In Turkey, Environmental, Social, and Corporate Governance (ESG) considerations are increasingly gaining significance at both corporate and regulatory levels.
Until recently in Turkey, there was no mandatory legal framework mandating ESG reporting, and Borsa Istanbul-listed companies were not specifically obliged to establish internal corporate ESG reporting frameworks as part of listing requirements.
In October 2020, the Capital Markets Board made significant amendments to existing corporate governance regulations. These changes introduced the obligation for listed companies to report on their sustainability performance, commencing with their annual financial statements for the 2020 fiscal year. In Turkey, the Capital Markets Board also outlined ESG principles applicable under this new regulation, but it still operates on a voluntary basis. Listed companies can explain reasons for non-compliance with these principles and assess their impact.
While regulatory involvement is relatively recent, there are other resources available for gathering data on corporate sustainability performance in Turkey. Borsa Istanbul has been calculating the ‘BIST Sustainability Index’ since 2014, denoted by the code XUSRD. This index serves as a benchmark for listed companies to evaluate their ESG performance on both national and global scales. A third-party, “Ethical Investment Research Services Limited,” conducts assessments, and the list of assessed companies is updated annually and disclosed by Borsa Istanbul in December. Starting from 2021, Refinitiv’s sustainability assessment results are used as a reference for determining companies considered for the BIST Sustainability Index, as per an agreement between Borsa Istanbul and Refinitiv Information Limited.
Since 2017, Borsa Istanbul has also included information on ESG performance and objectives in its integrated annual reports, prepared according to the International Integrated Reporting Framework. These reports detail Borsa Istanbul’s ESG efforts, reflecting the importance of ESG-related matters for stakeholders and the exchange’s short, medium, and long-term performance.
In recent times, the Turkish government has taken significant steps to combat climate change. One of the initial measures was the release of the Green Deal Action Plan (YMEP) by the Ministry of Trade in July 2021. YMEP is a response to the European Green Deal announced by the European Union in December 2019 and aims to align Turkish legislation with European Green Deal regulations, preserving and strengthening the commercial relationship between Turkey and the EU.
On October 7, 2021, the Turkish Parliament ratified an adapted version of the Paris Climate Agreement, passing the Law Regarding the Approval of the Paris Agreement, which relates to climate change mitigation, adaptation, and financing initiatives in Turkey.
To facilitate financing for environmentally sustainable investments, the Capital Markets Board published the Guidelines on Green/Sustainable Debt Instruments and Green/Sustainable Lease Certificates on its website on February 4, 2022. These guidelines regulate the core elements and principles for issuing green debt instruments and green lease certificates in Turkey.
Turkish lenders are also encouraging companies to prioritize sustainability in their business operations. Several Turkish private banks have issued green bonds, where the proceeds are earmarked for lending exclusively to sustainable projects like renewable energy, energy efficiency, and circular economy initiatives.
These proactive measures to address the global climate crisis are aligning with international trends that emphasize and reward companies with robust ESG strategies in Turkey.
In mid-2022, a new Environmental Impact Assessment Regulation was introduced to replace the previous one, outlining new procedures and principles for the environmental impact assessment process. This updated regulation includes sections within the environmental impact assessment application and project presentation forms that focus on sustainability and ESG assessments for new projects in Turkey. These forms now require “sustainability plans,” which encompass zero-waste plans, traffic management plans, greenhouse gas reduction plans, and environmental and social management plans. Additionally, the EIA application form evaluates the project’s impact on climate change and the effects of climate change on the project, extending beyond the assessment of “greenhouse gas emissions” as stipulated in the previous regulation.