Author: İnci Hazal Kılıç

The business world's sustainability practices in Turkey are facing a significant transformation, known as the Turkey Sustainability Reporting Standards (TSRS). TSRS 1 and TSRS 2, published by the Public Oversight Authority (KGK) and in compliance with the International Financial Reporting Standards (IFRS) S1 and S2, require companies to disclose sustainability and climate-related risks and opportunities through the discipline of financial reporting. This reporting is undoubtedly a giant step towards transparency, accountability, and long-term value creation. However, it is important to emphasize that, especially for companies embarking on this journey for the first time, the process can be daunting. Many companies striving to adapt to this new era are experiencing similar challenges.

In this writing, I want to share with you the fundamental challenges frequently encountered by companies reporting under TSRS for the first time, as well as practical steps that can be taken to overcome these barriers.

Although TSRS reporting may initially seem like a challenging process, it actually offers tremendous opportunities for companies. For companies subject to reporting, TSRS is not just a compliance regulation, but a journey to better manage risks, enhance operational efficiency, strengthen stakeholder trust, become more attractive to investors, and most importantly, build a more resilient and sustainable business model. The challenges you encounter when starting this journey are inherently normal, as is experienced in the process of adapting to any new system. What matters is to view this process as an opportunity for learning and development, to be transparent, and to progress step by step. Viewing sustainability as a continuous journey rather than a destination will simplify your business operations.

Planning the TSRS Reporting Process and Internal Structuring

Not waiting for the end of the reporting period, planning the process in detail upfront, defining the responsibilities of each department and individual, and creating a realistic timeline are the most critical initial points. Forming a working group that includes all key departments starting from the board of directors and receiving basic training on the standards will facilitate the process and will also be valuable in creating the internal sustainability and climate culture that TSRS emphasizes.

Information Gaps and Capacity Development

As I mentioned earlier, TSRS and the IFRS S1/S2 standards it is based on require a new perspective that combines financial reporting with sustainability metrics. Finding personnel within the company with adequate expertise in this area or quickly training the existing team can be a significant barrier. Establishing effective collaboration between departments is another challenge. At this point, it will be valuable for companies wishing to carry out the reporting process internally to seek expert support in the first years, as developing capacity on this topic can take some time.

Investor-Focused Approach

The first step should be to identify the most important sustainability risks and opportunities for your company by communicating with your stakeholders—especially investors—and analyzing your business model. This step allows you to focus your efforts on the right areas. The concept of materiality in TSRS is investor-focused, differing from traditional sustainability reporting. In other words, the main question to ask when determining whether an issue is significant is: "Could this sustainability risk or opportunity materially affect our company's cash flows, access to financing, or cost of capital in the short, medium, or long term?" TSRS sector-specific guidelines based on SASB Standards, competitor analyses, media scans, internal risk records, and stakeholder feedback are valuable resources at this stage. TSRS expects you to not only define what matters but also explain how you arrived at that conclusion. Stating your methodology, qualitative or quantitative assessment criteria, and stakeholder engagement, if applicable, in your report also enhances credibility.

Challenges in Data Management

Perhaps one of the biggest challenges encountered in TSRS, as in any reporting, is the collection and management of detailed data required by TSRS 1 and TSRS 2 (especially Scope 3 emissions, value chain information, etc.). In many companies, these data are scattered across different departments, data quality varies, and established processes for systematically collecting this data are not yet in place. To cope with this issue, be sure to analyze your existing data collection processes without waiting for the end of the reporting period and identify gaps. Clarify which data will be collected from whom, how, and when. If necessary, consider technological solutions, but in the beginning, simple Excel spreadsheets can also serve your needs.

Expanding Understanding of the Value Chain and Scope 3

Another important point is beyond value chain mitigation, which the SBTi also emphasizes, meaning simply looking beyond the value chain. One of the most significant perspective changes brought by TSRS is the necessity to extend our sphere of responsibility beyond our operations to the entire value chain. Understanding, analyzing, and reporting this broad scope is crucial for every sector but requires significant effort, especially for companies with complex supply chains.

Your first step in this matter could be to visualize the key stages of your business model along with suppliers, distributors, and customers at those stages. You do not have to analyze the entire value chain simultaneously and in the same detail. Based on your materiality analysis, the focus should be on the stages or relationships in the value chain that have the highest potential to impact your company financially. For example, you might start with a few key suppliers who constitute a large part of your total purchases or the category that represents the largest source of your Scope 3 emissions. However, in the long term, it will require collaboration with your suppliers and customers to gather more accurate data.

Establishing the Connection between Finance and Climate

Finally, one of the most distinguishing features of TSRS is the demand to explain the current and anticipated impacts of sustainability performance on the company’s financial condition, performance, and future cash flows. Building a bridge between sustainability and finance teams and demonstrating this connection with concrete data requires developing new capabilities. Thus, it is essential not only to work closely with the finance team from the very beginning of the process but also to develop a common language and understanding.

Zero Point in Sustainability and Continuous Improvement

Your initial reports are not expected to be perfect. Both regulatory bodies and investors are aware that this is a learning process. What matters is to be transparent, honestly present the current situation, indicate your assumptions and limitations, and explain how you plan to improve in the coming years. This progress-focused approach demonstrates your sincerity and strategic commitment to the issue, which is as valuable to stakeholders as having complete data.

With our 15 years of experience at Life Climate, we assist companies in complying with new regulations like TSRS and integrating sustainability into their business strategies. We are here with our expert team in processes such as sustainability reporting, corporate and product carbon footprint reporting, and life cycle assessment (LCA) studies. Especially in complex issues like managing value chain emissions (Scope 3), we offer digital and efficient solutions to companies with our software called Scoop for supply chain emissions management. Scoop facilitates data collection from your suppliers, calculates emissions, and automates your reporting. For more information, please visit our Corporate Sustainability Consulting page or contact us.