Sustainable Investment in Turkey 2010 About IFC IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in develop- ing countries. We create opportunity for people to escape poverty and improve their lives. We do so by providing financing to help businesses employ more people and supply essential services, by mobilizing capital from others, and by delivering advisory services to ensure sustainable development. In a time of global economic uncertainty, our new investments climbed to a record $18 billion in fiscal 2010. For more information, visitwww.ifc.org . About ILLAC A signatory to UN PRI, ILLAC is a research and advisory services firm with a social mission, incorporated in London in 2001. ILLAC is specialized in corporate governance and sustainability with a focus on emerging markets and Turkey specifically. ILLAC under- takes voluntary, “not for profit projects”, as well as commercial assignments, with the objective of helping the advancement of governance frameworks and practices in emerging markets. Please direct questions and comments to [email protected] The Authors Melsa Ararat is director of Corporate Governance Forum of Turkey, director of Carbon Disclosure Project-Turkey, professor of manage- ment at Sabanci University’s Faculty of Management and founder of ILLAC ([email protected]). B. Burcin Yurtoglu is professor of corporate finance at WHU-Otto Beisheim School of Management and member of Sabanci Univer- sity’s Network Faculty of Management ([email protected]). Esra Suel is PhD student at Imperial College and ILLAC associate ([email protected]). Deniz Tura is ILLAC associate. IFC Sustainable Investment Country Reports Sustainable Investments in Turkey 2010 FINAL REPORT January 2011 Prepared for International Finance Corporation (IFC) A Member of the World Bank Group www.ifc.org IFC Task Manager Brunno Maradei, Program Officer, Environment and Social Development Department Prepared by ILLAC Ltd. Written by Melsa Ararat, B. Burcin Yurtoglu and Esra Suel, with Deniz Tura. Copyright© 2011 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 All rights reserved. The findings, interpretations, and conclusions expressed in this publication should not be attributed in any manner to IFC, to its affiliate organizations, or to members of its board of Executive Directors or the countries they represent. Neither IFC nor ILLAC guarantee that the data included in this publication, and neither party accepts responsibility of any consequence of its use. IFC encourages dissemination of the content for educational purposes. Content from this publication may be used freely without prior permission, provided that clear attribution is given to IFC and that content is not used for commercial purposes. Foreword For the first time in history, the very survival of the human race has become a serious and immediate issue. We can no longer think of growth or prosperity without integrating our economic goals with our social and ecological aspirations, and our vision for the future. Such thinking requires a fundamental change in the way we do business. The recent global financial crisis, the upsurge of viral discontent in the Middle East and North Africa, and the environmental disasters taking place in different continents on an unprecedented scale all serve to remind us that economic, social and environmental sustainability issues are global and, as such, require globally coherent responses. Globally integrated financial markets have great potential and power to transform business practices towards sustainability, and nudge economic development towards more sustainable models. With its diverse portfolio of businesses both in Turkey and the rest of the world, Sabanci Holding manages its investments with an increasing awareness of sustainability risks. This awareness is founded on, and enriched by, our industrial past and our respect for scientific thought, and serves to reflect the duty of care. As such, the assessment and proactive management of environmental, so- cial and governance related risks represent a fundamental part of our strategy. We are always ready to contribute to the transformation of the Turkish business environment so that sustainable business- es would be rewarded. I believe that such transformation requires a shift in the way we think, whereby sustainability issues are viewed from a value creation perspective. Additionally, functional changes required to manage investment risks associated with sustainability issues are equally crucial. I would like to take this opportunity to thank IFC and ILLAC, and the professors affiliated with Sabanci University, for all their efforts and contributions to the assessment of the sustainable investments industry in Turkey. The analysis and the recommendations of this report is food for thought for us all. It will hopefully inspire the reforms necessary in the business environment for a healthier future for our investments and our societies. Güler Sabancı Chairman, Sabancı Holding Abbreviations AFD Agence Francaise de Development JSC Joint Stock company BIT Bilateral Investment Treaty KAGIDER Women Entrepreneurs Association of Turkey BoD Board of Directors KGF Credit Guarantee Fund BRIC Brazil, Russia, India And China KOSGEB Small and Medium Scale Enterprises BRSA Banking Regulatory and Supervisory Agency Development Organization CDP Carbon Disclosure Project LLP Limited Liability Partnership CDS Credit Default Swaps MSCI Morgan Stanley Capital International CEDBIK Turkish Green Building Council MENA Middle East and North Africa CEEE Center for Energy Environment & Economy MIGA Multilateral Investment Guarantee Agency CG Corporate Governance MTP Medium Term Program CGCR Corporate Governance Compliance Reporting NGO Non-governmental Organization CGFT Sabanci University Corporate Governance NYSE New York Stock Exchange Forum OECD Organisation for Economic Co-operation CGG Corporate Governance Guidelines and Development CMB Capital Markets Board OTC Over-the-Counter CML Capital Market Law PE Private Equity CoP Communication on Progress PRME Principles for Responsible Management CPI Corruption Perception Index Education DEG German Development Bank SI Sustainable Investment EC European Comission SME Small and Medium Sized Enterprizes E/S/G Environmental/Social/Governmantal SPF Social Policy Forum ECHR European Convention on Human Rights TBCSD Turkish Business Association for Sustain- able Development EEA European Economic Area TCC Turkish Commercial Code EIB European Investment Bank TEPAV Economic Research Foundation of Turkey EM Emerging Markets TESEV Turkish Economic and Social Studies Founda- EPI Environmental Performance Index tion ESI Environmental Sustainability Index TKYD Corporate Governance Association of ETF Exchange Traded Fund Turkey EU European Union TKYD Turkish Association of Institutional Investment Managers FDI Foreign Direct Investment TMS Turkish Accounting Standards FMO Dutch Development Bank TOBB Turkish Union of Chambers and Commod- GDP Gross Domestic Product ity Exchanges GHG Greenhouse Gas TRIMS Trade Related Investment Measures GIP ISE's Emerging Comapanies Index TSKB Industrial Development Bank of Turkey GRI Global Reporting Initiative TTGV Turkish Technology Development Founda- tion HDI Human Development Index TUBITAK Scientific and Technological Research IAC Investment Advisory Council of Turkey Council of Turkey IBRD International Bank for Reconstruction and UCITS Undertakings for Collective Investments in Development Transferable Securities ICM International Capital Management UN United Nations ICSID International Center for the Settlement of UNEP FI United Nations Environment Program Investment Disputes Finance Initiative IDA International Development Association UN PRI United Nations Principles for Responsible IFC International Finance Corporation Investment IFRS International Financial Reporting Standards VAT Value Added Tax ILO International Labor Organization WEF World Economic Fund IMF International Money Fund WIPO World Intellectual Property Organization IPA Investment Promotion Agency WTO World Trade Organization IPO Initial Public Offering XKURY The ISE Corporate Governance Index ISE Istanbul Stock Exchange YOIKK Coordination Counsil for the Improvement of Investment Environment ISESI Istanbul Stock Exchange Sustainability Index Acknowledgements Actera Isak Antika Ak Portfolio Management Cem Yalcınkaya Ertunc Tumen Akbank Dr. Cenk Turker Cenk Goksan Anadolu Efes Holding Haluk Ozdemir Anadolu Emeklilik Mete Ugurlu Aviva-Sa Fırat Kuruca BC Investment Management Corp. Susan Enefer Borusan Dr. Erkin Egilmez BC Investment Management Corporation Susan Enefer BSR Xin Zhuo BT Pension Scheme Paul Lee Delsus Dan Siddy EBRD Franziska Ohnsorge Matthew Saal F&C Investments Alexis Krajeski First State Investments Tom Prew FTSE David Harris Gunduz Capital Aslihan Ozder Hermes Fund Managers Ltd Bruno Bastit Enakshi Roy IFC Kudret Akgun Euan Marshall InRate Stefano Gilardi Is Portfolio Management Dr. Gurman Tevfik Elif Cengiz ISS Mallika Paulraj Thomas Kuh Eric Fernald Paride Lunazzi KFW Melih Cadırcı Logos Asset Management Melih Onder Mercer Will Oulton Mikado Consulting Serra Titiz RepRisk Luca Bertolani Sabancı University Prof. Dr. Alpay Filiztekin Prof. Dr. Hasan Ersel SinCo Graham Sinclair Social Investment Forum Peter DeSimone Solaron Sustainability Services Andy White Vipul Arora Standard and Poor’s Amra Balic Sustainanalytics Bob Mann TEPAV Prof. Dr.