Below are the fundamental points and subjects:
- Background
As one of the founding members of the United Nations Sustainable Exchanges Initiative (UN SEE), Borsa Istanbul aims at creating an appropriate environment for sustainability efforts. To raise awareness of the climate crisis among issuers and investors and to provide guidance in climate reporting Borsa Istanbul issued in December 2022 the Climate Reporting Guide for Companies ("Guide").
The Guide has been prepared taking into account the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD"). The benefits of climate reporting have been identified, and these are generally highlighted as companies' early compliance with regulations, strengthening the reputation of companies, increasing the interest of institutional investors, and identifying risks and opportunities in advance. The Guide is intended to support listed companies and other issuers on how to integrate the TCFD recommendations into their reporting processes.
Accordingly, Borsa Istanbul aims to raise awareness on climate-related risks, opportunities, and disclosures in line with TCFD's recommendations.
- Reporting Approach of the Companies
The steps of the reporting approach are explained in detail in the Guide. Accordingly, companies must first determine the reporting scope. The reporting scope can be determined in five (5) basic levels. These five steps are; in summary, as follows: Level 0 Awareness, which is, a company does not consider climate crisis as a significant matter, Level 1 Acceptance, which is, a company considers climate crisis as a significant matter for its operations and creates a policy for this matter, Level 2 Developing Capacity, which is, a company determines goals for reducing greenhouse gas emissions and for its energy efficiency, Level 3 Involving Operational Decision Taking Mechanisms which is, a company may assign one of their Board members to overview and execute their climate change policy, Level 4 Strategic Addressing, which is, a company is able to reduce its greenhouse gas emissions and provides information regarding the effect and costs of climate change on their operations; also, the company determines long term goals for reducing its greenhouse gas emissions.
Determination of the reporting scope is followed by the Determination of Priority issues, climate risks and opportunities phase. Priority issues are defined by the International Accounting Standards Board as information "the omission or misstatement of which could influence decisions based on the financial statements", while the TCFD describes it as information that is considered as "financially material". Accordingly, the Guide mentions that when assessing the materiality of climate-related information, a longer-term time horizon must be considered as customary for financial information.
In terms of risks and opportunities brought by climate change, the TCFD presents two main categories of risks. These are determined as risks related to the transition to a lower carbon economy (1) and risks related to the physical impacts of climate change (2). These risks are reflected through revenues, expenditures, assets, liabilities, capital and financing. In order to mitigate the negative impacts of climate change, sustainable bond and lease certificate issuances are expected to increase in Turkey.
Climate-related opportunities can also come from implementing new resource efficiency and cost-saving programs, switching to renewable energy sources, which have become increasingly cheaper over the last decade, developing new products and services that do not harm the environment, accessing new markets and consolidating a foothold in the supply chain. This can provide opportunities for growth and innovation while leading to lowering costs.
Moreover, the Guide includes explanations on the principles of Carbon Emission Reporting according to the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. In addition, Climate Governance principles are set out within the framework of the Capital Markets Board's Corporate Governance Communiqué. Finally, reporting principles are set out in line with the principles of the TCFD under the heading of Basic Principles in Reporting.
- The Content of Climate Disclosures
Similar to the European Union, the disclosure of non-financial information by public companies is increasingly becoming important. Both regulators and institutional investors would like to see the non-financial information of companies.
In this context, the next phase for public companies, which decide to take action on the process of sharing information with the public.
If they already report on their climate actions, they may choose to make such reports accessible in any case. Accordingly, TCFD's reporting recommendations, with the headings Governance, Strategy, Risk Management and Criteria and Targets, can be taken as a basis.
On the heading of Governance, how the management board sees climate-related risks and opportunities and the role of management in assessing and managing climate-related risks and opportunities should be explained.
On the heading of Strategy, the climate[1]related risks and opportunities identified for a company in the short, medium and long-term strategy should be defined. The impact of climate-related risks and opportunities on a company's operations, strategy and financial planning are explained. The flexibility of a company's strategy is explained by taking account of different climate-related scenarios, including scenarios with a global temperature increase of 2°C or less.
On the heading of Risk Management, processes for identifying and assessing climate-related risks, processes for managing climate-related risks, how the identification, assessment and management processes of climate-related risks are integrated into a company's overall risk management should be explained.
On the heading of Criteria and Targets criteria used to assess climate-related risks and opportunities in line with the strategy and risk management processes should be explained. Public companies are expected to explain (i) the performance metrics and targets to measure the impact of sustainability on the company, the risks caused to the company, as well as the opportunities, with reference to, amongst others, greenhouse emission types, (ii) share information on where they stand to reach such performance metrics and targets.
- Education and Resources
The Guide also provides a range of resources for companies that would like to continuously update their climate-related knowledge and technical capacity and deepen their climate-related disclosures. A TCFD checklist is also included in the Guide.
- Conclusion
The Guide provides a comprehensive overview of the principles of climate reporting based on due diligence, integration of climate-related risks and opportunities into business processes, and disclosure of climate-related practices and data. It is intended to assist all companies, including those with limited reporting experience or limited resources.
Borsa Istanbul has prepared this comprehensive Guide based on the TCFD recommendations in the same direction, aiming to increase the awareness of the markets on climate-related risks, opportunities and disclosures.
Climate Reporting Guide for Companies was published by Borsa Istanbul in December 2022.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
