Recent Development
The Capital Markets Board (CMB) amended (“Amendment“) the Corporate Governance Communiqué (“Communiqué“) to ensure that public companies take concrete steps to ensure sustainability. The Amendment entered into force upon its publication in the Official Gazette No. 31261 dated 1 October 2020. The CMB has also published the “Sustainability Principles Compliance Framework” which contains the principles that public companies should follow.
What Does the Amendment Say?
According to the Amendment, the public companies that are subject to the Corporate Governance Principles in the Communiqué (“Companies“) will now also be subject to the principles set out in the Sustainability Principles Compliance Framework. While there is no obligation for the Companies to follow these principles, they will still be obliged to report whether they comply with these principles, or the reasons for failure if they fail to do so, to the public thorough their annual reports on a “Comply or Explain” basis, starting from the year 2021 (and including information for the year 2020). In case there are significant changes in respect of these issues, the Companies will have to report these changes in their interim reports.
The sustainability principles set out by the CMB are built upon three pillars, Environmental Principles, Social Principles, and Principles of Corporate Governance. Accordingly, the board of directors will determine the issues that the company prioritizes among those and form the company policies that will be disclosed to the public. The Companies will also disclose the committees/units tasked with executing these policies and their short and long-term goals. The sustainability performance of the Companies will also be disclosed publicly through their annual reports.
• Environmental Principles: The Companies will;
- set and disclose their short and long-term goals in order to reduce their environmental impact;
- disclose the total number of actions and projects and investments made in order to reduce their environmental impact and the environmental benefits and cost reductions these bring;
- report their environmental impact in a manner that permits comparison of different periods, and explain how they integrate the impact of environmental issues into their business goals and strategies throughout their supply chain;
- disclose their renewable and total energy consumption data;
- disclose the highest ranked person that is responsible for these issues and the related committees to the public.
- Social Principles: The Companies will;
- be expected to make a concrete effort to be included in the Borsa Istanbul Sustainability Index and other international sustainability indexes;
- take all of the stakeholders’ interests into account while acting for sustainability issues and disclose their social responsibility activities;
- be expected to form and disclose their policies on the protection of personal data and data security;
- ensure equality of opportunity throughout their value chain and disclose the measures taken in this regard;
- ensure that they will respect human and worker rights wholly, and disclose the roles and responsibilities within the corporation in this regard and the steps taken to ensure employees’ well-being and satisfaction on a regular basis.
- Principles of Corporate Governance: The Companies will;
- take sustainability and the environmental impact of their activities into account while setting their governance strategies;
- consider the stakeholders’ opinions when setting their sustainability strategies.
Conclusion
The Amendment introduces the Environmental, Social and Governance (known as ESG) principles (which are some of the most hotly debated issues in corporate law and capital markets law in developed economies) into Turkish legislation. While the principles operate only on a “Comply or Explain” basis for the time being, this development shows that the Companies are increasingly expected to adopt governance strategies that take all stakeholders’ interests into account also in this jurisdiction.
Considering the steps taken to introduce the Corporate Governance Principles (these principles being voluntary to comply with when they were introduced, certain principles becoming mandatory to comply with over time, the number of mandatory principles increasing) this is a very positive step injecting optimism that these principles will become mandatory to comply with over time.
