LEGAL FRAMEWORK IN TURKIYE WITHIN THE SCOPE OF TRANSITION FROM GREEN MAKEUP TO GREEN TRUST

Creative Commons License

Başar A. B., Selimoğlu S.

VIII. Uluslararası Muhasebe ve Finans Sempozyumu, Bursa, Turkey, 25 - 26 July 2025, pp.1-23, (Summary Text)

  • Publication Type: Conference Paper / Summary Text
  • City: Bursa
  • Country: Turkey
  • Page Numbers: pp.1-23
  • Anadolu University Affiliated: Yes

Abstract

EXTENDED ABSTRACT

1. GREENWASHING

Climate change, environmental pollution, population growth, rapid industrialization, and urbanization have brought about numerous political and social changes and, at the same time, have created some of the most critical problems of our era. In this context, businesses have been compelled to adopt environmentally friendly and sustainable practices, initiating efforts to reduce their carbon footprints and contribute to environmental protection. These initiatives are often driven not only by ethical concerns but also by the desire to enhance corporate reputation and gain a competitive advantage in the market.

However, it is frequently observed that companies tend to exaggerate or misrepresent their environmental, social, and economic commitments. This creates a gap between the disclosures made by businesses and their actual practices, leading to the widespread issue known as greenwashing. Although sustainability reporting is defined as a process through which companies transparently disclose their environmental and social performance, greenwashing reveals that these reports do not always reflect accurate and transparent information. As a result, sustainability commitments are not fulfilled, and stakeholders receive misleading or incomplete information, obstructing access to reliable data.

In the literature, the term greenwashing is consistently used to describe various forms of environmental deception. It can be defined as the communication of misleading environmental or social responsibility claims by companies to create a favorable impression and influence current or potential stakeholders. While greenwashing may bring short-term marketing and competitive benefits, in the long run, such strategies may damage corporate reputation, hinder sustainability goals, and negatively affect operational results.

From an accounting perspective, greenwashing represents an attempt to build an environmentally conscious image by presenting misleading, incomplete, or exaggerated information about a company’s environmental performance or the environmental benefits of its products or services. This indicates a disconnection between actual practices and the information conveyed to the public or investors. Greenwashing often involves companies publishing social responsibility reports to fabricate a sustainable image, despite having weak environmental and social performance. In doing so, companies frequently obscure their negative impacts by highlighting only the positive. Therefore, greenwashing is not simply a mistake or oversight; it is often a deliberate attempt to mislead stakeholders. From a business model perspective, greenwashing refers to the intentional mismatch between the values a company claims to deliver and the foundational elements of its operations. It typically results from deficiencies in the business model and creates deceptive impressions about environmental performance. Common motivations for greenwashing include:

  • Financial Constraints: Companies lacking sufficient resources to meet environmental responsibilities may simulate environmentally friendly behavior to attract funding.
  • Competitive Advantage: Portraying an environmentally responsible image helps companies differentiate themselves in the market.
  • Regulatory Pressures: Companies may appear to comply with environmental regulations without actual implementation.
  • Reputation Management: Businesses aim to enhance short-term reputation by creating an eco-friendly image but risk long-term trust loss.
  • Financial Gains: Greenwashing can help increase market share and revenue by misleading consumers.
  • Incentives and Subsidies: Some companies manipulate environmental reports to qualify for financial incentives.

Today, greenwashing can be observed in advertising campaigns, annual reports, corporate social responsibility (CSR) projects, or through sustainability-related labeling. It typically manifests in reporting through the following mechanisms:

  • Selective Disclosure: Highlighting positive environmental practices while concealing violations or negative impacts.
  • Vague and Unsubstantiated Claims: Making general or unsupported environmental claims that confuse stakeholders.
  • Omission of Critical Information: Emphasizing one positive feature of a product or service while downplaying significant negative aspects.
  • False or Misleading Labels: Using unverified or fabricated environmental certifications.
  • Mismatch Between ESG and Financial Performance: Companies may promote sustainability while making contradictory investments in harmful industries.
  • Challenges in ESG Reporting: The lack of standardized frameworks and accurate data collection makes detecting greenwashing difficult.

Greenwashing creates serious information asymmetries for investors, regulators, and other stakeholders, undermining the credibility of financial reporting. While financial statements aim to be accurate, reliable, comparable, and auditable, greenwashing contradicts these principles. When sustainability disclosures are not integrated into financial statements, companies often make environmental promises merely for public relations purposes, without delivering measurable outcomes. This creates an "information gap" that misguides investment decisions.

The effects of greenwashing on financial reporting can be grouped into three main areas:

  • Reliability of Financial Statements: When environmental risks and liabilities are excluded from financial records, the resulting balance sheets are misleading. For instance, failing to reflect potential penalties for exceeding emissions limits can distort reality.
  • Investor Confidence: Investors relying on ESG metrics may be misled by greenwashed information, undermining their trust in "green" investments.
  • Reputation and Financial Performance: Greenwashing scandals can severely damage a company’s brand and profitability. A notable example is the 2015 Volkswagen emissions scandal, which led to a 40% drop in the company’s market capitalization.

Greenwashing negatively affects not only companies and consumers but also society and other key stakeholders.

On the other hand, internal control and audit systems play a crucial role in preventing greenwashing. Companies with strong oversight mechanisms can ensure the transparency and reliability of environmental disclosures. However, in many cases, greenwashing undermines the effectiveness of internal audits.

Weak internal control systems can prevent companies from properly monitoring environmental compliance, potentially causing them to overlook harmful impacts or fail to meet sustainability targets. The absence of robust oversight facilitates deliberate misrepresentation of environmental performance.

In short, insufficient internal controls and audits enable companies to fall short of their environmental responsibilities and contribute to the persistence of greenwashing.

2. GREEN TRUST

Although green trust is a term rooted in marketing literature, it broadly refers to stakeholder confidence in a company’s environmental claims and sustainability practices. It signifies belief in a business’s ability and sincerity in fulfilling its environmental responsibilities.

The transition from greenwashing to green trust requires full transparency and the abandonment of misleading strategies. As explained earlier, greenwashing and green trust are inversely related—greenwashing erodes stakeholder trust, while transparency and authenticity foster it.

To foster green trust, companies must embrace the following principles:

  • Transparency and Integrity
  • Compliance with International Regulations
  • Comprehensive and Standardized Reporting
  • Action- and Performance-Based Communication
  • Independent Auditing and Rating
  • Use of Reliable Indicators
  • Avoidance of Selective Disclosure

Establishing green trust requires a long-term, principled approach that prioritizes truthful communication and measurable progress over superficial claims.

3. LEGAL REGULATIONS DEVELOPED TO PREVENT GREEN WASHING AND BUILD GREEN TRUST IN TURKIYE

In Turkiye, where international regulations are rapidly transposed into national legislation, the fight against greenwashing has started to take its place within legal regulations. This process is of great importance for companies to fulfill their reporting obligations and strengthen their sustainability infrastructure. Accordingly, it is crucial for companies to avoid greenwashing when describing their sustainability activities.

As definitions of sustainability become clearer, consumer and investor awareness increases, and legal regulations expand, the prevalence of greenwashing decreases. For example, the General Directorate of Consumer Protection and Market Surveillance under the Ministry of Trade regulates the environmental claims used in advertisements.

The 2023-2025 Medium Term Program states that: “A scientifically based National Green Taxonomy legislation, compatible with a common international classification system and adapted to the unique needs of Turkiye, which determines the qualities an environmentally sustainable economic activity should possess and which will provide protection against greenwashing, will be prepared.”

Furthermore, the Medium Term Program for 2025-2027 declares: “Legislative work will be completed for the establishment of a National Green Taxonomy that is compatible with international taxonomy examples, especially the European Union taxonomy, and that takes into account Turkiye's specific needs.”

In general, the recent development of regulatory and supervisory frameworks on sustainability prevents the formation of a minimum standard in practices, increases uncertainties and information pollution, and allows for approaches that can be described as greenwashing. However, it can be said that Turkiye closely follows foreign regulations in this area, rapidly transferring international regulations into national law, and the fight against greenwashing has begun to be embedded in Turkish regulations.

The steps taken and regulations introduced within the framework of the Public Oversight Accounting and Auditing Standards Authority (POA - KGK), the Capital Markets Board (CMB), and the Banking Regulation and Supervision Agency (BRSA) to combat greenwashing in sustainability practices are as follows:

3.1. Public Oversight Accounting and Auditing Standards Authority (POA-KGK)

Since 2024, TurkİYE has adopted the Turkish Sustainability Reporting Standards (TSRS) developed by the International Sustainability Standards Board (ISSB). These regulations aim to ensure that businesses transparently report their environmental, social, and governance (ESG) performance. The POA has assumed a central role in managing this process and will ensure the publication of sustainability reports and conduct assurance audits starting from 2025.

Reporting of greenhouse gas emissions is mandatory under TSRS 1 and TSRS 2, although some exemptions are granted during the transition period. The POA is authorized to define and publish TSRSs to ensure that sustainability reports comply with international standards and maintain validity.

KGK's efforts in standard-setting are aligned with the International Sustainability Standards Board (ISSB) under the IFRS Foundation. In 2023, KGK integrated these international standards into Turkish legislation and began issuing TSRSs.

Reporting according to the TSRS published by the POA became mandatory for companies specified in the legislation. Organizations meeting at least two of the following thresholds—total assets, annual net sales revenue, and number of employees—for two consecutive years and classified as public interest entities are required to prepare corporate sustainability reports from January 1, 2024. Organizations outside this scope may apply the standards voluntarily.

Standardized and mandatory reporting will help reduce greenwashing by enabling companies to present their sustainability performance transparently and comparably. Moreover, the assurance audit requirement introduced in September 2024 will apply to these mandatory sustainability reports.

An assurance audit on sustainability is a qualitative process in which the auditor seeks sufficient appropriate evidence to express a conclusion intended to increase the confidence of stakeholders—such as investors, financial institutions, and rating agencies—who benefit from the sustainability report. These assurance engagements will be conducted in accordance with GDS 3000 ("Assurance Engagements Other Than Independent Audits or Review Engagements of Historical Financial Information") and GDS 3410 ("Assurance Engagements on Greenhouse Gas Disclosures") standards (until the issuance of GDS 5000). Reporting on sustainability performance and receiving assurance assessments by independent auditors are important steps toward transparency and a critical development in preventing greenwashing.

3.2. Capital Markets Board (CMB-SPK)

The CMB published the Sustainability Principles Compliance Framework for Turkish capital markets in 2020. Based on this framework, the Public Disclosure Platform (PDP) Sustainability Reporting Template covers environmental, social, and corporate governance principles generally.

The framework recommends that sustainability performance measurements be verified by an independent third party and disclosed publicly. While the implementation of the principles is voluntary, companies must disclose whether or not they have complied under the "Comply or Disclose" principle. Verification of performance constitutes a direct mechanism against greenwashing.

In 2022, the CMB published guidelines for Green Debt Instruments, Sustainable Debt Instruments, Green Sukuk, and Sustainable Sukuk. In 2024, these guidelines were updated to include social bonds and drafts for Sustainability-Linked Capital Market Instruments were made available for public comment.These guidelines aim to address potential greenwashing by ensuring that financial products marketed as "green," "sustainable," or "sustainability-linked" meet specific criteria.

In 2024, the CMB also issued Principles of Responsible Management for funds managed by asset management companies, aiming to ensure the responsible investment, management, and monitoring of securities investment fund assets. This represents a step toward preventing greenwashing in financial products.

Corporate governance principles were first legislated by the CMB in 2003, and their scope has since expanded. Some principles have become mandatory for publicly traded companies, including requirements to establish board committees such as the Corporate Governance Committee. Transparency and good governance are fundamental in preventing greenwashing.

3.3. Banking Regulation and Supervision Agency (BRSA-BDDK)

The BRSA participates in sustainability action plans carried out with various institutions. One such plan, Action 2.2.2.2, focuses on ensuring consistency in second-party opinion services, which provide verification for sustainable activities to prevent greenwashing.

The BRSA also works to require banks to obtain sustainability principles compliance reports and carbon emission data from their loan customers. Furthermore, it strengthens regulatory infrastructure to standardize ESG practices across the banking sector in alignment with internationally accepted approaches. These efforts aim to accelerate the sustainability transformation of the corporate sector while mitigating greenwashing risks that may emerge during this process.