October | Sustainability Bulletin
- Regulation on Fluorinated Greenhouse Gases Published
In line with its international commitments to combat climate change, the Regulation on the Management of Fluorinated Greenhouse Gases has been published. Issued by the Ministry of Environment, Urbanization, and Climate Change’s Climate Change Directorate and effective as of October 15, 2024, this regulation aims to limit the release of fluorinated gases into the atmosphere and establish rules for their disposal and recovery. This new regulation supersedes the previous one dated June 29, 2022.
The updated regulation provides a comprehensive framework for managing fluorinated greenhouse gases, covering aspects such as labeling, leak controls, import and export procedures, recovery, and disposal processes. Operators of equipment containing fluorinated gases and industrial facilities using these gases are now subject to training and certification requirements, with mandatory training aimed at enhancing the competence of individuals handling these gases to promote environmentally sensitive practices within the industry.
The regulation mandates monitoring and reporting of fluorinated greenhouse gases through the EKOMVET (Central Database for Equipment Operators) and FARAVET (Activity Reports Database) systems. This digital approach enables effective tracking of information related to the use and disposal of these gases, ensuring transparency.
Compared to its predecessor, the 2024 regulation introduces stricter measures. For instance, a quota system has been established for the import of high-global-warming-potential gases, such as hydrofluorocarbons. Additionally, leak inspections for equipment containing gases equivalent to 500 tons of CO2 or more must be conducted every three months.
Beyond limiting gas usage, the regulation emphasizes promoting environmentally friendly alternatives. Incentive mechanisms have been developed to encourage industries to adopt greener solutions and substitute fluorinated gases with alternative options.
For detailed information:
https://www.resmigazete.gov.tr/eskiler/2024/10/20241015-2.htm
- Capital Markets Board Issues Draft Guide on Green, Sustainable, and Social Capital Market Instruments and Sustainability-Linked Capital Market Instruments
The Capital Markets Board (CMB) has released draft guides on Green, Sustainable, and Social Capital Market Instruments, as well as Sustainability-Linked Capital Market Instruments. These guides aim to regulate the issuance of capital market instruments that contribute to environmental, social responsibility, and sustainable development goals.
These guides seek to facilitate the integration of emerging green and social bond practices in international markets into Turkey’s financial landscape. Key objectives outlined by the CMB include standardizing issuance processes for green, sustainable, and social financing instruments, monitoring and reporting fund usage, and supporting external evaluation processes with independent audits.
Draft Guide on Green, Sustainable, and Social Capital Market Instruments
The draft guide incorporates principles established by the International Capital Market Association (ICMA), covering Green Bond Principles, Sustainable Bond Principles, and Social Bond Principles. It establishes general principles and standards for both domestic and international issuance of green, sustainable, and social capital market instruments. Additionally, it outlines the framework documents issuers must prepare for projects funded through these instruments, reporting processes, and the conduct of external evaluation services. This guide is prepared under Articles 1 and 128/1 (e) of the Capital Market Law (Law No. 6362), and its provisions are considered as Board Decisions.
The guide covers green, sustainable, and social debt instruments, lease certificates, asset and mortgage-backed securities, asset-based securities, project-backed securities, and real estate certificates. Furthermore, “blue capital market instruments” are evaluated within the scope of green capital market instruments. Blue capital market instruments are financial tools aimed at funding projects that protect and sustainably use marine and ocean ecosystems.
- Green capital market instruments: Designed to fund projects that contribute to environmental sustainability goals, such as energy efficiency, renewable energy projects, and waste management.
- Social capital market instruments: Created to finance projects that contribute to social objectives, such as affordable housing, education, and healthcare access.
- Sustainable capital market instruments: Provide financing for projects that yield both environmental and social benefits, encompassing initiatives that combat climate change and foster social development.
To issue these instruments, issuers must prepare a framework document specifying that funds from issued instruments are exclusively allocated to green, social, and/or sustainable projects. Eligible project areas include renewable energy plant installations, financing for social housing projects, and information support systems for climate observation and early warning systems. Issuers are required to report fund usage at least annually, and these reports must be made publicly available.
Project Evaluation Process
Issuers of green, sustainable, and social capital market instruments must disclose to investors the social and environmental purposes of their projects, as well as the environmental and social risks involved, through the framework document. Issuers may obtain external evaluations to verify the alignment of capital market instruments with the Green Guide, although this is not mandatory. These evaluations, referred to as “second-party opinions,” can be conducted by international organizations listed by ICMA or Climate Bonds Initiative, or by independent audit firms specializing in sustainability. These evaluations enhance transparency for investors and provide assurance of the environmental or social benefits of the projects.
Draft Guide on Sustainability-Linked Capital Market Instruments
Based on ICMA’s Sustainability-Linked Bond Principles, the Sustainability-Linked Guide Draft regulates the issuance of instruments linked to issuers’ sustainability performance, serving as a financing mechanism tied to achieving specific sustainability targets. It encompasses debt instruments, lease certificates, asset and mortgage-backed securities, and real estate certificates. Issuers are required to identify key responsibilities within framework documents for domestic issuances, with the originator and/or founder responsible for certain obligations under the Guide.
Issuers must define key performance indicators (KPIs) and establish sustainability targets. These indicators should be of primary importance to the issuer’s business activities, measurable or calculable on a methodological level, externally verifiable, and comparable. When KPIs have not been previously disclosed, issuers are expected to provide investors with externally verified, past KPI values covering at least the last three years.
Performance Evaluation and External Audit
Issuers must monitor and report their progress in meeting defined sustainability targets through performance evaluation reports. These reports must be publicly disclosed on the issuer’s website and, if applicable, through the Public Disclosure Platform (PDP), under CMB’s regulations for disclosure of special circumstances. The reports demonstrate the issuer’s fulfillment of commitments linked to sustainability instruments. Additionally, up-to-date performance information on selected KPIs, success in meeting sustainability performance targets, and the impact on financial or structural features of the capital market instrument must be detailed, allowing investors to assess the ambition level of the sustainability performance targets. These reports should be verified by an independent external assessment agency and disclosed publicly, ensuring transparency in fulfilling commitments to investors.
For detailed information:
- Applications for the EU-Turkey Climate Change Grant Program Now Open
Under the EU Partnership for Local Climate Action Project in Turkey, the EU-Turkey Climate Change Grant Program will be implemented to enhance local capacity in climate change adaptation and greenhouse gas reduction. This program is co-funded by the Republic of Turkey and the European Union. Administered by the Ministry of Environment, Urbanization, and Climate Change through the United Nations Development Program, the call for applications was announced in October. The program aims to strengthen the efforts of local governments, NGOs, and other stakeholders in Turkey to combat and adapt to climate change.
The program’s overarching objective is to bolster local capacities for climate change action and improve adaptation processes. In this regard, it seeks to develop sustainable local solutions that reduce greenhouse gas emissions and increase resilience to climate change. The program’s specific goal is to encourage local governments and other relevant institutions to develop and implement climate adaptation and mitigation strategies, with an emphasis on enhancing local actors’ capacities, raising awareness, and executing projects.
Broadly aligned with Turkey’s 2024-2030 national adaptation and mitigation action plans, the program also focuses on transitioning to a low-carbon economy, creating climate-resilient cities, and encouraging sectors to engage in these goals. Raising public awareness on climate change will also be prioritized in projects developed under this program, along with fostering cooperation and knowledge-sharing among stakeholders as critical elements.
The total budget for the program is set at €14,706,000, with grants covering between 50% and 90% of total eligible costs, depending on the applicant’s capacity to contribute to the project’s implementation. Project durations should range from 12 to 24 months.
Eligible primary applicants must be non-profit legal entities, including municipalities, local governments, universities or research institutions, and development agencies. Additional co-applicants may include NGOs, non-profit associations, and cooperatives, which may participate in the project alongside the primary applicant.
Information sessions will be held in various cities soon, offering Grant Information Days to provide applicants with detailed guidance on the application process. Projects supported under this program will be selected based on their contributions to local climate action and sustainable development goals.
For detailed information:
- Ministry of National Education Publishes Climate Change Action Plan
The Ministry of National Education’s Climate Change Action Plan, published in 2022, aims to support sustainable development goals through the education sector and to raise climate change awareness across broader audiences. This plan envisions embedding the concept of sustainability at the heart of educational policies.
Developed within the framework of the United Nations’ 17 Sustainable Development Goals, the Ministry’s Climate Change Action Plan places a central focus on “Climate Action.” The plan emphasizes the need to raise climate change awareness across all levels of education, from early childhood through university. It aims to foster a lifestyle in children that harmonizes with nature, encourages them to act with environmental awareness, and grows with this mindset. Another key educational responsibility outlined in the plan is to cultivate individuals who can assess scientific information about climate change and develop solutions to counter the climate crisis.
In this context, the Ministry plans to integrate climate change and sustainable development subjects into the curriculum. The report underscores the importance of instilling environmental awareness, resource conservation, biodiversity, and sustainable development concepts from an early age to enhance societal awareness. Plans include expanding environmental clubs and involving students in recycling projects to encourage youth leadership.
The Climate Change Action Plan also targets improved energy efficiency in schools, reduced energy waste, and a smaller carbon footprint. The report highlights the use of renewable energy sources, proposing the integration of solar panels and wind energy systems into schools, which not only promotes energy savings but also offers students learning opportunities.
The plan stresses the significance of waste management and recycling applications within the sustainability framework, aiming for zero waste. In line with this, the Ministry’s Directorate of Teacher Training and Development has scheduled a Waste Management and Zero Waste Seminar and a Climate Change and Environmental Education Seminar on its remote learning platform, Teacher Informatics Network (ÖBA), to support teachers’ development.
Additionally, the Action Plan targets the organization of campaigns to raise climate change awareness among students and teachers, significantly contributing to the spread of sustainability principles. Awareness-raising activities, environmental days, seminars on energy conservation, and climate-friendly lifestyle practices will help instil a sense of responsibility in young people regarding climate change.
By integrating sustainability into the education system, the Ministry’s Climate Change Action Plan aims to nurture environmentally responsible individuals who will play an active role in society. This strategy not only underpins long-term climate policies but also contributes directly to Turkey’s efforts in combating climate change. These educational steps, which support societal awareness, serve as essential guides for achieving sustainable development goals.
Projects and educational programs to be implemented in schools will contribute to both environmental responsibility and climate-friendly lifestyles, making sustainability a core part of education and fostering future generations of environmentally aware individuals.
For detailed information: https://merkezisgb.meb.gov.tr/meb_iys_dosyalar/2022_09/29171316_Milli_EYitim_BakanlYYY_Yklim_DeYiYikliYi_Eylem_PlanY.pdf
- Accreditation Requirement Introduced for ISO 50001: 2018 Energy Management System Certificate by the Turkish Accreditation Agency
Under the amendments made to the Regulation on Increasing Efficiency in the Use of Energy and Energy Resources, published in the Official Gazette No. 32669 on September 21, 2024, the Ministry of Energy and Natural Resources of the Republic of Turkey has mandated that the ISO 50001:2018 Energy Management System Certificate must be accredited by the Turkish Accreditation Agency (“TÜRKAK”). The amendment states as follows:
“Public buildings required to appoint an energy manager, (Amended phrase: Official Gazette-6/7/2022-31888) commercial buildings, service buildings, electricity production facilities, and industrial establishments, as well as organized industrial zones and industrial enterprises required to establish an energy management unit (Added phrase: Official Gazette-21/9/2024-32669) shall establish and certify an energy management system in accordance with the TS EN ISO 50001 through institutions/organizations or companies accredited by the Turkish Accreditation Agency (TÜRKAK). The relevant institutions, organizations, and enterprises are responsible for maintaining the current status of the energy management system.”
The TS EN ISO 50001 Standard provides guidance to companies in structuring their energy management processes, targeting goals such as enhancing energy efficiency, reducing energy costs, and minimizing environmental impact. This standard offers a systematic approach to improving energy performance.
TÜRKAK ensures compliance with international standards in the certification process through its accreditation audits, providing significant advantages for companies holding an Energy Management System certificate issued by a TÜRKAK-accredited organization.
- Reliability: Accredited certificates assure that a company’s energy management systems comply with international standards.
- Competitive Advantage: Accreditation distinguishes companies from competitors, enhancing their marketability.
- Legal Compliance: Meeting legal requirements related to energy efficiency helps companies achieve their sustainability goals.
- Continuous Improvement: Accreditation enables companies to regularly review and improve their energy management systems.
Specific steps are anticipated for companies entering the accreditation process. Initially, companies must train their employees in energy management to raise awareness. Subsequently, they should analyze their energy consumption data to assess their current situation. Once the company establishes energy efficiency targets and develops methods to achieve them, it can prepare the necessary documents to apply for Turkish accreditation.
For detailed information: https://enerji.gov.tr/enerji-verimliligi-ts-en-iso-50001
- Turkish-German Climate and Environment Executive Board Meeting Held in Berlin
The inaugural meeting of the Turkish-German Climate and Environment Executive Board took place in Berlin, Germany, on September 11, 2024. This high-level session emphasized strengthening cooperation and climate action between the two nations, with the goal of developing joint strategies in combating climate change.
At the meeting, Fatma Varank reiterated Turkey’s commitment to its 2053 Net Zero Emission target, stating that significant steps have been taken toward this goal following Turkey’s accession to the Paris Agreement. She also highlighted Turkey’s ongoing climate change efforts in collaboration with public institutions, local governments, NGOs, and the private sector.
Additionally, the meeting emphasized Turkey’s progress through projects such as the “Greenhouse Gas Emission Monitoring, Reporting, and Verification Project” and the “New Interface Project,” underscoring the strengthening Turkish-German collaboration in these areas. Fatma Varank expressed expectations for furthering this partnership with the forthcoming “Project to Support Turkey’s Climate and Biodiversity Goals” and the “Climate Diplomacy Project,” initiatives under the International Climate Initiative.
The meeting also covered COP29 negotiations, with topics including climate clubs, adaptation strategies, biodiversity, nature-based solutions, forest restoration, protection of marine and coastal ecosystems, circular economy, and zero waste. Varank announced that Turkey would present its Long-Term Climate Strategy at COP29 in Baku in November, with ongoing work on low-carbon roadmaps for various sectors, energy efficiency action plans, and initiatives within the framework of the Green Deal.
For detailed information: https://iklim.gov.tr/turk—alman-iklim-ve-cevre-yurutme-kurulu-toplantisi-berlin-de-gerceklestirildi-haber-4321
- Zorlu Holding Publishes 2023 Sustainability Report
Zorlu Holding’s 2023 Sustainability Report details its Environmental, Social, and Governance (ESG) activities in alignment with its commitments under the United Nations Global Compact. Reflecting the company’s “Smart Life 2030” vision for 2030, the report addresses sustainability goals such as circular economy, net zero emissions, and social investments through an integrated approach. CEO Cem Köksal’s statements underline that this sustainability approach is a strategic priority, fully embedded in the company’s operations.
CEO Cem Köksal affirms that Zorlu Holding considers sustainability not as a component of its business but as its core and entirety. According to the report, the company has adopted a “responsible investment holding” approach, with ESG matters integrated into its overall strategies and daily operations. Köksal emphasizes that Zorlu Holding prioritizes the health of people, society, and the planet in all its activities and has embraced sustainability as a long-term business strategy.
Under the “Smart Life 2030” strategy, Zorlu Holding has committed to achieving net zero emissions. In 2023, the company reduced its Scope 1 and 2 emissions by 37% compared to its base year, 2020, and further reduced its Scope 1-2-3 emissions by 15% year-on-year. The report notes that these targets go beyond carbon reduction, with a strong focus on circular economy and regenerative business models. Circularity is one of the areas where Zorlu aims to develop more sustainable and closed-loop processes within its business models.
Innovation and R&D investments play a significant role in Zorlu Holding’s sustainability strategy. With an R&D budget of TRY 2.417 billion in 2023, the company has conducted projects in areas such as renewable energy, electric vehicles, sustainable textiles, smart home appliances, and electronics. These investments, as highlighted in the report, are designed to make the company’s future business models more sustainable and contribute to ecosystem transformation. Zorlu Holding’s long-term strategic goals also emphasize sustainable value creation in areas like innovative mining practices and experience-driven real estate projects.
For detailed information: https://www.zorlu.com.tr/assets/files/raporlar/Zorlu_Holding_Surdurulebilirlik_Raporu_2023.pdf
- IEA 2024 World Energy Outlook Report Published
The 2024 World Energy Outlook Report, released by the International Energy Agency, focuses on global energy trends, security risks, and the critical importance of transitioning to clean energy. The report highlights geopolitical tensions, particularly conflicts in the Middle East and the Russia-Ukraine war, as major risks to energy supply security, emphasizing that clean energy technologies play a vital role in mitigating these risks.
The report’s primary aim is to promote the widespread adoption of clean energy technologies to reduce carbon emissions and secure energy supplies, creating resilient systems that can withstand the adverse effects of climate change. In this regard, it underscores the need to accelerate the integration of renewable sources, such as solar and wind energy.
Projections on the future of fossil fuels indicate that global demand will peak by 2030, after which it will gradually decline. However, fossil fuel use may persist longer in developing countries. The report suggests that with the spread of electric vehicles, oil demand will decrease, and these vehicles will significantly alter energy demand.
The report also notes the rapid rise in global electricity demand, driven primarily by data centers, electric vehicles, and artificial intelligence applications. With China’s expanding renewable energy capacity, solar power production in the country is expected to surpass the current total electricity demand of the United States by the early 2030s.
In its analysis of the Liquefied Natural Gas (LNG) market, the report projects a 50% increase in LNG export capacity by 2030 but acknowledges uncertainties regarding its economic appeal for developing countries. It also highlights that clean energy investments are predominantly concentrated in developed nations, with developing countries not fully benefiting from these investments. To address this imbalance, the report recommends increased international support.
Regarding CO2 emissions, the report anticipates that emissions will peak before 2030, with reductions thereafter depending on the impact of policy measures. In the net-zero emissions scenario, an annual reduction of 15% is targeted, with the goal of achieving zero carbon emissions by 2050.
In conclusion, the 2024 World Energy Outlook Report underscores the importance of expanding clean energy technologies to enhance energy security and combat climate change, signaling that these technologies will accelerate transformation in energy markets.
For detailed information: https://www.iea.org/reports/world-energy-outlook-2024
- European Council Approves Deferral Proposal for Regulation on Deforestation Prevention
The European Union’s Regulation on Deforestation Prevention, Regulation No. 2023/1115, was enacted to ensure that certain agricultural products introduced to the EU market are not produced through processes causing deforestation. The regulation was published in the Official Journal of the EU on June 9, 2023, and was originally set to take effect on December 30, 2024. However, following requests from the industry, a 12-month extension for compliance has been approved. This deferral proposal, presented by the European Commission on October 2, 2024, was adopted by the European Council on October 16, 2024. With this extension, large enterprises are required to comply by December 30, 2024, while small and medium-sized enterprises must comply by June 30, 2025.
Data from the United Nations Food and Agriculture Organization indicate that global forest cover declined by 178 million hectares between 1990 and 2020, primarily due to agricultural land expansion for crop production and livestock activities.
Scope and Application Areas of the Regulation
The Regulation on Deforestation Prevention targets certain agricultural products with deforestation risks entering the EU market, including soy, beef, palm oil, cocoa, timber, rubber, and coffee. For products such as chocolate, furniture, and tires made from these commodities, compliance declarations must confirm adherence to legal standards and affirm that production processes do not contribute to deforestation. Regardless of origin, all products entering the European market will be subject to the Regulation’s compliance checks.
Obligations under the Regulation
Due Diligence Obligations
According to Article 3 of the Regulation, products intended for the EU market or export from the EU must not contribute to deforestation. Production processes must comply with the national legislation of the origin country, with a due diligence declaration required for relevant products.
Due Diligence Declaration
Operators must prepare a due diligence declaration containing analyses confirming compliance with national legislation and information affirming that the products do not cause deforestation. This declaration must be retained for five years and submitted to the competent authority upon request.
Due Diligence Responsibilities
For Turkey, resident exporters are not directly required to submit a due diligence declaration. However, operators introducing products to the EU market must prepare such a declaration. Additionally, the information specified in Article 9 of the Regulation must be provided to the European resident importer or operator.
Penalties
Article 25 of the Regulation stipulates that EU member states may impose penalties on traders and operators, including:
- Fines equivalent to at least 4% of the company’s annual turnover within the EU,
- Confiscation of relevant products and revenues from their sale,
- A 12-month exclusion from public procurement and access to public funds,
- Temporary suspension of the operator’s right to supply products to the EU market.
Reasons for the Deferral
The deferral is intended to allow businesses sufficient time to meet the legal and technical requirements of the Regulation. To comply, companies must render their supply chains traceable, record declarations in the Information System, and collaborate with small farmers to increase transparency in their processes. Given the time and resources required for these adjustments, the EU Commission decided on a 12-month deferral. Furthermore, countries’ risk assessment systems are expected to be finalized by 2025, allowing businesses to align their practices accordingly.
For detailed information: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115&qid=1687867231461
- Microsoft Purchases 234,000 Rainforest Restoration Carbon Removal Credits from Mexico-Based Toroto
In September, Washington-based technology giant Microsoft announced the purchase of 234,000 Rainforest Restoration Carbon Removal Credits from Mexico-based Toroto, a company committed to ecosystem restoration and mitigating climate change.
The carbon credits, which are nature-based, were generated through the Conhuás project in Calakmul, Campeche, in southeastern Mexico, where the project actively removes carbon dioxide from the atmosphere. According to Toroto, this rainforest project, home to thousands of plant and animal species, including endangered animals, holds the potential to form an ecological corridor, thus creating a crucial connection within the second-largest rainforest in the Neotropics.
This acquisition of Rainforest Restoration Carbon Removal Credits marks Microsoft’s latest investment toward its goal of becoming a carbon-negative company by 2030. Through this purchase, Microsoft aims not only to offset its carbon footprint more effectively but also to support the ecological restoration of the region’s rainforest. Microsoft and Toroto anticipate that this agreement will further restore the ecosystem across 47,000 hectares of tropical rainforest.
For detailed information: https://www.esgtoday.com/microsoft-buys-234000-rainforest-restoration-carbon-removal-credits-from-toroto/
- Bank of America Provides $205 Million Financing for Carbon Capture Project
Harvestone Low Carbon Partners, a low-carbon biofuel producer, has announced the completion of a $205 million tax equity financing agreement with Bank of America to support a biofuel carbon capture and storage project in North Dakota. This agreement marks the first financing of its kind since the enactment of the Inflation Reduction Act (“IRA”) in the U.S. in 2022.
The IRA, implemented in 2022, allocated approximately $370 billion in incentives, including various credits, tax reductions, and grants, to promote decarbonization solutions in the renewable energy and industrial sectors. Under the IRA, the “45Q” tax credit, designed to accelerate the deployment of carbon removal solutions for captured and stored emissions from industrial facilities, was increased to $85 per ton, with extended usage terms and transfer options for external investors.
Harvestone’s Blue Flint biorefinery, located near North Dakota with an annual production capacity of 73 million gallons, was among the first facilities in the U.S. to capture CO2 emissions and began its carbon capture and storage operations in October 2023. The project infrastructure involves capturing biogenic carbon dioxide emissions generated during the production process, converting them to liquid, and injecting them into deep underground geological formations.
To date, the facility has captured over 125,000 tons of CO2 and is projected to capture more than 200,000 tons annually. Under the agreement, Bank of America has committed $205 million to participate in the tax credits generated by the facility’s infrastructure. Additionally, when conditions allow, the bank may also purchase clean fuel tax credits produced by the biorefinery.
For detailed information: https://www.esgtoday.com/biofuels-producer-harvestone-raises-205-million-in-tax-equity-financing-for-carbon-capture-with-bank-of-america/
- European Audit Oversight Bodies Committee Publishes Limited Assurance Guidance on Sustainability Reporting
Growing demands for strengthening audit processes to ensure accuracy and reliability in sustainability reporting have been observed. The Corporate Sustainability Reporting Directive (“CSRD”), which came into effect on January 5, 2023, imposes new obligations on large companies in the EU to assess and report various social and environmental impacts within their duty of care obligations.
In line with this, the EU Commission adopted the European Sustainability Reporting Standards (“ESRS”) on July 31, 2023, for companies subject to CSRD. These standards cover environmental, social, and governance aspects, including climate change and biodiversity. Implementing these standards is expected to provide investors with sufficient information to understand the sustainability impacts of the companies they invest in. To support statutory auditors and other assurance providers with limited assurance commitments introduced by the CSRD, the European Commission established the Committee of European Audit Oversight Bodies (“CEAOB”) at its request. On September 30, 2024, CEAOB published the Limited Assurance Guidelines on Sustainability Reporting, which outline methods and procedures for the audit process.
Limited assurance involves audit activities aimed at assessing the accuracy and consistency of certain sections of a sustainability report. Compared to reasonable assurance, limited assurance provides a lower level of assurance, involving fewer tests during the audit process. This limited assurance audit includes necessary controls to verify the general accuracy of sustainability data. The auditor’s findings, presented at the end of the report, aim to provide a reasonable level of confidence in the assured areas.
The CEAOB guidelines outline the limited assurance process step-by-step:
- Audit Planning and Risk Assessment
As indicated in the guidelines, the audit process should start with a risk assessment conducted by auditors. At this stage, areas in the non-financial data of sustainability reporting that may contain inaccuracies are identified. High-risk areas are the primary focus within the audit plan. - Audit Procedures and Applications
The guidelines specify that audit procedures under limited assurance must meet the scope and objectives of the audit. It recommends that auditors analyze both quantitative and qualitative data and evaluate their accuracy, often relying on data provided by the company. - Site Visits and Interviews
During the audit phase, site visits and interviews with the company’s management team are recommended to verify the core of sustainability performance. The importance of stakeholder interviews is also emphasized. - Reporting and Presentation of Findings
If the audit includes findings in the areas of limited assurance, they must be presented in a report detailing the auditor’s observations and conclusions. Transparent reporting of findings is crucial for the audit process’s credibility.
The limited assurance procedure enables the auditor to provide limited yet sufficient assurance regarding the accuracy of the data in the sustainability report. The guidelines require auditors to adhere to auditing standards and verify data at its source. Although not as comprehensive as full assurance, limited assurance includes adequate controls to verify the basic accuracy of sustainability data.
The guidelines include steps to ensure auditors’ compliance with international audit standards, particularly emphasizing the need to identify risks that could affect the accuracy of sustainability reporting and include these risks in the audit plan. Auditors are expected to follow suitable procedures when reviewing and auditing sustainability data.
For detailed information: https://finance.ec.europa.eu/document/download/8ac2df18-2ae1-4bc7-9d87-a4a740e48f5e_en?filename=240930-ceaob-guidelines-limited-assurance-sustainability-reporting_en.pdf
- 17 EU Member States Warned by European Commission for Failure to Implement CSRD Sustainability Reporting Rules
The European Commission has sent letters to 17 EU member states, initiating infringement proceedings for not fully incorporating the new Corporate Sustainability Reporting Directive (“CSRD”) into their national laws.
The CSRD, which significantly updates the EU’s previous Non-Financial Reporting Directive, expands the scope of companies required to disclose sustainability information from approximately 12,000 to over 50,000. Based on the new European Sustainability Reporting Standards, the CSRD mandates more detailed reporting from companies on their impacts on the environment, human rights, social standards, and sustainability-related risks. Effective at the beginning of 2024, the directive applies to large public-interest companies with over 500 employees, with the first reports expected in 2025. Reporting for companies with over 250 employees or revenues exceeding €50 million will begin in 2026, while listed SMEs will be subject to the requirements a year later.
EU member states had until July 6, 2024, to transpose the CSRD into national laws. However, the Commission noted that 17 countries have yet to do so. The countries receiving letters include Belgium, Czechia, Germany, Estonia, Greece, Spain, Cyprus, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, and Finland. The Commission stated, “Without the transposition of these new rules, sustainability reporting in the EU cannot be harmonized as required, and investors will lack the means to consider companies’ sustainability performance in their decision-making.”
Under the infringement procedures, the Commission may initiate legal actions against member states that fail to implement EU laws. If a member state does not respond to the formal warning letter, the Commission may issue a reasoned opinion requesting compliance and subsequently bring the matter to the European Court of Justice to seek penalties. Following the decision to send the letters, the 17 member states have two months to respond and complete the transposition, after which the Commission may issue its reasoned opinion.
For detailed information: https://www.esgtoday.com/eu-commission-warns-17-member-stated-over-failure-to-implement-csrd-sustainability-reporting-rules/