In the latter half of the 1990s, as the notion of intellectual capital gained prominence, companies and business representatives worldwide, including those in Türkiye, responded with skepticism, questioning the feasibility of establishing measurement criteria for intellectual capital. They pondered how concepts inherently challenging to quantify could take precedence in a company's priorities.
Fast forward to today, the discourse around intellectual capital has largely dissipated. The 21st century, marked by profound digitalization, innovation and relentless transformational competition, has shifted the spotlight onto intellectual capital as the key differentiator among companies. A fresh array of concepts and assessments has emerged in this era, poised to set Turkish companies apart. Enter ESG – an acronym encapsulating a company's environmental, social and corporate governance performance. In short, ESG represents the new frontier, defining the competitive landscape and distinguishing companies based on their commitment to sustainability and responsible business practices.
I want to announce in this column that, within the next two years, with the current regulations and the ones that will be put into action, the primary evaluation criterion in determining the market value of a company in the money and capital markets and in deciding whether the company deserves to use a loan will be ESG.
In all leading economies worldwide, particularly under the umbrella of the European Union and the Organisation for Economic Co-operation and Development (OECD), starting from the year 2025, companies will be required to submit ESG reports.
Under "Environmental Performance," a detailed report will be requested from the company regarding its adaptation to climate change and its contribution to climate protection, efficient utilization of production inputs, ability to minimize natural resource usage, zero-waste management, and detailed measures to reduce air pollution and preserve natural vegetation.
Under the "Social Performance" category, companies will be mandated to provide a comprehensive report outlining their commitment to human and employee rights. This report should address key concerns, including the presence of child or convict labor in their operations, the clarity of their stance against modern slavery, the extent of improvement in working conditions and the demonstration of a constructive attitude in employee-employer relations.
In the realm of Türkiye's distinct culture, social performance emerges as one of the areas where Turkish companies exhibit notable strength. Despite occasional inaccuracies, lapses and mistakes, Turkish companies demonstrate a particular sensitivity and exert significant effort toward social performance.
Moving on to the third category, "Corporate Governance" is not an unfamiliar subject in our country's business landscape. On the contrary, there has been a noteworthy surge in awareness over the last 10-15 years.
In the forthcoming years, we will see companies' market value and performance significantly influenced by various criteria. These include mechanisms rewarding employee performance, an effective and transparent tax strategy, a strict stance against bribery and corruption, adherence to ethical rules in political lobbying and donations, the expertise of the board of directors, and a dedicated focus on gender equality. Particularly impactful will be the assessment made by banks when granting loans. It is crucial to closely monitor the evolving regulations implemented by the EU and the policy and strategy initiatives encompassing all member countries under the OECD umbrella. Success in ESG performance promises manifold benefits for companies, manifesting in sustainable exports, facilitating access to finance and an enhanced reputation.
