What is TSRS?

Today, sustainability reporting by companies is a crucial source of information about a company's sustainability performance. Until this year, sustainability reporting by companies was voluntary. However, with the introduction of the Turkey Sustainability Reporting Standards (TSRS), published in the Official Gazette on December 29th and effective from January 1, 2024, it has become mandatory for companies within the scope. These standards aim for businesses to report their environmental, social, and governance (ESG) performance more transparently and accountably. As a result, investors, consumers, and business partners will have detailed information about a company's sustainability performance, enabling them to consider this performance in their decision-making processes. TSRS also plays a significant role in helping companies meet their obligations under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). By enabling companies to conduct sustainability reporting in line with international standards, TSRS facilitates compliance with not only Turkish regulations but also the standards set by the European Union. This way, companies can comply with both national and international regulations with a single comprehensive reporting effort, providing a significant opportunity and incentive for companies. The Public Oversight, Accounting, and Auditing Standards Authority (KGK) has issued TSRS, which consists of two sections: TSRS S1 and TSRS S2. These sections are as follows:

• TSRS S1 - General Provisions for the Disclosure of Sustainability-Related Financial Information: This section aims to ensure the transparent presentation of all sustainability-related risks and opportunities that may affect the future financial viability of businesses.
• TSRS S2 - Climate-Related Disclosures: This section aims to provide information on how businesses respond to or plan to respond to climate-related risks and opportunities.

Not all companies are covered under the decision that came into force. The companies included in the TSRS scope are listed below:

• Banks
• Rating agencies
• Financial holding companies
• Leasing companies
• Factoring companies
• Finance companies
• Asset management companies
• Companies with a qualified share as defined in Law No. 5411 in financial holding companies and banks
• Savings finance companies

The companies mentioned above are required to report in compliance with TSRS if they exceed the following conditions in two consecutive reporting periods:

• Total assets of 500 million Turkish Lira
• Annual net sales revenue of 1 billion Turkish Lira
• 250 employees

Innovations and Impacts of TSRS on Institutions

The Turkey Sustainability Reporting Standards (TSRS) have introduced several innovations for institutions subject to these standards. These innovations include standardized reporting, transparency and accountability, comprehensive reporting, and international compliance. Below are explanations of what these innovations mean:

• Standardization: A common sustainability reporting standard has been provided for all companies subject to reporting, increasing consistency and comparability in reporting processes.
• Transparency and Accountability: Institutions' sustainability performance is reported more transparently, enabling the public and stakeholders to have more information about the institutions' sustainability practices.
• Comprehensive Reporting: A broad reporting framework covering environmental, social, and governance (ESG) criteria has been provided, ensuring that institutions focus not only on financial performance but also on environmental and social impacts and governance practices.
• International Compliance: TSRS is compatible with international sustainability reporting standards, enhancing Turkey's competitive power in the global sustainability reporting field.

With the innovations introduced by TSRS, there have also been effects on institutions, classified as follows:

• Competitive Advantage: Improving sustainability performance through TSRS provides a competitive advantage to institutions, becoming an important factor in attracting customers and investors.
• Investor Relations: Sustainability reporting enables investors to make more informed decisions in their decision-making processes. Companies with high sustainability performance may be more preferred by sustainable investments and funds.
• Risk Management: TSRS helps in the early detection and management of environmental and social risks, allowing institutions to develop long-term sustainability strategies and reduce operational risks.
• Brand Reputation and Customer Trust: Transparent and comprehensive sustainability reporting through TSRS enhances institutions' reputation and customer trust, positively impacting brand value and customer loyalty.
• Business Efficiency and Innovation: Sustainability strategies increase energy and resource efficiency, reducing costs. Sustainability-focused innovation contributes to the improvement of business processes and products.

How to Report Under TSRS?

The reporting processes and methodologies under the Turkey Sustainability Reporting Standards (TSRS) aim to present companies' sustainability performance transparently and comprehensively, ensuring full compliance with the established standards. Institutions exceeding two of the threshold values determined based on the total assets, annual net sales figures, and the number of employees in their financial statements for the last two years are required to submit reports under TSRS. However, for the initial reporting process in 2024, some exceptions are provided to facilitate the compliance process for companies. These exceptions are as follows:

• For the 2024 fiscal year, companies are not required to present comparative data with previous years.
• For the first two fiscal years starting in 2024, companies are not required to report Scope 3 emissions.

Various internationally recognized guidelines are used in the preparation of TSRS reports. Among these, the most commonly preferred are the Global Reporting Initiative (GRI), the United Nations Global Compact (UNGC), and the Organization for Economic Co-operation and Development (OECD) Standards. Companies evaluate criteria such as resource use, environmental policies, human rights, and living conditions according to these standards, identify risks, take corrective and preventive measures, and report the results. Consulting firms can be used in the preparation process of the reports, but it is not mandatory for these firms to be authorized.

Unless otherwise specified, institutions provide explanations under four main headings throughout the report. These headings are Governance, Strategy, Risk Management, and Metrics and Targets.

• Governance: Refers to the governance processes, controls, and procedures used by the enterprise to monitor and manage sustainability-related risks and opportunities. The main purpose of explaining these processes is to help understand how the enterprise manages, monitors, and oversees sustainability-related risks and opportunities. These explanations inform stakeholders about the enterprise's sustainability governance processes, controls, and procedures.
• Strategy: Companies are expected to explain how they address sustainability and climate-related risks and opportunities and the potential impacts of these strategies on their business models and value chains. These explanations encompass the long-term resilience strategies of the companies, aiming to allow stakeholders to closely follow these strategies.
• Risk Management: It is important to report how companies identify, assess, prioritize, and monitor sustainability and climate-related risks and opportunities, and how these are integrated into general risk management procedures. These explanations help in better understanding the risk management processes of the enterprise and provide an opportunity to evaluate the overall risk profile of the enterprise.
• Metrics and Targets: Companies are required to use the metrics mandated by TSRS to measure their sustainability performance and disclose all risks and opportunities expected to impact the financial statements. In this section, companies also report their progress towards the targets set or required by legislation.

References

• Public Oversight Authority. (n.d.). TSRS 1. Retrieved from TSRS 1
• Public Oversight Authority. (n.d.). TSRS 2. Retrieved from TSRS 2
• Ministry of Trade of the Republic of Turkey. (2024, April 2). Green Deal. Announcements: Retrieved from Ministry of Trade
• Yorulmaz, B. (2024, January 22). Green Growth. Turkey Sustainability Reporting Standards: Retrieved from Green Growth