Turkish firms export 45% of their products to European Union (EU) countries. However, two recent legislative developments in the European Parliament appear set to mark a pivotal juncture in the trade relations between Turkish companies and EU member states. Prof. Dr. E. Şule Aydeniz, Chair of the Department of German International Business Management at Yeditepe University, points out that for Turkish companies to maintain their trade with EU countries, they must undertake a "Corporate Twin Transformation" to comply with these laws, or else they might encounter significant difficulties in exporting goods to Europe.
Prof. Dr. Şule Aydeniz discussed the specifics of the new legislation, saying, "The 'German Supply Chain Law' was introduced last year, and its scope has been expanded as of January 1, 2024. Furthermore, the European Commission adopted the 'European Sustainability Reporting Standards' on July 31, 2023, which are to be used by companies covered under the 'Corporate Sustainability Reporting Directive'. Additionally, the European Parliament approved the 'European Artificial Intelligence Act' on March 13, 2024, the first legal regulation globally to establish rules concerning the use of artificial intelligence. This act assigns specific responsibilities to all parties involved in the artificial intelligence chain, from providers and manufacturers to importers, distributors, and users, particularly for high-risk AI systems, for which many strict obligations have been anticipated. These legislations are critically relevant to Turkish firms that trade with EU countries."
Interdisciplinary Work Must Be Conducted
Aydeniz, noting that Turkish firms must comply with these laws to maintain their trade with the EU, stated, "Companies are obliged to undergo what we call 'Corporate Twin Transformation.' This transformation will not only be technical but will also take place across all workflows and job descriptions. Therefore, an interdisciplinary study must be conducted under the leadership of a board chairman."
“Consists of Three Pillars”
"The first is corporate governance, which includes structuring, managing, and controlling strategies to achieve long-term goals. The second pillar is environmental sensitivity. Companies must act in a manner that does not harm the environment in their production processes, activities, and services. For example, there are numerous criteria, such as avoiding the use of mercury, implementing waste management, constructing green buildings, and using green cement. The third pillar concerns the social rights of employees. Regulations cover a variety of social rights, including equal pay for equal work, prohibiting child labor, ensuring personal and union rights, non-discrimination based on race, language, or religion, and creating educational opportunities for employees. Türkiye's Firms must implement these pillars fully and demonstrate compliance through EU-approved reporting systems. Turkish firms with this reporting system possess high prestige and competitive strength internationally."
On the EU Artificial Intelligence Act, Aydeniz pointed out that the goal is to align companies with artificial intelligence systems and ensure their ethical use, "It's a comprehensive law that spans from simple technology to deep learning, from generative AI to ChatGPT. The AI systems law imposes specific obligations on various stakeholders within the AI chain, from providers and producers to importers, distributors, and users. For AI systems identified as high-risk, numerous stringent obligations are anticipated. The law, expected to be ratified by the EU Council, will gradually come into effect starting next year (2025)."
"Losing Trust is a Greater Cost"
Professor Dr. Şule Aydeniz highlighted that while the initial costs might seem significant, companies failing to transform will face severe loss of profits and competitive advantage due to the cessation of exports to the EU. She continued:
"Therefore, successfully undergoing this transformation is essential for firms with long-standing commercial relations with EU countries. The loss of trust, and worse, the complete cessation of trade, will incur substantial costs. If an EU company overlooks sustainability principles and standards in its trade with a Turkish partner, sanctions such as removing goods from the market or imposing a fine of at least 5% of total revenue (for EU companies) will be enforced. Additionally, non-compliance can make companies vulnerable to lawsuits, and non-EU firms could be barred from participating in public tenders within the EU. EU companies will only want to refrain from engaging in such actions that could emerge during audits and result in a loss of prestige. If a Turkish company indicates that it cannot undertake the sustainability transformation, the EU company will be forced to terminate its commercial relationship with the Turkish firm."
Credit for Green Transformation
Professor Dr. Şule Aydeniz reminded us that the Turkish government has taken steps to enable Turkish companies to undergo this transformation effectively, introducing the Turkey Sustainability Reporting System for companies that meet specific criteria and noting that the Ministry of Industry and Technology offers support for green projects. Aydeniz stated, "Financial institutions provide various financing options for sustainability transformation; for example, they offer sustainable finance tools like green credit, social credit, green vehicle loans, and renewable energy investment loans."
Emphasizing the need for a step-by-step transformation, Aydeniz added:
"Each sector has its unique structures, so a different approach should be tailored for each sector. EU countries do not expect Turkish companies to have fully met sustainability criteria already. Taking steps towards these goals is initially sufficient for EU companies to continue trade. They want to see a commitment to good intentions."
"Budgets Are Being Wasted"
Professor Dr. Şule Aydeniz addressed significant company mistakes: "I want to touch on a crucial point that we see lacking in companies. Terms related to sustainability and artificial intelligence are thrown around loosely. There is an effort, but because it's not done correctly, even millions of lira spent on the budget do not result in a complete or sufficient transformation. For example, the concept of carbon footprint is known. Actions are taken, but what it is, how it is calculated, and who officially verifies it remains unclear. In another instance, some companies say, 'We have taken steps towards sustainability.' When asked what they have done, they mentioned water conservation but no further steps. There are no effective actions in corporate governance or social rights either. Due to these reasons, together with our faculty, we organized a workshop with representatives from Turkey's leading professional chambers to discuss the dual transformation. Productive and effective outcomes emerged from this university-private sector collaboration. This transformation will help companies reduce costs, increase profitability, and strengthen their cash structures. Additionally, we are serving as mentors in the TÜBİTAK Green Transformation Project in collaboration with the Yeditepe University Technology Transfer Office (YUTTO)."
This translation highlights the issues and solutions outlined by Prof. Dr. Aydeniz regarding the ineffective approaches to sustainability and AI in businesses, while also detailing collaborative efforts to address these issues, which are suitable for an international business or academic audience.
