Türkiye Sustainability Reporting Standards
Introduction
In recent years, it has been observed that financial statements are insufficient for the evaluation of long-term company performance and investors now require non-financial information as well as financial information when making decisions. Given the increasing financial, social, and environmental problems, societies have also become more sensitive to sustainability. In this respect, sustainability reports are reports in which enterprises disclose the impacts of their activities on environmental, social, and governance issues.
Over time, the need to prepare sustainability reports, which were previously prepared voluntarily by enterprises, according to various frameworks, principles and guidelines has come to the fore. In line with the developments in the world on sustainability, developments are also taking place in Türkiye. This Newsletter article provides information on the sustainability reporting standards that have been introduced into our legislation.
Authority Competent to Make Regulations
With the provision added to Article 88 of the Turkish Commercial Code No. 6102 on June 4, 2022[1], the Public Oversight, Accounting and Auditing Standards Authority (“Public Oversight Authority”) has been authorized to determine and publish sustainability reporting standards by international standards to ensure unity in practice and international validity of sustainability reporting for the enterprises and institutions it designates.
Accordingly, the Sustainability Standards Department was established and began operating within the Public Oversight Authority as of 28.03.2023[2]. This department is authorized and tasked to carry out studies on the establishment and publication of sustainability reporting standards in line with international standards.
Based on this authorization, the Türkiye Sustainability Reporting Standards ("TSRS") and their scope of application were published in the Official Gazette bis 1 dated 29.12.2023 and numbered 32414.
Türkiye Sustainability Reporting Standards
The reporting standards are established by the Public Oversight Authority’s board decision dated 27.12.2023 and numbered 75935942-050.01.04-[01/21632].
In this context, IFRS 1 "General Requirements for Disclosures of Sustainability-related Financial Information" and IFRS S2 "Climate-related Disclosures" published on 26.06.2023 by the International Sustainability Standards Board established within the International Financial Reporting Standards Foundation ("IFRS") were determined as TSRS and published as TSRS 1 “Sürdürülebilirlikle İlgili Finansman Bilgilerin Açıklanmasına İlişkin Genel Hükümler” and TSRS 2 “İklimle İlgili Açıklamalar”. In the announcement[3] published on the website of the Public Oversight Authority, by mentioning that the authority to determine and publish TSRSs in accordance with international standards has been given to the Authority, it is stated that the decision to adopt international standards has been taken.
As incorporated into our law, TSRS 1 General Requirements for Disclosure of Sustainability-related Financial Information requires an entity to disclose information about its sustainability-related risks and opportunities that would be useful to users of general-purpose financial reports in making funding decisions. TSRS 2 Climate-related Disclosures, requires an entity to disclose information about climate-related risks and opportunities that would be useful to users of general-purpose financial reports in making funding decisions.
In terms of including information on sustainability with financial implications, it is seen that both standards adopted the approach of the concept of integrated reporting, which aims to explain to parties providing financial capital how the entity has created and will create value over time.
Scope of Application
The scope of application for these standards is determined by Public Oversight Authority’s board decision dated 27.12.2023 and numbered 75935942-050.01.04-[01/21634].
Accordingly, the enterprises within the determined scope and exceeding the thresholds in the decision are obliged to prepare sustainability reports as of 01.01.2024. In other words, with the board decision; institutions, organizations, and enterprises in the scope, are subject to the scope of application of TSRS while preparing sustainability reports if they exceed the thresholds for at least two of the three criteria specified in the decision in two consecutive reporting periods. These three criteria are (i) total assets of 500 million Turkish Liras, (ii) annual net sales revenue of 1 billion Turkish Liras, (iii) 250 employees.
The institutions, organizations, and enterprises within the scope are determined as follows:
- Companies subject to the regulation and supervision of the Capital Markets Board under Law No. 6362 that are; investment institutions, collective investment institutions, portfolio management companies, mortgage financing institutions, central clearing institutions, central securities depositories, data storage institutions, joint stock companies whose capital market instruments are traded on a stock exchange or other organized markets or which have a prospectus or export document with a validity period approved by the Capital Markets Board for trading,
- Joint stock companies issuing capital market instruments other than shares without being publicly offered, although not traded on a stock exchange or other organized markets (until the end of the accounting period in which the capital market instruments issued by them are redeemed) or joint stock companies that have an export document with a validity period approved by the Capital Markets Board for this purpose,
- Enterprises subject to the regulation and supervision of the Banking Regulation and Supervision Agency under the Banking Law dated 19.10.2005 and numbered 5411 that are; banks, rating agencies, financial holding companies, financial leasing companies, factoring companies, financing companies, asset management companies, companies holding qualified shares in financial holding companies and banks as defined in the Law numbered 5411, savings financing companies,
- Insurance, reinsurance, and pension companies operating under the Insurance Law No. 5684 dated 03.06.2007 and the Individual Pension Savings and Investment System Law No. 4632 dated 28.03.2001,
- Authorized institutions, precious metals brokerage houses, and companies engaged in the production or trade of precious metals that are permitted to operate in Borsa Istanbul markets
Furthermore, banks other than those under the Savings Deposit Insurance Fund, are required to apply the TSRSs in preparing their sustainability reports, without being subject to any threshold.
Institutions, organizations and companies that are not included in the scope may use the TSRS on an optional basis in preparing their sustainability reports.
Principles Regarding Implementation
With the decision of the Public Oversight Authority, the principles regarding the implementation, the entry and exit of enterprises into and out of the scope, and the issues to be considered in determining the thresholds have also been established.
Pursuant to the board’s decision, enterprises subject to thresholds, shall be subject to the scope of application as of the following accounting period, if they exceed the threshold values of at least two of the three criteria in two consecutive accounting periods.
If an enterprise that is subject to the scope of application due to exceeding the thresholds falls below the thresholds of at least two of the three criteria in two consecutive accounting periods or falls twenty percent or more below the thresholds of at least two of these criteria in one accounting period, it shall be excluded from the scope of the application as of the following accounting period.
In determining whether the thresholds have been exceeded, the enterprises shall be taken into consideration together with their subsidiaries and affiliates. The Public Oversight Authority is authorized to resolve any doubts that may arise regarding the implementation of the decision on the scope of the application.
Transitional Provisions
The decision contains several transitional provisions to ensure a smooth transition. Under this framework, entities are not required to present comparative information in the first reporting period in which they apply TSRSs. In addition, it was decided that entities may report their sustainability reports for the first reporting period in which the TSRSs are applied after they have published their financial reports for that period. Accordingly, entities,
- If an interim financial report is required, on the same date as the second quarter or half- year interim financial report,
- If interim financial reporting is optional, on the same date as the second quarterly or half-yearly general purpose interim financial report, but not more than nine months after the end of the reporting period,
- If no interim financial report is presented, within nine months after the end of the annual reporting period in which the TSRS are first applied.
On the other hand, entities are not required to disclose greenhouse gas emissions classified as Scope 3, in the first two reporting periods applying the TSRSs.
Conclusion
Binding sustainability reports to certain standards undoubtedly serves the purpose of making the reports prepared by entities transparent and comparable. In line with the developments in the world on sustainability, developments have also taken place in our country, and in this context, with its decisions dated 27.12.2023, the Public Oversight Authority has determined Türkiye Sustainability Reporting Standards and their scope of application. In accordance with the provisions that entered into force as of 01.01.2024, it is mandatory for the entities within the scope to apply TSRSs while preparing their sustainability reports.
- Similarly, see Article 9/1(ö) of the Decree Law No. 660
- Access: https://kgk.gov.tr/surdurulebilirlik-hakkimizda
- For the announcement published on the website, see; Access: https://www.kgk.gov.tr/surdurulebilirlik
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