26 August 2021

ESG Investing Regulations: A Comparative Analysis Of Europe And Turkey

CBC Law Firm


CBC Law (Formerly Cetinkaya) is a full-service law firm based in Istanbul servicing local and international clients. Our lawyers have extensive expertise in advising on dispute resolution, business crime, technology, data protection and intellectual property. CBC Law prides itself on helping clients navigate their way through a constantly changing and challenging legal landscape. With a seamless multidisciplinary approach positioned at the intersection of industry knowledge and legal expertise, we provide our clients with legal solutions that are tailored to their needs in Turkey.
The financial markets have not been spared from the transformative effects of the Covid-19 pandemic. Investors are increasingly turning to more resilient forms of investment as the business...
European Union Corporate/Commercial Law
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The financial markets have not been spared from the transformative effects of the Covid-19 pandemic. Investors are increasingly turning to more resilient forms of investment as the business world recovers from a stormy period marked by dwindling economies, while diving into yet another global challenge -climate change.

The demand for investment funds that focus on environmental, social and governance ("ESG") issues skyrocketed in 2020. Inflows into sustainable funds saw a record increase of 88% in the fourth quarter, reaching nearly $1.7 trillion.1

ESG factors in investment cover a wide variety of topics from how a company handles gender and diversity to how it deals with climate change and carbon emissions. Given the growing demand in sustainable finance, those companies that score higher in ESG criteria will attract more investors in the long run.

But how can investors objectively assess the ESG performance of a company? Due to the booming demand, ESG investing has turned into a lucrative business. Some funds have been inflating their ESG performance to attract more investors, a concept known as greenwashing.2

As a result, governments have been putting greater effort into developing ESG rules aiming to bring transparency into the opaque world of ESG investing. This article will take a deeper look at current ESG regulation trends in Europe and Turkey.

ESG Investing Regulations in Europe

Although ESG regulation is a hot topic around the globe as regulatory environments in countries like the United States, Japan, and Singapore continue to evolve, Europe is clearly leading the way.

In the UK, businesses have had to make disclosures relating to modern slavery and human trafficking since 2015 as per the Modern Slavery Act. The government now aims to strengthen this legislation with respect to increased transparency in supply chains and their consultations are ongoing.3 The UK government has further declared its intention to introduce mandatory reporting of climate-related financial information by 2025.4

In Germany, the parliament adopted the Corporate Due Diligence in Supply Chains Act in June 2021, marking a major shift from voluntary to mandatory human rights and environmental due diligence requirements for businesses. Further, the German government announced its new sustainable finance strategy in May 2021. The strategy is expected to involve ESG reporting requirements for companies to achieve greater transparency.5

In France, the Financial Markets Authority (AMF) established the Climate and Sustainable Finance Commission in July 2019, which acts as a regulatory and supervisory body in matters related to sustainable finance.6 Additionally, the AMF announced in February 2021 that it will significantly increase its focus on ESG investing and scale up its scrutiny when issuing sustainable finance certificates.7

Finally, the European Union is at the forefront of sustainable finance. In June 2020 it introduced the EU Taxonomy Regulation, establishing an objective system of classification to assess which economic activities can be considered environmentally sustainable.8 The EU Taxonomy Regulation will enter into effect at the beginning of 2022.

Furthermore, the EU introduced the Sustainable Finance Disclosure Regulation (SFDR), effective from March 2021. This is a major milestone towards transparent ESG disclosures. Under the SFDR, asset managers will have to disclose their sustainability record and investment products will fall under three categories: dark green, light green and non-sustainable. This categorization will be based on the ESG impact of investment funds.9

ESG Investing Regulations in Turkey

Given the spotlight on ESG investing and fast expending ESG regulations in Europe, it is safe to say that Turkey is still at an early stage when it comes to ESG investing, let alone regulating the landscape, though the intentions are there. Recently, Turkey's Office of the Presidency partnered with the United Nations Development Program (UNDP) in drafting two significant reports: (i) the Impact Investing Ecosystem in Turkey10, and (ii) the SDG Investor Map Turkey11. The reports take the UN's Sustainable Development Goals (SDGs) as a benchmark to provide an overview of the current state of sustainable investing in Turkey, and serve as crucial preliminary steps towards ESG investments and regulations in Turkey.

Beyond these reports, the Turkish government's intention to attract ESG investment has already led to an initial soft-law regulation. In October 2020, Turkey's Capital Markets Board (CMB) amended its Corporate Governance Communique.12 In connection with the communique, the CMB has also published the Sustainability Principles Compliance Framework for publicly traded companies.13 According to the CMB, the aim of the framework is to "encourage our companies to take a larger share from the global sustainable investment flows".14

The framework includes over 50 principles which fall under four categories: (i) general principles), (ii) environmental principles, (iii) human and employee rights principles, and (iv) corporate governance principles. The implementation of these principles remains voluntary. However, all publicly traded companies in Turkey have an obligation to report as per the framework - follow or explain. As a result, public companies' non-financial disclosures must now include information on whether sustainability principles have been applied or explanations for why they have not.


As the global rise in ESG investing continues, the regulatory landscape will certainly follow. Regulatory authorities are yet to figure out the perfect formula to enable sustainable investing while keeping the process transparent and competitive in the global economy. Europe has already taken giant leaps towards regulating ESG investing, and the effects of the Covid-19 pandemic seem to have accelerated this trend.

By comparison to Europe, Turkey has a long way to go in incentivizing ESG investments and regulating the lucrative business of greenwashing and moving towards transparency. However, the recent developments suggest that Turkey is eager to catch up with Europe.

In this respect, Turkey's Sustainability Principles Compliance Framework offers public traded companies an opportunity to take their social, environmental, and governance impact seriously, beyond investor demands. ESGs are certainly here to stay in Turkey and companies that seize this opportunity will unlock their potential to thrive in the new world order. With that said, it's highly recommended for all companies operating in Turkey to proactively adopt ESG standards in their compliance programs to achieve best practices and preempt upcoming binding legislation.


1. Elizabeth Howcroft, and Simon Jessop. "Sustainable Fund Assets Hit Record $1.7 Trln in 2020: Morningstar." Reuters, 28 Jan. 2021,

2. Riding, Siobhan. "EU Rules Promise to Reshape Opaque World of Sustainable Investment." Financial Times, 17 Jan. 2021,

3. The UK Home Office, Transparency in Supply Chains Consultation Government Response, 22 September 2020, attachment_data/file/919937/Government_response_to_transparency_in_supply_chains_consultation_21_09_20.pdf

4.  The UK Government, The Ten Point Plan for a Green Industrial Revolution, November 2020, p. 27,

5. Segal, Mark. "Germany Pushes for Mandatory Sustainability Reporting as Part of New Sustainable Finance Strategy." ESG Today, 20 May 2021,

6. "Climate and Sustainable Finance Commission." AMF, 16 July 2021,

7. Segal, Mark. "France Regulator AMF Increases Focus on ESG in Exams, Introduces Sustainable Finance Certification." ESG Today, 10 Feb. 2021,

8. "EU Taxonomy for Sustainable Activities." European Commission, 7 Mar. 2020,

9. Mooney, Attracta. "Greenwashing in Finance: Europe's Push to Police ESG Investing." Financial Times, 10 Mar. 2021,

10. "The Impact Investing Ecosystem in Turkey." UNDP, 28 Nov. 2019,

11. "SDG Investor Map Turkey." UNDP, 24 Mar. 2021,

12. "Corporate Governance Communique", Turkish Capital Markets Board, Official Gazette No. 31262.

13. "Sustainability Principles Compliance Framework", Capital Markets Board of Turkey, 2020,

14. "Corporate Governance Monitoring Report", Capital Markets Board of Turkey, 2019, para. 30,

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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