Environmental, social and corporate governance (ESG)
ESG considerations in Turkey have started to play a more important role at corporate and regulatory levels alike.
Borsa Istanbul was one of the five stock exchanges to join, in 2012, the Sustainability Stock Exchanges (SSE) initiative, supported by the United Nations; which, as of 2021, has 105 partner stock exchanges. However, until recently, there was no mandatory legal framework relating to ESG reporting, nor Borsa Istanbul companies were specifically required to put in place internal corporate ESG reporting framework as a listing rule.
In October 2020, the Capital Markets Board amended the existing corporate governance regulations to introduce the obligation of the listed companies to report on their sustainability performance, starting with their annual financial statements for the financial year 2020. The Capital Markets Board further provided the ESG principles applicable under the new regulation, but the ESG framework still operates on a voluntary basis insofar as the listed companies can explain the rationale for their non-compliance with the principles and evaluate its impact.
Although the regulatory involvement is very recent, there are other resources available to gather data on the corporate sustainability performance in Turkey. Borsa Istanbul has been computing a 'BIST Sustainability Index' since 2014 (with the code XUSRD) as a benchmark for listed companies to evaluate their performance on ESG matters on both the national and the global level. The assessment of the companies has been conducted by a third party, "Ethical Investment Research Services Limited" and the list of companies subject to assessment is revised annually and announced by Borsa Istanbul in December of each year.
Since 2017, Borsa Istanbul has also been publishing information relating to ESG performance and targets in its integrated annual reports. These reports, prepared in accordance with the International Integrated Reporting Framework, provide information on Borsa Istanbul's efforts on ESG. According to the 2019 Annual Integrated Report, ESG-related issues rank high in terms of importance for the exchange's stakeholders as well as the exchange's short, medium and long-term performance.
There are also efforts from the Turkish lenders' side to encourage companies to prioritize sustainability in their business operations. A number of Turkish private banks have issued green bonds, whereby the proceeds are ring-fenced in a way that could be used for lending solely to sustainable projects (such as renewable energy, energy efficiency and/or circular economy projects).
These efforts sit well within the current global tendency in the financial markets, where the companies are encouraged to have an overall ESG strategy and are assessed on the basis of the extent they successfully implement such pre-determined milestones.