The EU’s Corporate Sustainability Reporting Directive: An Opportunity for Turkish Companies?

The European Council and Parliament agreed to amend the Corporate Sustainability Reporting Directive (CSRD) on 10.11.2022. Along with this recent development, new environmental, social and governance (ESG) reporting requirements in the European Union are set to fundamentally change the nonfinancial reporting landscape.

Social Management
by Mehmet Çakmak

*This is a part of our ESG article series prepared in partnership with Corpera Consulting and ACE Consultancy. 

The European Council and Parliament agreed to amend the Corporate Sustainability Reporting Directive (CSRD) on 10.11.2022. Along with this recent development, new environmental, social and governance (ESG) reporting requirements in the European Union are set to fundamentally change the nonfinancial reporting landscape. The new EU rules will require ESG reporting on a level never seen before and will capture a whole host of companies that previously were not subject to mandatory nonfinancial reporting requirements, including public and private non-EU companies that meet certain EU-presence thresholds. For Turkish issuers, the new EU rules will result in mandatory reporting on a broader set of ESG topic. Even if your company is not required to meet the new reporting requirements, we foresee you to align with these requirements if your company is part of the value chain of an entity that is required to report.

What waits for Turkish companies?

The CSRD significantly broadens the scope and content of the EU’s existing non-financial reporting obligations to cover more entities and demanding much more detailed reporting on more ESG topics. In particular, the CSRD applies to EU companies and public and private non-EU companies that have 500 employees’ thresholds. As a result, Türkiye and other non-EU companies with EU business may be required to produce ESG reports in compliance with EU rules, even if such companies are not listed on a European exchange. While non-EU firms have the longest reporting period, many subsidiaries of non-EU firms will be required to report earlier.

The CSRD empowers the European Commission to recognize sustainability reporting standards applied by non-EU countries as equivalent. Thus, for Turkish issuers, which fall within the scope of the new EU rules, compliance with the CSRD may require the publication of an earmarked report.

How can Turkish companies prepare?

We’ve shared our views about the practical implications and what you can do to better prepare your business for the new rules.

Tune in recent developments

Boards and legal departments will want to be attentive to developments related to European Financial Reporting Advisory Group (EFRAG) reporting standards, national implementation of the CSRD and any relevant third-country rules. This is especially the case for non-EU companies that may be unaware of the CSRD and do not expect to have to comply with reporting regulations outside the countries in which they are domiciled or have registered securities.  Applying the CSRD to private enterprises outside the EU can be a shock for many enterprises. Non-EU businesses should continue to communicate with external advisors and work on tracking EU revenues and future plans to determine if they will be reflected in future requirements.

Addressing board oversight

ESG oversight by the board is a trending topic for corporations around the world. While some Turkish companies have taken some actions and corporate governance committee oversight of ESG matters in recent years, the growth of highly technical ESG reporting has raised questions as to whether oversight should be shifted to audit committees. These questions are now even more relevant, given the amount of data required for reporting and the audit requirements associated with it. The CSRD will also check whether the current Board committees will have the expertise and extent to oversee ESG reporting issues.

Reframing reports

Even though some Turkish companies are concentrating on harmonizing voluntary ESG declarations, more consideration should be given to reporting to the CSRD for compliance. In addition to integrating CSRD compliance into any existing ESG reporting activities, Turkish issuers should be attentive to the risk of contradictions between financial, risk, and strategy disclosure contained in reporting under the CSRD.

Internal control and supply chain inspections 

In addition to preparing to track and reporting on CSRD’s many ESG-related topics, boards of directors and management should focus on establishing appropriate internal controls for CRSB reports. The broad scope of CSRD, further underlines the importance of establishing appropriate internal control processes. The CSRD will likely require additional work to establish reporting processes and controls throughout the value chain adapted to a reporting framework that will undoubtedly deviate from the various existing standards.

Expecting ESG questionnaires

Boards and management should also be prepared to receive more ESG due diligence questionnaires from the EU and other relevant counterparties with regard to CSRD compliance. This is because reporting limits will need to be expanded to cover material sustainability issues that are linked to the company through its direct or indirect business relationships.

Train and build internal teams

Many companies, particularly those that do voluntarily ESG reporting, may have strong internal ESG reporting teams in place. These efforts should be further supported by CSRD. For many companies, ESG reporting has been essentially “owned” by marketing, sustainability, or social impact teams, though many companies should begin “legalizing” their ESG disclosures by including legal, financial reporting and internal audit functions. The CSRD is likely to additionally stimulate companies to establish vigorous ESG reporting teams, alike to those they may have for financial reporting. In order to prepare for CSRD disclosure, reporting teams will also need to be educated on new EU reporting frameworks.

It is obvious that Turkish companies will be affected by these reporting requirements of the EU, which is the largest market for Turkish exports. As Corpera consultancy firm, we offer our ESG solutions with Ace Consulting and Narter Law Firm, which are the leading experts in their fields, to help Turkish companies to adapt to this new period quickly. Visit our website for more detailed information.

Corpera Consulting and ACE Consultancy has a strategic ESG consultancy partnership. With Corpera’s industry leading social and governance management consultancy and ACE’s world-class environmental consulting services, we offer unique, all-encompassing solutions for investors and issuers navigating the intricacies of ESG consultancy.