On 29 December 2023, an important step was taken in terms of foreign trade with the EU with the Turkish Sustainability Reporting Standard published in the Official Gazette. With the new regulation, many companies, including lubricant producers, will have to publish their sustainability activities carried out as of 1 January 2024 in the annual report period of 2025.
Although sustainability reporting is seen as a legal obligation, it is a prerequisite for trade with the EU under the Green Deal regulations. In fact, even if you do not trade directly with the EU, it does not seem possible to stay outside the ecosystem created by sustainability practices.
As Lubricant World, we came together with Erdem Kolcuoğlu, founding partner of Kıymet-i Harbiye, which provides consultancy services to companies on their sustainability journeys, and talked about sustainability.
In our interview with Erdem Kolcuoğlu, who is a certified GRI standards trainer and provides consultancy services to Türkiye’s well-established organisations in the fields of sustainability and corporate responsibility, we received very explanatory information on topics such as the scope and content of the concept of sustainability, the importance and benefits of sustainability reporting.
As Kıymet-i Harbiye in which areas do you serve your customers?
We established Kıymet-i Harbiye in 2009 to support visionary companies that want to secure their future in their sustainability journey. We are the first consultancy firm in Türkiye to provide services in this field. Since the day we were founded, we have received more than 20 internationally recognized awards, and in 2023, we became the company that published the world’s most GRI-approved report on sustainability. Unlike other companies, we have a structure where the co-founders are also consultants and we have a worldwide reach.
The main service we offer to our clients is sustainability reporting. Apart from this, we work on sustainability management consultancy, risk management, climate and engineering issues, and essentially guide companies to establish a professionally functioning sustainability management system within their own organizations. We are conducting our “Improving Environmental Footprint Management” project in industry and service sectors in partnership with 1773 ITU Teknopark. Therefore, we carry out the calculation of greenhouse gases in the field of engineering and our water, carbon and life cycle footprint studies in cooperation with Istanbul Technical University. In addition to these, we support companies in areas such as assessment & evaluation and communications.
Since its establishment, Kıymet-i Harbiye has served more than 130 companies in 14 mega sectors and 29 sub-industries. Among the traditional business partners of the company, energy, oil and gas, automotive and chemical companies stand out.
As an expert on the subject, could you define the concept of sustainability for us?
We hear the concept of sustainability a lot in our daily lives. However, these concepts are often used in place of other concepts outside of their real meaning. For example, when we talk about the sustainability of financing, we are actually talking about feasibility, ease of payment or the possibility of commercial success. However, all of these concepts have a technical reference or a different meaning. Sustainability of a product means that its social, economic and environmental impacts can be managed. Therefore, sustainable financing is not only financing with favorable rates or easy maturities; it is financing whose social and environmental impacts can be managed.
I can define sustainability based on sustainable development. In other words, meeting the needsmeeting the needs ooff t tooddaayy w wiitthhoouutt p prreevveennttiinngg t thhee c caappaacciittyy o off f fuuttuurree genergeneraations ttions to meet their needso meet their needs. In other words, sustainability means developing an environmentally and human-friendly production model without sacrificing profit and gain, and securing the future of resources by managing the social, economic and environmental impacts of the value chain.
One of the concepts we often hear is corporate sustainability. What does this concept mean?
Corporate sustainability should be seen as a type of risk management. In business life, we used to see risks only as financial risks. Today, however, financial or unconventional external risks have a much greater risk potential for companies and the measures to address them are much more complex. Therefore, corporate sustainability refers to a management approach that tries to manage unconventional risks and secures the future of the company through these measures.
In the global risk reports published by the World Economic Forum every year in mid-January, you will see that issues such as climate, weather conditions, epidemics, cyber security, artificial intelligence, human rights, migration and war come to the fore. These are issues that we do not see in our company risk management models and do not take precautions. Therefore, corporate sustainability is a multidimensional and comprehensive management model that requires consideration of social and environmental factors in addition to the financial perspective in risk management.
Sustainability can be seen as an expense item for companies. Does sustainability require giving up profit?
We cannot see the sustainability activities of companies as a cost item to meet social acceptance or legal obligations. Environmental, social and financial elements of sustainability can only create value when they work together. Sustainability activities should contribute to profitability while improving the social and environmental performance of companies. For example, you develop the world’s most environmentally friendly product, but if it does not meet customer expectations, you cannot continue. On the other hand, you develop a business environment where employees are very happy, but if your financial management is weak, you cannot continue. Similarly, energy efficiency projects and waste recovery investments do not produce the desired value when they are focused solely on reducing energy and raw material costs.
The automotive sector is a very good example of this. Electric vehicles were also being produced in the early 2000s and were recognized as an environmentally friendly option. However, they were not in demand in the market as much as they are today. Because it did not carry the standard features that consumers expected from a vehicle for that day. Reasons such as design, price, range, charging station infrastructure were deterring the consumer from the purchase decision. Therefore, just because the product is environmentally friendly does not mean that a sustainable business model is produced. There are different dynamics in this business. Therefore, it is necessary to consider all elements of sustainability and work together.
Sustainability is an issue that the European Union attaches great importance to. So much so that sustainability reporting has become mandatory for some companies as of 2024. Could you give us details on that?
Sustainability reporting is a practice we have been encountering since the 90s. In those years, global energy companies such as petrochemicals, fuel and lubricants initiated this practice. In Türkiye, sustainability reporting has been on the agenda since 2007-2008, and it is becoming widespread on a voluntary basis, especially among listed companies, in order not to fall behind their foreign competitors and to meet the demands of foreign investors.
Therefore, even if there is no legal obligation, if you cannot sell your products and services without explaining your sustainability activities, reporting is mandatory for you. In other words, even though we are not subject to EU laws, the EU is our biggest market. Many of our locomotive sectors are export-oriented companies whose main market is the EU. As such, although the general regulations of the EU do not bring legal obligations, they turn into a requirement to enter that market. If you want to receive investment, find financing and export, you have to demonstrate what you have done for sustainability.
During the pandemic period in Türkiye, sustainability reporting became indirectly mandatory for listed companies in line with the regulations of Capital Markets Board (CMB). Although it was not a legal obligation, complying with those principles meant writing a report in GRI standards. On 29 December 2023, a regulation was published in the Official Gazette stating the Turkish Sustainability Reporting Standard and the basic rules for its implementation. According to the regulation, listed company groups will have to report their sustainability activities carried out as of 1 January 2024 in the next reporting period in accordance with the Turkish Sustainability Reporting Standard and publish them in the annual report period of 2025.
Pursuant to the regulation; listed companies, companies subject to CMB legislation, banks, insurance companies, investment companies, finance companies and holdings that are required to report in accordance with CMB legislation, companies issuing financial instruments, as well as companies with total assets of more than 500 million Turkish Liras, annual net sales revenue of 1 billion Turkish Liras and 250 or more employees are obliged to report.
Can a company say, “I am outside the scope of this regulation” and not report on sustainability?
If you are a company doing business with the European Union, you are subject to two main regulations: The European Union’s non-financial reporting regulation and the Green Deal. If you want to operate in this market, you have to provide your customers with a sustainability report in accordance with the European Union Reporting Standards starting from 2025, even if you are out of scope in Türkiye. How will you calculate carbon border taxation without accounting for greenhouse gas emissions from the product you sell?I am not sure if Turkish companies realize how complex and time-consuming this process is. This cannot be seen as a simple procedural process such as obtaining a CE certification. It is a process that requires a preparatory phase and several rounds of work. Obligations will start in 2025-2026. Failure to comply with these will arise situations that have legal sanctions and financial repercussions. Therefore, if you are doing business with the European Union for competition and harmonization, you have to publish a sustainability report and seriously calculate your climate risks and emissions.
Where should a company that wants to prepare a sustainability report start? Does the government provide training and guidance support in this regard?
Of course, everyone can read the standards and try to prepare a report in accordance with the criteria, but reporting is a subject that requires technical expertise. There are some trainings and support mechanisms planned by the government in this regard. As one of the 2-3 people responsible for providing these trainings all over Europe, I can say that it is theoretically possible for a company without reporting experience to publish reports that meet the legal requirements on its own, but it is a bit difficult in practice. Sustainability expert is a profession we need a lot. We have been saying for years that there should be schools for this. Unfortunately, there are not. At the moment, unfortunately, there are not enough sustainability experts either inside or outside the companies to support the companies that are involved in these legal obligations.
Could you tell us a little bit about the content of the sustainability report?
The report includes social issues as well as environmental issues. In fact, environmental issues can be counted and calculated because they have a physical impact, but social issues can be much more difficult to calculate and plan. Of course, although the priorities of each sector are different from each other, climate change and equality are seen as the priority agenda of every company. Therefore, the report should have a climate change policy and a risk and opportunity management model for climate change. Greenhouse gas emissions need to be calculated and reported in a proper way and by a competent team, and the carbon footprints and life cycle analyses of your products in terms of environmental impact need to be presented. If you are doing business in the EU, all of these are not only reporting content but also information and documents that will be requested from you in your business activities.
In which areas should Turkish companies focus more in this process?
First of all, there is a need for experts within the company who are familiar with these issues. There may not be a person directly responsible for sustainability reporting, but the company management should have sustainability literacy. Environmental managers are usually the first ones that come to mind, but the CFO and CEO of the company should know sustainability issues well. Because this business is now a tax, debt, receivable, finance and credit business.
Secondly, a life cycle analysis of your product in the value chain - from cradle to cradle - within the framework of the circular economy and a clear mapping of its environmental impacts is required. Without this map, you cannot know what you can improve, where you can reuse which output as a raw material, where you can replace which input with the output of which industry. This is a very missing subject in Turkish companies. Even if it has been done for peer products, it has not been done for the whole portfolio. It is necessary to devote time to this subject and to employ trained personnel.
How is a sustainability report different from other financial reports?
If financial reports are like X-rays, sustainability reports are like MRIs. Financial reports are a one-dimensional photograph showing the company’s balance sheet, debts and receivables, and stocks. The sustainability report, on the other hand, is multi-layered and projects the path the company is travelling from yesterday to tomorrow. The environmental, social and economic data, measures taken against risks, opportunities and targets show the company’s vision to both customers and business partners. No one expects you to reach a net zero value or demonstrate a high performance. Even if there are shortcomings, the rational and achievable targets set in the report reassure your stakeholders.
We all know that not everything goes very well in a company throughout the year. There may be success in some areas and problems in others. The important thing is to present your situation honestly and transparently. The EU has a motto in the Green Deal: Leave no one behind. The message of this motto is very important. Everyone should contribute to the process in their own strength, everyone should be included, and those who cannot keep up should be strengthened and made to contribute. This is the only way to achieve the future we want.
So, if I am a company that does not export to the EU and works for the domestic market, can I stay out of the sustainability agenda?
Even if you do not export to the EU, it does not seem possible to escape the regulations coming with the Green Deal. Maybe you will not be subject to carbon border tax, but your customers will be. In order to continue trading with the EU, your customer will ask you as a supplier about the carbon footprint of your products. If you cannot provide this information, you will not be preferred as a supplier and you will be excluded from the market. Even when you do provide this information, competition will come into play and you will be expected to outperform your competitors.
This is because we are now talking about responsible purchasing, green purchasing, sustainable supply chain management and establishing such systems for manufacturers. Sustainability is now an important item in total cost management. In other words, a product you buy for 10 Turkish Liras may be more costly than a product costing 15 Turkish Liras. If the carbon load of the product is low and the renewable material in it is high, the carbon tax you pay will decrease and it will cost you less. Therefore, buyers no longer only look at the technical specification, logistics, continuity and price of the product, they also look at its sustainability and ask their suppliers to develop alternatives with low environmental impact.
Do you have any message to share with the companies operating in the lubricant industry?
Climate requirements will structurally affect the petrochemical industry, including the lubricant industry, very much. In the near future, a significant portion of crude oil will no longer be used as fuel, but in petrochemicals. Especially with the increase in electric vehicles, the structure of lubricants will change significantly and alternative products will need to be developed. Opportunities will arise here where biomaterials and biochemical products can be developed. For this, lubricant companies must analyze and map their product life cycles. This will become very critical and inevitable in the coming years.
Another issue that needs attention is the employment of women in production. It is not rational for the industry to rely on only half of its human resource potential and not allocate enough space for women. It is vital that all human resources, men and women, participate in the production process. This is a necessity both economically and socially. It is necessary to increase the employment of women not only in the blue and white collar but also in the management level, and it is now proven by academic research that the performance of companies, that increase the number of female members in their boards of directors, improves.
Compared to the rest of the world, Turkish companies are never behind, they are very competitive. Our ability to adapt to a new subject is very high. Generation Z differentiation, which we see a lot in the press, is an important issue. How, with which product, understanding and perception will we prepare for the expectations of the new audience? The new generation is so conscious and sensitive... They will appear in different roles as customers, managers and employees in the coming period. Companies should already adapt themselves to this change. Especially the lubricant sector, which includes companies with 100 - 150 years of experience, should put this change on its agenda.
Türkiye has a structurally strong industry. Regulatively, we are not lacking anything from Europe. Turkish companies should never consider themselves behind their European competitors. When we think a little more science-based, a little more systematically, when we are more careful and systematic, we get much better results and are much more successful than the competitors we overestimate. We can see this fact in the breakthrough of the lubricant industry in recent years.
