Compliance Quarterly

Global

EU scales up green subsidies

Read the full publication, "EU scales up green subsidies: How you can benefit from new support for clean investments."

Proposed Regulation on ESG Ratings: Overview and legislative process

Read the full blog post, "Proposed Regulation on ESG Ratings: Overview and legislative process."

Türkiye

CBAM regulation affects Turkish companies importing to the EU

With the aim to control the adverse effects of greenhouse gas emissions embedded in imports to the global greenhouse gas emissions footprint of the EU, the Regulation (EU) 2023/956 of the European Parliament and of the Council establishing a carbon border adjustment mechanism (CBAM) is published in the Official Gazette of EU on May 16, 2023 (CBAM Regulation). With the CBAM Regulation each importer importing certain goods produced by the industries having high emissions to the EU have become obliged to comply with certain reporting and regulatory obligations (i.e. obtaining of CBAM certificate) for the purpose of complying with the target of reduction of carbon footprint of EU. Accordingly, each importer having imported goods submit a CBAM report containing information on the goods imported and its direct and indirect emissions to the European Commission.

CBAM Regulation foresees a transition period between October 1, 2023 until December 31, 2025 where the importers importing certain goods will be obliged to make quarterly emission reporting. During this period, obtaining CBAM certificate by the importers will be optional and not mandatory. The transition period currently covers the following sectors: iron and steel, aluminum, fertilizers, electricity and cement sectors. Upon termination of the transition period, as of 1st of January, 2026, the financial obligations will come into picture and the free allocation of EU ETS allowances will terminate gradually, hence the importers from the countries which are not integrated into the EU's emission trade system or have not adopted their own carbon pricing mechanisms or are not party to a related treaty between EU shall be under the obligation to pay carbon taxes according to the emission values of the facilities manufacturing the imported goods.

Greenwashing risk increasing in tandem with the growing importance of ESG

ESG and sustainability have increasing importance for companies, consumers and investors concerned about climate change. As the demand for ESG compliant and sustainable products and services grows, so does the risk of overstatements in terms of sustainability credentials to attract and retain customers and investors. Greenwashing may appear in different forms, such as exaggerated or imprecise claims, to intentionally deceive or mislead others. Although greenwashing concept initially arises in environmental statements, it now extends to broader sustainability concepts. Greenwashing is intended to be protected through a myriad of different laws in Türkiye, including securities regulations, consumer protection laws, fraud and misrepresentation statutes and advertising standards such as:

1. Legislation on Environmental Labelling comprising of (a) rules for protection of environmental values and economic efficiency for producers under Environmental Labelling Regulation; (b) provisions for accessing information on the environment under Law on the Right to Information; (c) rules on informing consumers on fuel economy and CO² emission under Regulation on Informing Consumers on Fuel Economy and CO2 Emission of New Passenger Automobiles; (d) rules relating to energy efficiency in the labeling under Framework Regulation on Energy Labelling.
2. Legislation on Capital Markets and Securities comprising of (a) Guidelines on Green and Sustainable Debt Instruments and Lease Certificates; (b) Article 32 of the Capital Markets Law No. 6362 (CML) regarding any false, misleading and missing information in the documents foreseen by the CMB to inform the public such as issuance certificates, (c) Sustainability Principles for listed companies.
3. Commercial Law comprising of (a) provisions relating to unfair competition under Turkish Commercial Law; (b) rules relating to commercial advertisements under Consumer Protection Law

New Climate Law on its way

Considering these developments in the EU in terms of the net zero emission target of the Green Deal, Türkiye is also preparing to adopt its own carbon pricing mechanism and to enact legislation to fight against climate change through the second Draft Climate Law, which brings considerable changes as compared to the first one and which was recently submitted to public's view. According to the Draft Climate Law, the following implementation instruments will be used to fight against climate change in line with the principles of climate justice, precaution, participation, integration, sustainability, transparency, fair transition and progress:

1. Development of resources for climate financing and incentivization of green/sustainable capital market instruments by governmental authorities (i.e. establishment of an emission trading system market and voluntary carbon market by Borsa Istanbul);
2. Preparation of reporting standards, directing of financial resources to fight against climate change, establishment of incentive mechanisms and coordination of taxonomy studies by the Climate Change Department;
3. Establishment of a research institute within TUBITAK (Scientific and Technological Research Council of Türkiye);
4. Organizing trainings to increase public awareness;
5. Revision of curriculums to include climate change factor to Turkish education;

An emission trading system will be established, as a carbon pricing mechanism, limiting or encouraging the limitation of greenhouse gas (GHG) emissions and GHG-causing activities through the trading of GHG emission allowances in parallel to the EU. Additionally, businesses, the operations of which result in carbon emission, will become obliged to obtain a GHG emission permit to continue their operations within three years as of the enactment of the Draft Climate Law.

The Draft Climate Law also regulates the establishment of a Carbon Pricing Board, which will be authorised to determine the carbon pricing instruments (i.e. emission trading system) and breakdown of free allowances which will be granted within the scope of an emission trading system. Finally, a settlement system will be introduced by meeting the allowance obligations with carbon loans.