
• supply contracts

Key questions include whether carbon costs, CBAM costs, ETS allowances, sustainability warranties, and change-in-law risks are clearly allocated.

Climate Litigation Risk

Climate litigation is growing globally and may increasingly affect energy companies in Turkey.

Potential claims may involve:

• Environmental harm
• Misleading ESG statements
• Carbon disclosure errors
• Greenwashing allegations
• Failure to manage climate risks
• Permit challenges

Investors should review pending disputes, regulatory investigations, public objections, and community opposition before closing any transaction.

Insurance Review

Climate change may affect insurance availability and pricing.

Investors should review:

• Property insurance
• business interruption insurance
• environmental liability insurance
• natural disaster coverage
• climate-related exclusions
• deductibles and coverage limits

Energy infrastructure exposed to flood, wildfire, or extreme weather risks may face higher insurance costs.

Climate Risk in Project Finance

Lenders increasingly expect climate risk analysis before approving energy financing.

Climate due diligence may affect:

• Loan pricing
• covenant structure
• conditions precedent
• security package
• ESG covenants
• reporting obligations

Projects with strong climate risk management may be more bankable and attractive to international lenders.

Climate Risk Due Diligence Checklist

A practical climate risk due diligence review should include:

• Climate Law compliance
• ETS exposure
• emissions data quality
• TSRS reporting obligations
• CBAM exposure
• physical climate risks
• water risk
• environmental permits
• ESG reporting
• carbon credit rights
• climate litigation
• insurance coverage
• contractual carbon risk allocation

This checklist should be tailored to the specific project type, sector, location, and investment structure.

Best Practices for Foreign Investors

Foreign investors should adopt a proactive climate due diligence strategy.

Recommended measures include:

• Reviewing climate risks before signing term sheets
• Including climate warranties in transaction documents
• Requiring verified emissions data
• Assessing ETS and CBAM exposure
• Reviewing ESG disclosures
• Allocating carbon costs contractually
• Conducting physical climate scenario analysis
• Monitoring regulatory developments after closing

Climate due diligence should continue after acquisition through ongoing compliance monitoring.

Future Outlook

Climate risk due diligence will become increasingly important in Turkish energy investments.

Key drivers include:

• Climate Law implementation
• ETS pilot phase
• TSRS reporting expansion
• CBAM pressure
• green finance requirements
• ESG investor expectations
• climate litigation risks

Investors who assess climate risks early will be better positioned to protect asset value and identify profitable opportunities in Turkey’s energy transition.

Frequently Asked Questions (FAQ)

What is climate risk due diligence?

Climate risk due diligence is the review of physical climate risks, transition risks, carbon exposure, ESG obligations, and climate-related legal liabilities before making an investment.

Why is climate due diligence important for energy investments?

Energy assets are highly exposed to climate laws, carbon pricing, environmental regulations, physical climate risks, and ESG investor expectations.

How does Turkey’s Climate Law affect energy investors?

Turkey’s Climate Law creates the legal basis for climate governance and a national ETS, increasing carbon compliance and emissions reporting risks for investors.

What is ETS exposure?

ETS exposure means the risk that a company may need to monitor emissions, report verified data, obtain emission permits, and surrender allowances under an emissions trading system.

Why is CBAM important for Turkish energy investments?

CBAM affects Turkish exports of electricity, hydrogen, cement, steel, aluminum, and fertilizers to the EU, creating carbon cost and reporting risks.

Should renewable energy projects undergo climate due diligence?

Yes. Renewable projects should still be reviewed for environmental permits, land use risks, carbon credit rights, ESG claims, and grid connection risks.

Can climate risk affect project financing?

Yes. Lenders increasingly evaluate climate exposure, ESG compliance, carbon accounting, and transition risk before approving energy project finance.

What documents should investors review?

Investors should review environmental permits, emissions reports, ESG disclosures, carbon credit agreements, PPAs, EPC contracts, finance documents, insurance policies, and litigation records.

Legal Support and Contact Information

Climate risk due diligence is now a core requirement for energy investments in Turkey. Professional legal guidance can help investors identify hidden risks, structure transactions properly, protect project value, and prepare for future climate regulations.

Legal Support for Climate Risk Due Diligence and Energy Investments

Fırat Fesih Kaya Law

Phone: +90 312 434 22 22

Mobile: +90 532 769 22 22

Email: info@firatfesihkaya.av.tr

Address: Mevlana Boulevard No:221, Yildirim Tower No:148, 06520 Balgat, Cankaya, Ankara, Turkey

Our legal team advises foreign investors, energy companies, renewable energy developers, infrastructure funds, financial institutions, hydrogen project sponsors, and multinational corporations on climate risk due diligence, energy investment structuring, ESG compliance, carbon market regulations, environmental permitting, project finance, and sustainable energy investments throughout Turkey.