A Legal Perspective on Sustainability Reports: Why Are They Mandatory?

1. Introduction: The New Era of Sustainability Reporting
Sustainability reporting was long seen as a voluntary ‘goodwill’ practice adopted by companies. However, the picture has changed radically over the past five years.
• The European Union’s CSRD (Corporate Sustainability Reporting Directive) and ESRS standards have brought tens of thousands of companies under a binding sustainability reporting regime.
• The EU CBAM (Carbon Border Adjustment Mechanism) imposes direct financial obligations on exporting companies, including Turkish companies exporting to Europe.
• The SEC (US Securities and Exchange Commission) requires publicly traded companies to link climate risks to their financial reports.
• The CSDDD (Corporate Sustainability Due Diligence Directive) requires the legal monitoring and reporting of human rights and environmental risks in the supply chain.
These developments have transformed sustainability reports from a ‘corporate communication’ tool into a legally binding accountability document before investors and regulatory bodies. Therefore, a legal perspective is no longer a luxury, but a necessity.

2. What Does a Legal Perspective Make Different?
Sustainability reports are usually prepared through the joint efforts of environmental engineers, financial experts and communications teams. These teams are quite adept at applying measurement, data collection and reporting standards. However, a gap arises here:
• If lawyers are not involved, reports will be deficient in terms of regulatory compliance, legal commitments and sanction risks.
• A legal professional does not merely add sentences to the report; they provide the legal framework that protects the company against potential administrative penalties, compensation claims, greenwashing allegations, and investor complaints.
In short: The environmental consultant measures, the financial expert calculates, the communications specialist narrates. But the legal professional guarantees.

3. Shortcomings Compared to Global Standards
The following gaps are frequently seen in many sustainability reports prepared in Turkey:

a) Board of Directors and Legal Responsibilities
• Even if reports mention the board of directors’ ESG responsibilities, the legal binding nature of these responsibilities and accountability mechanisms are rarely specified.
• However, global standards (e.g. ESRS, ISSB) require boards of directors to directly monitor climate and human rights risks and to clearly state this in the report.
Consequence: Board members may face potential compensation and penalty risks.

b) Climate Law and Carbon Regulations (CBAM/ETS)
• Reports in Turkey share emission data and describe energy savings; however, they often fail to establish the legal relationship between these and the EU CBAM, ETS, and national climate law.
• In global reports, companies clearly state which products fall under CBAM, what declarations they will make and when, and how much they will pay in penalties in case of non-compliance.
Conclusion: Companies may be caught unprepared for billions of lira in penalties and cost risks.

c) Supply Chain and Human Rights (Business & Human Rights)
• The report includes statements such as ‘we evaluate our suppliers’; however, legally binding contract clauses or sanctions to be applied in case of violation are mostly absent.
• Globally, under the CSDDD and UNGP frameworks, environmental/human rights compliance provisions, audit rights, and termination conditions have become standard in supplier contracts.
Conclusion: The company may face litigation or sanctions in the EU due to a violation in its supply chain.

d) Greenwashing and Communications Law
• Reports in Turkey frequently use bold statements such as ‘zero emissions target,’ but no evidence is provided to support these claims.
• In global reports, every claim is supported by an independent verification report or methodology appendix; furthermore, sustainability statements from advertising departments are subject to prior legal review.
Conclusion: Misleading statement lawsuits (greenwashing) can lead to serious reputational and financial losses and administrative fines.

e) Compliance with Financial Regulations (Taxonomy / SFDR / Investor Demands)
• Reports in Turkey describe financial performance but do not classify it in the context of the EU Taxonomy or Sustainable Finance Regulation (SFDR).
• Globally, fund providers want to see a clear ‘taxonomy-compliant revenue percentage’ in the report.
Result: The company becomes disadvantaged in accessing green financing.

4. What Does the Lack of Legal Expertise Lead To?
The lack of a legal perspective creates three key risks:

a. Legal Sanctions and Penalties
o Incorrect CBAM declarations → millions of pounds in costs.
o Misleading sustainability claims → advertising board fines, consumer lawsuits.

b. Loss of Investor Confidence
o If the ESG report is not legally binding, investors will not trust it.
o Access to global funds and bank loans becomes difficult, and the cost of capital increases.

c. Reputation and Market Loss
o Being labelled as a ‘non-compliant’ company when entering the EU market directly affects exports.
o There is a risk of exclusion from the global supply chain.

5. What Does a Lawyer Contribute?
A lawyer adds value to the sustainability report in the following ways:
• Regulatory Mapping: Clarifies national and international legal obligations.
• Legal Risk Analysis: Determines which statements in the report are open to litigation risk and which create binding commitments.
• Contractual Assurance: Adds ESG provisions to supply chain, financing, and investor contracts.
• Board-Level Sign Off: Defines the legal responsibilities of the board of directors and establishes a signed commitment mechanism.
• Greenwashing Protection: Legally filters ESG statements and prepares evidence.
• Investor-Friendly Reporting: Facilitates access to finance by providing data compliant with the EU Taxonomy and SFDR.

6. Conclusion: Sustainability Report = Legal Document
Today, the sustainability report is not merely a PR and corporate communications document. In light of global regulations:
• It may be subject to administrative sanctions.
• It may form the basis for investor lawsuits.
• It may be a reason for supplier termination.
• It may result in penalties under advertising law.
Therefore, the sustainability report is actually a legal commitment document.

A company’s disregard of this fact puts not only its reputation but also its financial sustainability at risk. If you do not have your company’s sustainability report reviewed by a legal professional, you are essentially publishing an ‘incomplete declaration.’ Even if this deficiency goes unnoticed today, it may surface tomorrow at an EU customs checkpoint, in an SEC investigation, during an Advertising Board audit, or in an investor’s lawsuit. Every sustainability heading is also an area of legal compliance; the absence of legal counsel in the process directly leads to the risk of lawsuits, penalties, and loss of reputation. Involving legal counsel in the process ensures that the report is not only environmentally sound but also legally defensible.