How should the Turkish Sustainability Reporting Standards (TSRS) be interpreted in relation to sustainability reporting?

The Turkish Sustainability Reporting Standards, (TSRS) announcedin the last days of last year with the Official Gazette article number 32414(1.M), came into force on the first day of the 2024 and the countdown forcompanies to meet the criteria has begun.

To summarise briefly, it is the Turkish adaptation of thestandards published in 2023 by the International Sustainability Standards Board(ISSB) under the International Financial Reporting Standards Foundation (IFRS),which is one of the world's leading sustainability reporting organisations. Thestandards are based on the three pillars of ESG (environmental, social,governance), which we are familiar with from previous years, and aim to be theTurkish pillar of IFRS S1 and S2 standards.

Sustainability reporting is a complex and confusing topicfor companies, with overlapping frameworks and disclosure requirements. Twomajor developments in 2023 have great potential to improve companies' reportingbehaviour in the coming years. As mentioned above, the first of thesedevelopments is the IFRS S1 and S2 reporting standards published in June 2023;the second development is the European Commission's approval of the EuropeanSustainability Reporting Standards (ESRS) in July 2023 for use by all companiessubject to the Corporate Sustainability Reporting Directive (CSRD).

Celebrated by the ISSB as a new sustainability disclosureera in the world's capital markets, the IFRS S1 and S2 standards aim to"increase confidence in corporate sustainability disclosures as a basisfor investment decisions". These standards consist of a set of voluntarydisclosure requirements designed to enable companies to provide information,particularly to investors, about the sustainability-related risks andopportunities they face. Given that IFRS international accounting/financial reportingstandards are used by more than 29,000 of the approximately 49,000 companieslisted on the world's 93 major stock exchanges, it is likely that IFRS S1 andS2 will evolve in this direction over time.

On the other hand, ESRS was introduced to support theimplementation of mandatory sustainability disclosures required under the CSRD,a standard that must be complied with when reporting for companies operating inthe European Union (EU) and meeting the relevant requirements as of 2024. Thismeans that companies based in Turkey that aim to cooperate with the EU shouldalso work seriously on their reporting methods. In the next few years, it willbe impossible for companies in Turkey to continue their business by preparingonly cursory reports. Many large companies will have to prepare reports inaccordance with both TSRS and ESRS.

How will TSRS reporting work?

Companies that meet at least two of the following criteriain two consecutive reporting periods will be required to prepare asustainability report under the TSRS from 2024:

• If the asset value is more than TL 500 million
• If the annual net turnover is more than TL 1 billion
• If the average number of employees in the last two yearsis 250 or more.

In addition, companies that are subject to regulation andaudit by the Capital Markets Board, regardless of their size, are also requiredto report under the TSRS.

In the first year of the TSRS, a number of concessions havebeen granted to facilitate the work of reporting actors, but it is importantthat companies start now to establish holistic and detailed data collectionmethods in order to be prepared for subsequent years. The first of theseconcessions is that comparative reporting with previous years is not mandatory.From 1 January 2024, it will be sufficient to report on the work done. Thesecond concession concerns the types of reporting. In the current version ofthe regulation, annual reports are divided into financial and sustainabilityreports; in the first period we are in, it will be possible to produce afinancial report first and then a sustainability report. The only condition isthat the sustainability report must be published within 9 months of thepublication of the financial report for the relevant period. Finally, it willnot be mandatory to categorise Scope 3 emissions during the first two years ofreporting.

The first step in complying with the TSRS is for companiesto establish new systems to collect their data and make it suitable forreporting. The second step is to carefully conduct sustainability risk analysesand identify and transparently disclose strategic ways to address long-termsustainability challenges. To ensure that all these processes run smoothly overthe years, it is beneficial to establish a user-friendly data collection systemwith a team of experts. In addition, experts recommend that teams withexpertise in environmental engineering, law and accounting should be involvedin the process to ensure that the reports are fit for purpose. The TSRS can beseen as an introduction to sustainability reporting for companies that want tocompete with industry leaders in the long term, but reports will need to becomemore comprehensive over the years.