A. Understanding TSRS: What Is It?
The Türkiye Sustainability Reporting Standards (“TSRS”) aim to strengthen the commitment to the principles of transparency and accountability by enabling businesses to report their sustainability performance. TSRS are standards that require businesses to disclose sustainability-related financial information. With these standards, the obligation to measure and report the sustainability efforts of enterprises based on environmental, social and governance (“ESG”) criteria has been introduced.
TSRS entered into force on January 1, 2024, with the decision of the Public Oversight Authority (“POA”) published in the Official Gazette on December 29, 2023. These standards are based on IFRS S1 and IFRS S2 developed by the International Financial Reporting Standards Foundation (“IFRS Foundation”) and issued by the International Sustainability Standards Board (“ISSB”).
B. What are the Objectives of the Standards?
The TSRS contains specific principles and requirements for businesses to report their sustainability performance. Businesses should assess short, medium and long-term sustainability risks and opportunities and present this information to investors. In this framework, the TSRS consists of two series of standards:
1. General Provisions for the Disclosure of Sustainability-Related Financial Information (TSRS1):
The objective of TSRS 1 is to require a business to disclose information about sustainability-related risks and opportunities that is useful to the primary users of general-purpose financial reports in making decisions about whether to provide resources to the business. Opportunities and risks that are reasonably expected to affect a business’s financial adequacy should be reported.
2. Climate-Related Disclosures (TSRS2):
The objective of TSRS 2 is to require a business to disclose information about climate-related risks and opportunities that are reasonably expected to affect the business’s financial adequacy that is useful to the primary users of general-purpose financial reports in making decisions about funding the business. Scope of the disclosure:
i.Climate-related risks to which the business is exposed:
- Climate-related physical risks and
- Climate-related transition risks
ii.Climate-related opportunities that the business has.
C. Scope of Application of the TSRS
The institutions, organizations and businesses listed in the Public Oversight, Accounting and Auditing Standards Authority’s Board Decision (‘Decision”) on the Scope of Application of Türkiye Sustainability Reporting Standards (“TSRS”) are within the scope of sustainability reporting.
1. Banks
Pursuant to the Banking Law No. 5411 dated 19/10/2005, banks which are subject to the regulation and supervision of the Banking Regulation and Supervision Agency are within the scope of mandatory reporting without being bound by any threshold. However, banks under the Savings Deposit Insurance Fund are exempted from this application.
2. The following institutions, organizations and businesses that meet at least two of the following thresholds for two consecutive reporting periods (together with their subsidiaries and affiliates, if any) are required to prepare a Sustainability Report in accordance with TSRS:
- Total asset of 500 million Turkish liras
- Annual net sales revenue of 1 billion Turkish lira
- Number 250 people employed
i. The following companies subject to the regulation and supervision of the Capital Markets Board pursuant to the Capital Markets Law No. 6362:
- Investment institutions
- Collective investment undertakings
- Portfolio management companies
- Mortgage finance institutions
- Central clearing organizations
- Central depository institutions
- Data storage organizations
- Joint stock companies whose capital market instruments are traded on a stock exchange or other organized markets or which have a prospectus or export document with a validity period approved by the Capital Markets Board for their trading
- Joint stock companies exporting capital market instruments (until the end of the accounting period in which the capital market instruments issued by them are redeemed) excluding shares, which are not traded on a stock exchange or other organized markets, without being offered to the public, or joint stock companies holding an export certificate with a validity period approved by the Capital Markets Board for this purpose
ii. The following businesses subject to the regulation and supervision of the Banking Regulation and Supervision Agency pursuant to the Banking Law No. 5411:
- Rating agencies
- Financial conglomerates
- Financial leasing companies
- Factoring companies
- Financing companies
- Asset management companies
- Companies holding qualified shares in financial conglomerates and banks as defined in Law No. 5411
- Savings finance companies
iii. Other businesses
- Insurance, reinsurance and pension companies operating under the Insurance Law No. 5684 and the Personal Pension Savings and Investment System Law No. 4632
- Authorized institutions, precious metals brokerage houses, companies engaged in the production or trade of precious metals that are permitted to operate in Borsa Istanbul markets
D. Key Content of TSRS
When reporting under both TSRS 1 and TSRS 2, businesses provide disclosures for the following topics (i) Governance, (ii) Strategy, (iii) Risk Management and (iv) Metrics and Targets.
1. Governance:
Governance under TSRS covers the governance processes, controls and procedures that entities use to monitor and manage sustainability and climate-related risks and opportunities.
The purpose of governance disclosures is to provide information about the governance processes, controls and procedures that a business uses to monitor, manage and oversee sustainability and climate-related risks and opportunities.
In this context, governance disclosures include information about the business’s responsibilities and duties regarding sustainability and climate-related risks and opportunities, the impact of these factors on its policies, governance forms, decision mechanisms and effectiveness, and governance disclosures such as information and reporting processes.
2. Strategy
Under TSRS, strategy refers to a business’s approach to managing sustainability and climate-related risks and opportunities.
The purpose of financial disclosures about strategy is to provide information about a business’s strategy for managing sustainability and climate-related risks and opportunities.
Disclosures include the following topics:
- Risks and Opportunities: Descriptions of sustainability and climate-related risks and opportunities that are reasonably expected to affect the business’ prospects in the short term, medium term and long term.
- Business Model and Value Chain: Descriptions of the impacts of sustainability and climate-related risks and opportunities on the business model and value chain of the business.
- Strategy and Decision Making: Explanations on the impacts of sustainability and climate-related risks and opportunities on the business’s strategy and decision-making.
- Financial Position, Financial Performance and Cash Flows: Disclosures about the current and anticipated impacts of sustainability and climate risks and opportunities on the business’s financial position, financial performance and cash flows in the short, medium and long term.
- Resilience: The business’s capacity to adapt to the uncertainties arising from sustainability and climate-related risks and the resilience of the entity’s strategy and business model to sustainability and climate-related risks.
3. Risk Management
Risk management includes the processes (“Processes”) that businesses use to identify, assess, prioritize and monitor sustainability-related risks and opportunities.
The purpose of the sustainability and climate-related disclosures on risk management is to provide information on
i. Detailed information on the Processes, including whether and how the Processes are integrated into the entity’s overall risk management process and how they inform the overall risk management process,
ii. Assessments on the entity’s overall risk management process
Within the scope of risk management, disclosures should include inputs and parameters about the business’s processes and policies, use of scenario analysis, assessment of the impact of risks, prioritization of risks, monitoring methods and changes in processes. In addition, the processes for identifying and assessing sustainability and climate-related opportunities and the integration of these processes into the overall risk management process, and how information is provided about this process, should also be disclosed.
4. Metrics and Targets
Metrics and targets refer to the performance of businesses on sustainability and climate-related risks and opportunities, including progress against self-imposed or regulatory targets. Disclosures include detailed information on the following topics:
- Sustainability Metrics: Metrics required by an applicable standard and a description of the metrics the business uses to measure and monitor sustainability-related risks or opportunities and performance.
- Sustainability-Related Objectives: Explanations on the objectives that the business has set to monitor its progress towards achieving its strategic objectives and the objectives that it must fulfill in accordance with the legislation.
- Climate-Related Metrics: Disclosures on cross-sector metric categories such as greenhouse gas emissions, climate-related transition risks, climate-related physical risks, climate-related opportunities, capital allocation, internal carbon prices, and impacts on remuneration.
- Climate-Related Targets: Disclosures on the climate-related quantitative and qualitative targets it has set to monitor progress towards achieving its strategic objectives and disclosures on the targets it is required to fulfill by law or regulation, including greenhouse gas emission targets.
E. TSRS – GENERAL PROVISIONS
1. Guidance Resources
The business applies the TSRSs when identifying sustainability-related risks and opportunities that could reasonably be expected to affect its prospects.
In addition to the TSRSs, the following resources may also be utilized:
i.The business may refer to disclosure topics in the Sustainability Accounting Standards Board (“SASB”) Standards and assess the applicability of these topics. The business may also conclude that the disclosure topics in the SASB Standards are not applicable to the business’s circumstances.
ii. To the extent not inconsistent with TSRSs, a business may refer to and assess the applicability of the following:
- Climate Disclosure Standards Board (“CDSB”) Framework Implementation Guidance for Water-Related Disclosures and CDSB Framework Implementation Guidance for Biodiversity-Related Disclosures,
- The most recent regulations of other standard-setting bodies that impose requirements to meet the needs of users of general-purpose financial reporting; and
- Sustainability-related risks and opportunities identified by entities operating in the same sector or geographies.
The sources of guidance that may be referred to in reporting under TSRS are included in Annex C of TSRS 1.
2. Place of Disclosure
A business provides the disclosures required by the TSRSs as part of its general-purpose financial reporting.
Sustainability-related financial disclosures may be included in a business’s management’s assessment or similar report when the management’s assessment or similar report forms part of the business’s general purpose financial reporting.
Management’s assessment or a similar report may be referred to or included in reports by various names, including “management report”, “management’s discussion and analysis”, “annual and financial review report”, “integrated report” and “strategy report”.
3. Time for Reporting
The business reports its financial disclosures related to sustainability alongside the relevant financial statements. The financial disclosures related to sustainability cover the same reporting period as the relevant financial statements.
According to the decision published in the Official Gazette No. 32414 on December 29, 2023, by the Public Oversight Authority (KGK), businesses required to prepare sustainability reports must do so for the reporting periods starting on January 1, 2024. These reports must be made during the first annual reporting period following the reporting period of the financial year (2025).
Businesses may report their sustainability reports[1] for the first annual reporting period in which they apply the Turkish Sustainability Reporting Standards (TSRS) after publishing their financial reports for that period. Regarding this transition exemption, businesses must submit their sustainability reports:
- If interim financial reporting is required, on the same date as the second-quarter or semi-annual interim financial report,
- If interim financial reporting is optional, no later than nine months from the end of the reporting period, on the same date as the second-quarter or semi-annual interim general-purpose financial report,
- If no interim financial reports are submitted, within nine months from the end of the annual reporting period in which TSRS are first applied.
4. Scope
Businesses report their sustainability and climate-related financial disclosures in accordance with the relevant standard under TSRS1 and TSRS2. Risks and opportunities related to sustainability and climate that are not reasonably expected to affect the company’s future financial adequacy are excluded from the scope.
During the first two-year reporting periods in which businesses apply the TSRS standards within the scope of implementation, it is not mandatory to disclose Scope 3 greenhouse gas emissions.
5. Comparative Information
Unless otherwise permitted or required by another TSRS, a business shall disclose comparative information for all amounts reported for the reporting period relative to the previous period. If such information is useful for understanding sustainability-related financial disclosures for the reporting period, the business shall also disclose comparative information for explanatory and descriptive financial information related to sustainability.
Comparative information is considered an important indicator for measuring businesses’ sustainability performance.
It is not mandatory for businesses to present comparative information during the first reporting period in which they apply the TSRS standards.
6. Statement of Compliance
A business that adheres to all provisions of the TSRS in its sustainability-related financial disclosures shall include a clear and unqualified statement of compliance. The business cannot state that its sustainability-related financial disclosures follow the TSRS unless it adheres to all provisions of the TSRS.
F. JUDGEMENTS, UNCERTAINTIES AND ERRORS
The reporting to be conducted under TSRS includes provisions regarding the judgments that need to be made, the measurement uncertainties that must be disclosed, and the corrections for errors in previous period reports.
1. Judgements
The reporting entity discloses the information that enables users of general-purpose financial statements to understand the most significant judgments made in the process of preparing sustainability-related financial disclosures, excluding those that involve estimation of amounts. For instance, the entity must make judgments in the following areas:
- Identification of sustainability-related risks and opportunities that can reasonably be expected to affect the entity’s outlook,
- Determination of which guidance sources to apply in identifying sustainability-related risks and opportunities,
- Identification of material information to be included in the sustainability-related financial disclosures, and
- Evaluation of whether an event or change in circumstances is material and whether the scope of all affected sustainability-related risks and opportunities throughout the entity’s value chain needs to be reassessed.
2. Measurement Uncertainty
When amounts reported in sustainability-related financial disclosures cannot be directly measured and can only be estimated, measurement uncertainty arises. In some cases, an estimate includes assumptions about uncertain future events with unpredictable outcomes. The use of reasonable estimates is a fundamental part of preparing sustainability-related financial disclosures, and when estimates are properly defined and disclosed, they do not diminish the usefulness of the information. Even a high level of measurement uncertainty does not prevent such an estimate from providing useful information.
The reporting entity must disclose information that allows users of general-purpose financial reports to understand the most significant uncertainties affecting the reported amounts in its sustainability-related financial disclosures. In this regard, the entity:
- Identifies the amounts that it discloses as involving a high level of measurement uncertainty, and
- For each such amount, discloses information about:
- The sources of measurement uncertainty – for example, the extent to which the amount depends on the outcome of a future event, a measurement technique, or the availability and quality of data in the entity’s value chain,
- The assumptions, estimates, and judgments made by the entity in measuring the amount in question.
3. Errors
Prior period errors refer to omissions and inaccuracies in the sustainability-related financial disclosures of the entity for one or more prior periods. Such errors arise from the failure to use or the incorrect use of reliable information that:
- Was available at the time the financial reports for the prior period(s) were approved for issuance, and
- Could reasonably have been expected to be obtained and considered in the preparation of the disclosures.
The reporting entity must correct material past period errors by restating the comparative amounts for the prior period(s) disclosed, except where it is impractic
[1] You can access the guiding information related to the process here:
https://www.linkedin.com/feed/update/urn:li:activity:7169000794778746880/?originTrackingId=B4%2B5bZFcRZ6mCIb6oKOwFg%3D%3D
