Author: İnci Hazal Kılıç

The sustainable practices of the business world in Turkey are facing a significant transformation, and this transformation is known as the Turkish Sustainability Reporting Standards (TSRS). TSRS 1 and TSRS 2, published by the Public Oversight Authority (KGK) and aligned with the International Financial Reporting Standards (IFRS) S1 and S2, require companies to disclose their sustainability and climate-related risks and opportunities with financial reporting discipline. This reporting is undoubtedly a giant step towards transparency, accountability, and long-term value creation. However, it should be noted that 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 would like to share with you the main challenges that companies reporting under TSRS for the first time commonly face and the practical steps that can be taken to overcome these obstacles.

Although TSRS reporting may initially seem like a challenging process, it actually offers immense opportunities for companies. For companies subject to reporting, TSRS is not just a regulatory compliance but also a journey to better manage risks, increase operational efficiency, strengthen stakeholder trust, become more attractive to investors, and most importantly, build a more resilient and sustainable business model. The challenges you will encounter as you embark on this journey are inherently normal, as experienced in the adjustment process to every new system. What matters is to see this process as an opportunity for learning and development, to be transparent, and to proceed step by step. Viewing sustainability as an ongoing journey rather than a destination will make your operations easier.

Planning the TSRS Reporting Process and Internal Structuring

Not waiting until 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 starting points. Creating a working group that includes all key departments starting from the board of directors and receiving fundamental training on the standards will not only facilitate the operation of the process but will also be valuable in establishing an internal sustainability and climate culture that TSRS values.

As I mentioned earlier, TSRS and the IFRS S1/S2 standards it is based on require a new perspective that integrates financial reporting with sustainability metrics. Finding personnel with sufficient knowledge in this regard within the company or rapidly training the existing team can be a significant barrier. Establishing effective inter-departmental collaboration is another challenge. At this point, even for companies wishing to conduct the reporting process internally, receiving expert support in the early years will be valuable, as building capacity in this area can take some time.

Investor-Focused Approach

The first step should be to communicate with your stakeholders—especially investors—and analyze your business model to identify the most significant sustainability risks and opportunities for your company. This step allows you to focus your efforts on the right areas. The concept of materiality in TSRS is investor-focused, unlike traditional sustainability reporting. Therefore, the main question you should ask when determining whether an issue is significant is: "Could this sustainability risk or opportunity reasonably affect our company's cash flows, access to finance, or cost of capital in the short, medium, or long term?" TSRS sectoral guides based on SASB Standards, competitor analyses, media scans, internal risk registers, and stakeholder feedback are valuable resources at this stage. TSRS expects you not only to disclose which issues are significant but also to explain how you arrived at this conclusion. Indicating the methodology you used, qualitative or quantitative assessment criteria, and stakeholder engagement, if applicable, will enhance reliability in your report.

Challenges in Data Management

Perhaps one of the biggest challenges encountered in TSRS, as in every reporting, is the collection and management of the detailed data required by TSRS 1 and TSRS 2 (especially Scope 3 emissions, value chain information, etc.). In most companies, this data is scattered across different departments, data quality varies, and there are no established processes for systematically collecting this data. To address this issue, it will be beneficial to analyze your current data collection processes without waiting for the end of the reporting period and identify gaps. It is also important to clarify which data will be collected from whom, how, and when. You may consider technological solutions if necessary, but initially, even simple Excel spreadsheets will suffice for your needs.

Expanding Understanding of Value Chain and Scope 3

Another important point is seeing beyond the value chain mitigation, which is also emphasized by the SBTi. One of the most significant perspective shifts brought by TSRS is the necessity to expand our responsibility beyond our operations, i.e., to the entire value chain. Understanding, analyzing, and reporting this broad scope is important for all sectors, but it requires considerable effort, especially for companies with complex supply chains.

The first step you can take in this regard may be to visualize the main stages of your business model and the suppliers, distributors, and customers at these stages. You do not have to analyze the entire value chain at once and in the same detail. Based on your materiality analysis, you should focus on the value chain stages or relationships that are most likely to affect your company financially. For example, you could start with a few key suppliers that constitute a large part of your total purchases or with the category that is the largest source of your Scope 3 emissions. However, in the long run, it may require collaboration with your suppliers and customers to collect more accurate data.

Establishing the Connection Between Finance and Climate

Finally, one of TSRS's most distinctive features is the requirement to explain the current and expected impacts of sustainability performance on the company's financial condition, performance, and future cash flows. Building the bridge between sustainability and finance teams and demonstrating this connection with concrete data requires developing new capabilities. Therefore, in addition to being in close collaboration with the finance team from the very beginning of the process, a common language and understanding should also be developed.

The Zero Point in Sustainability and Continuous Improvement

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

With our 15 years of experience at Life Climate, we help companies comply with new regulations like TSRS and integrate sustainability into their business strategies. We stand by you 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 the management of value chain emissions (Scope 3), we provide companies with digital and effective solutions with our supply chain emissions management software called Scoop. Scoop facilitates data collection from your suppliers, calculates emissions, and automates your reporting. For more information, you can visit our Corporate Sustainability Consultancy page or contact us.