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ESG: Global M&A trends and risks

Impact of carbon border adjustment mechanism of EU to the Turkish M&A market

October 26, 2023

Norton Rose Fulbright's Global M&A Trends and Risks 2023 report offers valuable insights for our clients in Türkiye as well as in Europe. In the survey report, ESG stands out as one of the most frequently mentioned themes. For a significant proportion of respondents, ESG is about making positive choices to satisfy the changing demands of shareholders, lenders and other stakeholders. With the majority of executives believing that the long-term opportunities outweigh the risks, ESG is increasingly viewed as an opportunity to be embraced, rather than as a regulatory bullet to be dodged.

In light of these findings which shed light to the global trends, a more focused look into the recent ESG developments in the EU zone will be useful for Turkish companies which export goods to the EU region as well as foreign investors with appetite to invest in those markets.


To achieve EU's initial target for reduction of greenhouse gas emissions by the year 2030 and to determine national targets for reduction of greenhouse gas emissions, (i) the Directive 2003/87/EC of the European Parliament and of the Council is issued to establish a system for greenhouse gas emission allowance trading with the EU and harmonize pricing of greenhouse gas emission at the EU level and (ii) the Regulation (EU) 2018/842 of the European Parliament and of the Council is issued. Although these legislations have substantially served to reduce the greenhouse gas emissions within the EU, the emissions arising from the imports made to the EU was still increasing. Furthermore, such importers, which are not subject to the above-mentioned legislation create significant competitive disadvantages against the companies of EU Member countries.

Carbon Border Adjustment Mechanism

With the aim to control the adverse effects of greenhouse gas emissions embedded in imports to the global greenhouse gas emissions footprint of the EU, the Regulation (EU) 2023/956 of the European Parliament and of the Council establishing a carbon border adjustment mechanism (CBAM) is published in the Official Gazette of EU on May 16, 2023 (CBAM Regulation).

With the CBAM Regulation each importer importing certain goods produced by the industries having high emissions to the EU have become obliged to comply with certain reporting and regulatory obligations (i.e. obtaining of CBAM certificate) for the purpose of complying with the target of reduction of carbon footprint of EU. Accordingly, each importer having imported goods submit a CBAM report containing information on the goods imported and its direct and indirect emissions to the European Commission.

Transition period

CBAM Regulation foresees a transition period between October 1, 2023 until December 31, 2025 where the importers importing certain goods will be obliged to make quarterly emission reporting. During this period, obtaining CBAM certificate by the importers will be optional and not mandatory. The transition period currently covers the following sectors: iron and steel, aluminum, fertilizers, electricity and cement sectors.

The reporting will include (i) information regarding products such as; quantity, type and origin, (ii) information regarding facility such as; tradename, address, location and geographical coordinates; (iii) information regarding manufacturing process such as production lines/parameters; (iv) specific direct and indirect emission data; (v) carbon prices applicable at the manufacturing country.

As per the CBAM Regulation importers failing to fulfil their reporting obligations shall be imposed with effective, proportional and deterrent monetary fines.

Application period

Upon termination of the transition period, as of 1st of January, 2026, the financial obligations will come into picture and the free allocation of EU ETS allowances will terminate gradually, hence the importers from the countries which are not integrated into the EU's emission trade system or have not adopted their own carbon pricing mechanisms or are not party to a related treaty between EU shall be under the obligation to pay carbon taxes according to the emission values of the facilities manufacturing the imported goods.

Effect on Turkish M&A deals

Considering the volume of Turkish companies importing goods to the EU region in the specified markets, and the appetite of foreign investors in those markets, the new CBAM regime to be imposed on Turkish companies will have a material effect on the deal making process of the foreign investors.

In addition to the global regime, Turkey is preparing to adopt its own carbon pricing mechanism through the Draft Law on Climate Change, which is initially served to public view. Hence, Turkish companies active in the prioritized sectors will have to adapt their operations and make preparations such as beginning to report emissions and having those reports verified.

In light of the above, the scope of the due diligence process on the target companies shall be extended to include the effects of both the future changes in the local legislation and the new CBAM regime.