ESG in Türkiye
Today, stable profit growth, which is the criterion of companies’ success, has begun to be replaced by other values and criteria in accordance with current problems and expectations.
As well as financial evaluation, concepts such as carbon footprint, transparency, human rights and equality have also become essential values to evaluate. This course, which mainly started with the climate crisis, has further increased its impact after the COVID-19 pandemic. Parallel with the concept of corporate sustainability, consumers and investors now prefer companies that are environmentally and socially more responsible. They are more sensitive towards recycling, minimizing waste and making greener choices. With this tendency, the concept of corporate sustainability which is ESG (Environmental Social Governance), ÇSY in Turkish, has entered the Capital Market.
The three pillars of ESG can be explained as follows: The environmental criterion covers a company’s energy usage and its carbon footprint or its impact on the ecosystem, including air, soil and water. The social aspect covers the concepts such as human resources, customer satisfaction and relations with employees as well as costumers. It is a company’s ability to build trust, loyalty and equality in a workplace. The governance part is related to a company’s management, practices and procedures. It involves the capacity of a company to follow a process in line with the interests of long-term shareholders and to manage rights and responsibilities by creating a balance for this purpose, as well as auditing for tax transparency and anti-corruption measures.
Although there are no specific laws or regulations for ESG or sustainability in Turkish Law, there are concepts and some laws to which the concept is directly or indirectly related. Turkish Commercial Code, Capital Market Law, Environmental Law, fundamental rights and freedoms, the concept of equality, and corporate governance principles are some examples for these concepts and laws. However, to have a leading guide on corporate sustainability, the Sustainability Principles Compliance Outline was published and entered into force by the Capital Markets Board on October 2, 2020. This Outline forces public corporations to disclose their information that are based on environmental, social and governance criteria on the grounds of “comply or explain” principle. Thus, these companies are encouraged to be integrated into sustainability issues. Pursuant to this outline, companies have to report and disclose their sustainability actions and plans to public at least once a year. With this statement in question, companies must also provide information on which of their actions correlate with the United Nations’ 2030 Agenda for Sustainable Development.
There are some international standards that companies can create their reports depending on their target audience and subject areas. To name a few, companies could prefer Carbon Disclosure Project (CDP) when the target audience are investors and the content is environment. CDP provides its service for companies to help them during their shift to a lower and safer carbon economy. It makes evaluations on aspects such as water, supply chain, climate change and creates a report for the companies. By doing so, CDP detects companies’ current status, risk potentials and goals. As opposed to CDP, Global Reporting Initiative (GRI) has guiding standards for wider range of areas such as social, economic and environmental issues. It is an initiative that explains and reports a company’s impact on humans, environment and economy and it is conducted for the benefit of the stakeholders. Another example is Task Force on Climate-Related Financial Disclosures (TCFD). A company’s implementations and action plans are announced for the benefit of the target investors and stakeholders. Its focus is the integration of risks and opportunities deriving from climate change within the company and to provide suggestions regarding which information to be disclosed.
As a result, ESG provides investors with the opportunity to invest more consciously and provides more preferences on which they can base their decisions on. As for the companies, ESG encourages them to be more considered and to be more forward-looking with long-term management and operation plans. By complying with the principles of the ESG, companies manage to create difference and add value to themselves in a competitive market. So, they gain the trust of the society through complying with the current conditions of the world. In that way they are guaranteeing to attract more investors and consumers which will ultimately increase the profitability of the company. It is clear to see though the chain of events that sustainability is a variable concept. So, even though ESG is a newly accepted approach and implemented voluntarily, it will be a principle that companies will keep up with in the future to survive and make a difference in the new order that the world will evolve into.