Due to the importance of disclosure of compliance with sustainability principles in evaluating the performance of companies, to ensure transparency, comparability, and reliability of the disclosures made within the scope of environmental, social, and governance (ESG) considerations, regulations have been introduced in the Turkish legal system.
In terms of the Turkish capital markets law, the Corporate Governance Communique Numbered II-17.1 (CGC) was amended on October 2, 2020, and the Sustainability Principles Compliance Framework (Compliance Framework), which was prepared by the Capital Markets Board (CMB), was adopted. With this amendment, it has been regulated that publicly traded companies that meet the criteria specified in the CGC are subject to sustainability principles and the relevant companies will include the disclosures within the scope of the Compliance Framework in their compliance reporting with corporate governance principles. In this context, relevant companies are obliged to explain whether the sustainability principles are applied or not, and if not, the reason for not complying with the sustainability principles.
It is stated that the principles included in the Compliance Framework are the basic principles that publicly traded companies are expected to disclose while carrying out their ESG activities. Accordingly, it is regulated that publicly traded companies regulated under the CGC will include the Compliance Framework starting from the annual reports of 2021, including data from 2020. For the companies that apply/applied to the CMB for an initial public offering of their shares and/or commencement of trading on the stock exchange, the Compliance Framework will be included in the annual reports of the relevant year, including the data for the year following the year in which the shares of the companies started to be traded on the stock exchange. The Compliance Framework regulates (a) strategy, policies and objectives, implementation or monitoring, and reporting and verification under the heading of general principles; (b) environmental principles; (c) human rights and employee rights, stakeholders, international standards, and initiatives under the heading of social principles; and (d) the issues to be complied with and/or disclosed regarding corporate governance principles under articles of the framework.
According to the CMB’s Board Decision Numbered 34/977 dated June 23, 2022, the disclosures required to be made within the scope of the Compliance Framework by the companies whose shares are traded on the BIST Main Market (Ana Pazar), BIST Stars Market (Yildiz Pazar) and BIST Sub-Market (Alt Pazar) shall be made using the Sustainability Report Template (Template) which has been published by the CMB on the Public Disclosure Platform to be used starting for the year 2022. In the related decision, it is underlined that compliance with sustainability principles is voluntary, and it is stipulated that by using the Template, annual financial reports should be reported within the notification period and in any case at least three weeks before the date of the general assembly meeting. Including the Template in the annual reports is not mandated by the CMB – it is left to the discretion of the companies. The relevant Template has been prepared in parallel with the headings regulated in the Compliance Framework.
Apart from the CMB’s regulations, as a general regulation, with the amendment to the Turkish Commercial Code Numbered 6102, the Public Oversight, Accounting and Auditing Standards Authority (POA) was authorized to determine and audit the Turkish Sustainability Reporting Standards (TSRS). It is stated that the purpose of the TSRS is to ensure unity of practice and international validity of sustainability reporting and the TSRS will follow international standards. In this context, the POA has issued the TSRS 1 General Provisions on Disclosure of Sustainability-Related Financial Information and the TSRS 2 Climate-Related Disclosures. In addition, the POA has issued two assurance auditing standards and a guideline to provide assurance audits on sustainability reports.
In the announcement published by the POA, it is regulated that banks will be included in the scope of the TSRS without any criteria, while other companies will be included in the scope of the TSRS based on their total assets, annual net sales revenue, and number of employees, and they are obliged to prepare a sustainability report from the year 2024.
By Hulya Kemahli, Partner, and Zeynep Berin Manavgat, Associate, CMS Turkiye
This article was originally published in Issue 11.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
