Today, the social obligations imposed on businesses and the legal framework to which they are subject in this regard are expanding daily. In this context, global and regional regulations are imposing stricter compliance requirements on businesses than ever before. In addition to complying with existing legal regulations, businesses face a number of other risks, such as reputational and economic advantages and processes that may result in the loss of customers, investors, or litigation alleging unfair competition.
It has become unavoidable that the compliance of companies with the latest regulations in the field of sustainability should be audited by experts and that company practices should be aligned with these rules. In this framework, the regulations that companies must comply with and the reflections of these regulations on companies in Turkiye are discussed below from various perspectives.
Sustainability Regulations in Light of Recent DevelopmentsArticle 2 of the EU Directive on Corporate Sustainability Due Diligence (CSDDD), which was prepared by the European Commission on 23 February 2022 in order to increase the importance of the concept of sustainability within the framework of environmental and human rights and to encourage responsible corporate behaviors.1 In this context, companies operating in the EU with more than five hundred employees, with a worldwide net turnover of more than €150 million in the last accounting year, and companies with more than 250 employees and a worldwide net turnover of more than €40 million in the last accounting year in high-risk sectors such as textiles, agriculture, and so forth are subject to due diligence obligations regarding human rights and environmental factors in the conduct of their activities, effective two years after the date of entry into force of the regulations.2
Within the framework of sustainability regulations under the leadership of the European Union, with the entry into force of the CSDDD, it has become unavoidable that regulations in line with the directive come to the agenda in all member countries. Critical regulations on supply chains in Germany, which has a unique position for Turkish Companies due to its high business capacity, have been enacted. In contrast, similar laws have already been enacted in the Netherlands, France, and the UK.
The "Law on the Obligation of Corporate Due Diligence in Supply Chains" (Lieferkettengesetz), which has an effective date of January 1, 2023, for companies established in Germany with at least 3000 employees and January 1, 2024, for companies with 1000-3000 employees, aims to prevent human rights and environmental violations in the supply chain. While the liability of the company that acquires goods and services within the framework of the law is under consideration, it is imperative to acknowledge that this liability will exert an indirect influence on companies established in Turkiye, specifically in cases where the goods are procured, as explained below.
Within the scope of the law, companies must comply with the due diligence obligations set out to prevent human rights and environmental violations. In this context, companies will perform risk management per the law by conducting risk analysis and taking preventive and corrective measures in risky situations. In addition to the German companies carrying out activities to meet this requirement, it will be unavoidable that companies established in Turkiye but selling goods to German companies will also be affected.
One of the responsibilities assigned to companies in the field of sustainability is the reporting obligation. The Non-Financial Reporting Directive 2014/95/EU ("NFRD") requires public interest entities with 500 or more employees to report on areas such as the environment and respect for human rights to the extent necessary to understand the "development, performance, position and impact" of the undertaking.3
Subsequently, with the adoption of the Sustainability Reporting Directive ("CSRD") on reporting non-financial aspects within the framework of the EU Green Deal, the scope of companies' under-reporting obligation was expanded. The CSRD covers large undertakings that meet specific financial criteria, undertakings whose capital market instruments are traded on EU stock exchanges (including small and medium-sized undertakings but excluding micro-enterprises), and non-EU undertakings with an EU turnover above a certain amount.4
One of the regulations occupying the agenda is the European Union (EU) Border Carbon Regulation, which is also closely related to Turkiye's foreign trade. The Regulation on the Border Carbon Adjustment Mechanism (CBAM) and the European Union Emissions Trading System (EU ETS) were published in the EU Official Gazette on May 16, 2023. The transition period to CBAM will start on October 1, 2023, and continue until 2025, when quarterly emission reporting will be required. The obligations under this reporting will be set out in more detail in an implementing act to be adopted in consultation with the CBAM Committee.
I. Effects of the Regulations on Companies Operating in Türkiye
While some of these developments and regional regulations on the agenda indirectly affect companies established in Turkiye without the need for legislative amendments in Turkish law, on the other hand, some regulations have been and will continue to be implemented in Turkish law, especially in parallel with the developments in EU legislation.
First of all, it should be noted that as a result of the regulation introduced by the "Act on Corporate Due Diligence Obligations in Supply Chains" (Lieferkettengesetz), German companies are obliged to carry out due diligence about human rights violations, labour conditions, and environmental problems within their supply chains. Since this due diligence process will include risk analyses and taking preventive and corrective measures for risky situations, as mentioned above, it will also mean the involvement of companies established in Turkiye in the supply chain. In this context, violations of human rights or environmental obligations arising from the activities of companies established in Turkiye as suppliers will need to be reported.
It is important to note that German companies can ask their suppliers to carry out their own risk assessments. In addition, even if incorporated in Turkiye, a Turkish company whose founder and manager is a German company will also be under direct liability regarding the "Lieferkettengesetz."
In the context of the above-mentioned European Union (EU) Border Carbon Regulation, Turkish companies will also have various obligations, and importers (customs declaration holders, indirect representatives) will be required to report quarterly, detailing the embedded emissions and direct and indirect emissions of their imported goods in the relevant quarter of the calendar year, as well as the carbon price effectively paid in a third country. Also, from 31 December 2024, importers will be expected to have the status of "authorized CBAM declarant" to be eligible to import covered goods.
In addition, to ensure compliance with the above-mentioned Green Deal Action Plan, the Presidential Circular No. 2021/15 on the Green Deal Action Plan was published in the Official Gazette dated 16 July 2021 and numbered 31543.
If the amendments made in Turkish law are mentioned, the sustainability principles to which publicly traded joint stock companies are subject have an essential place. In line with the CMB's sustainability principles compliance framework, which determines the rules that publicly traded companies must comply with within the scope of the environment, society, and corporate governance activities, it is aimed to ensure compliance with the principles, management chart, establishment of a responsible committee, in addition to ensuring a practical implementation.5
In the context of the Sustainability Principles Compliance Framework, even if the sustainability principles are made voluntary if the company does not have any policy on the relevant issue, this issue should be clearly and justifiably disclosed in the annual report or in a separate report to be referred to herein.6
Another innovation introduced in this context is the sustainability indices created by Borsa Istanbul (BIST), which include the shares of companies with high corporate sustainability performance. In order to be included in the BIST Sustainability Index, companies must have an overall sustainability score of 50 or above, each main heading score of 40 or above, and at least 8 of the category scores of 26 or above.7
In addition, Article 88, paragraph 6 of the TCC authorizes the Public Oversight, Accounting, and Auditing Standards Authority ("POA") to determine and publish "Turkish Sustainability Reporting Standards" ("TSRS") in line with international standards in order to ensure unity in practice and international validity of sustainability reporting.8
In addition to the above-mentioned legal regulations, several secondary reasons encourage companies in Turkiye to take steps towards sustainability. Positive implementations in the context of sustainability not only create an increase in reputation and trust in the eyes of suppliers, investors, and customers but also increase the company's ability to obtain financing.9 As a result of the fact that financing institutions refrain from supporting funds investing in fossil fuels and, on the contrary, support investment in green energy, concrete steps taken in sustainability provide an advantage in accessing financing. Environmental, social, and governance (ESG) criteria are included in investment decisions to promote a sustainable economic model with the Green Financing model, which is gaining importance daily. Currently, investment value chain actors increasingly emphasize ESG information reporting processes. In this direction, every positive step taken in ESG criteria finds an economic response in the Green Financing model.
In the final analysis, while the steps to be taken in the field of sustainability protect companies from administrative penalties, customer and investor losses that will occur due to existing regulations, there are also a number of economic and reputational advantages to be provided to companies. However, "greenwashing" appears as a method that can be used by practitioners who want to circumvent these regulations.
Companies that engage in "greenwashing," which refers to disinformation disseminated by the company to present an environmentally responsible image, may be subject to unfair competition lawsuits under Art. 54 et seq. of the TCC. In this respect, it is crucial to be cautious in terms of data flow in the field of sustainability.
II. Conclusion
As will be seen, many new regulations have been and continue to be made in the field of sustainability. Although the regulations are led by the European Union and its Member States, they inevitably affect countries such as Turkiye, which has commercial relations with the EU and its Member States. However, there are already regulations in Turkish Law that impose responsibilities on companies in the field of sustainability. While the steps to be taken in the field of sustainability protect companies from administrative penalties and customer and investor losses that will occur due to existing regulations, there are also several economic and reputational advantages to be provided to companies. It is also predicted that new regulations in the field of sustainability, whose importance is increasing day by day, will continue at a rapid pace.
Footnotes
1. European Commission. “Proposal for a Directive on corporate sustainability due diligence and annex.” (Access Date: 06.09.2023). https://commission.europa.eu/publications/proposal-directive-corporate-sustainability-due-diligence-and-annex_en
2. European Commission. “Corporate sustainability due diligence.” (Access Date: 06.09.2023). https://commission.europa.eu/business-economy-euro/doing-business-eu/corporate-sustainability-due-diligence_en
3. Veziroğlu, C. ve Kayıklık A. (2023). Sürdürülebilirlik ve Şirketlerin Kamuyu Aydınlatma Yükümlülüğü. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
4. Veziroğlu, C. ve Kayıklık A. (2023). Sürdürülebilirlik ve Şirketlerin Kamuyu Aydınlatma Yükümlülüğü. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
5. Özcanlı, F. B. (2023). Sürdürülebilirlik İlkesi Açısından Anonim Ortaklık Yönetim. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
6. Veziroğlu, C. ve Kayıklık A. (2023). Sürdürülebilirlik ve Şirketlerin Kamuyu Aydınlatma Yükümlülüğü. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
7. Borsa İstanbul. “Sürdürülebilirlik Endeksleri“. (Access Date: 06.09.2023). https://borsaistanbul.com/tr/sayfa/165/bist-surdurulebilirlik-endeksleri
8. Veziroğlu, C. ve Kayıklık A. (2023). Sürdürülebilirlik ve Şirketlerin Kamuyu Aydınlatma Yükümlülüğü. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
9. Özcanlı, F. B. (2023). Sürdürülebilirlik İlkesi Açısından Anonim Ortaklık Yönetim. Prof. Dr. Tuğrul Ansay Anısına: Anonim Şirketler Hukukunun Gelecek On Yılı.
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