Norton Rose Fulbright - Doing Business in Turkey - 2022

Doing business in Turkey: Environmental, social and corporate governance (ESG)

Turkey Publication April 2022

ESG considerations in Turkey have started to play a more important role at corporate and regulatory levels alike. 

Borsa Istanbul was one of the five stock exchanges to join, in 2012, the Sustainability Stock Exchanges (SSE) initiative, supported by the United Nations; which, as of 2021, has 105 partner stock exchanges. However, until recently, there was no mandatory legal framework relating to ESG reporting, nor Borsa Istanbul companies were specifically required to put in place internal corporate ESG reporting framework as a listing rule. 

In October 2020, the Capital Markets Board amended the existing corporate governance regulations to introduce the obligation of the listed companies to report on their sustainability performance, starting with their annual financial statements for the financial year 2020. The Capital Markets Board further provided the ESG principles applicable under the new regulation, but the ESG framework still operates on a voluntary basis insofar as the listed companies can explain the rationale for their non-compliance with the principles and evaluate its impact.

Although the regulatory involvement is very recent, there are other resources available to gather data on the corporate sustainability performance in Turkey. Borsa Istanbul has been computing a ‘BIST Sustainability Index’ since 2014 (with the code XUSRD) as a benchmark for listed companies to evaluate their performance on ESG matters on both the national and the global level. The assessment of the companies has been conducted by a third party, “Ethical Investment Research Services Limited” and the list of companies subject to assessment is revised annually and announced by Borsa Istanbul in December of each year.

Since 2017, Borsa Istanbul has also been publishing information relating to ESG performance and targets in its integrated annual reports. These reports, prepared in accordance with the International Integrated Reporting Framework, provide information on Borsa Istanbul’s efforts on ESG. According to the 2019 Annual Integrated Report, ESG-related issues rank high in terms of importance for the exchange’s stakeholders as well as the exchange’s short, medium and long-term performance. 

Recently, several major governmental actions have been taken to support the fight against climate change. The publication in July 2021 by the Ministry of Trade of the Green Deal Action Plan (YMEP) was the first initiative. A direct response to the European Green Deal announced in December 2019 by the European Union, YMEP aims to preserve and strengthen the commercial relationship between Turkey and the EU through harmonizing Turkish law with European Green Deal regulations.

On October 7, 2021, the Turkish Parliament ratified an adapted version of the Paris Climate Agreement and passed the Law Regarding the Approval of the Paris Agreement relating to the mitigation, adaptation and financing of climate change initiatives in Turkey. 

To support the financing of investments contributing to environmental sustainability, in November 2021, the Capital Markets Board published the Draft Guidelines on Green Debt Instruments and Green Lease Certificates on its website to gather public opinion. The intention of the Draft Guidelines is to regulate the core elements of and the principles for the issuance of green debt instruments and green lease certificates in Turkey. 

There are also efforts from the Turkish lenders’ side to encourage companies to prioritize sustainability in their business operations. A number of Turkish private banks have issued green bonds, whereby the proceeds are ring-fenced in a way that could be used for lending solely to sustainable projects such as renewable energy, energy efficiency and/or circular economy projects.

These steps to be more responsive to the global climate crisis should sit well with global lenders and financial markets. Indeed, they are in line with the global trend to assess and place a premium on companies that have an overall ESG strategy.

 
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Inside Turkey



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