MANDATORY ASSURANCE PERIOD BEGINS FOR SUSTAINABILITY DISCLOSURES

With the declaration published in early September, a new era has begun in corporate sustainability reporting and auditing processes in Turkey. In line with the recommendation of the Public Oversight, Accounting and Auditing Standards Authority, limited assurance have become mandatory for sustainability reporting performed within the scope of TSRS (Turkish Sustainability Reporting Standards).

The Importance of Assurance in Sustainability Reporting

When it comes to sustainability, it is important that companies are as reliable as they are transparent about the impact they create. After many cases of greenwashing, both consumers and other relevant stakeholders attach importance to companies being data-driven and verifiable when talking about their sustainability performance.

The Global Reporting Initiative (GRI), one of the most widely used reporting standards, recommends that the data shared in the report be audited by an independent party. The European Union's Corporate Sustainability Reporting Directive (CSRD), which requires companies to report their environmental, social and governance (ESG) impacts, requires third-party audits. Due to the insistence of investors and the interest of stakeholders inassurance, it is certain that this practice will become more widespread.‍

Limited Assurance - Reasonable Assurance‍

Two terms are often used in assurance: ‘limited’ and ’reasonable.’

Limited assurance provides a relatively low level of scrutiny, while reasonable assurance provides a more rigorous assessment of the data but is not absolute.

Reasonable assurance investigates where and how the information was obtained. Furthermore, such an audit checks the relevance of the report to sectoral metrics and its importance to various stakeholders. As a result, it ensures that the report is balanced, free from bias and takes into account all areas of operations. Limited assurance, on the other hand, confirms the accuracy of the information but does not confirm that the information isfree from material modifications.

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Assurance audits can provide useful outputs not only for external stakeholders but also for internal management. Getting support from a third party to recognise calculation errors that may arise while evaluating sustainability performance and to receive suggestions for improvement can facilitate company management.

Considering the global developments and the potential benefits of assurance, the fact that Turkey has taken a step in this regard is an important step for companies to adapt to the international market. In the short term, while assurance auditing increases the reliability of sustainability reports of large and publicly traded companies, it may require a new compliance process for small and medium-sized enterprises. In the longterm, it can make companies of all sizes more attractive to investors and help them achieve improved sustainability performance through third-party audits. In a 2023 survey, 85%of investors reported that a good audit mechanism significantly increased their confidence in sustainability reporting.

For auditors, limited assurance engagements will mean an expansion of the audit scope. Auditors experienced in financial audits will need to increase their knowledge of sustainability reporting. This may require audit firms to develop new areas of expertise, streng then their teams with sustainability experts, and restructure their audit processes.‍

How Should Companies Prepare?

1. Sustainability Reporting Competence and Data Collection Discipline: Companies should review and improve their internal processes for sustainability reporting. In particular, processes for collecting, analysing and reporting environmental and social performance data should be strengthened. Identifying those responsible for data collection and ensuring systematic data flow is a critical step to prevent possible errors.

2. Internal Control Mechanisms: It is important to review internal audit and control mechanisms to increase the reliability of ESG data. These mechanisms will support the accuracy of the datapresented in the assurance audit.

3. Communication with the Auditor: Companies should be in constant communication with their auditors and share their preparation processes for assurance audits, which will help the audit process to be conducted more efficiently. The auditors' easy access to the calculation methods of the data and the relevant evidence documents in order to confirm the accuracy of the data will ensure that the process progresses both faster and more effectively.

The tactics that companies can follow to facilitate their preparation process are as follows:

1. Step-by-Step Compliance: A comprehensive training process can be organised for companies and auditors to understand the legal requirements and standards for sustainability reporting. This accelerates the compliance process and makes audit processes more effective.

2. Digital Solutions: The use of digital solutions in ESG data collection, analysis and reporting processes increases the accuracy and reliability of the data and enables the audit process to be carried out in a faster and more effective manner. Managing the data on a single platform and identifying the responsible persons prevents incorrect or incomplete entry of data and ensures coordination within and between teams. For auditors, analysing the data together with detailed calculations and relevant evidence documents through digital solutions are among the important advantages that facilitate the process.

3. Pilot Applications: Especially for large companies, starting assurance audit processes with small-scale pilot applications can be beneficial in transitioning to full-scale audits.

In conclusion, making assurance audits mandatory in sustainability reporting in Turkey will enable companies to take an important step towards transparency and accountability. Both large and small scale companies will comply with the new audit requirements and comply with local and international standards while improving their sustainability performance. It will be especially critical for companies to strengthen their internal processes, especially with regard to data collection and analysis. This regulation should be considered as a great opportunity for Turkey to comply with international sustainability standards and increase its global competitiveness.