Navigating the ESG landscape

4 mins read

2024 has challenges and opportunities for Cypriot businesses


Cyprus businesses are facing a significant task ahead as environmental, social and governance (ESG) policies take centre stage in Europe’s regulatory landscape. According to local experts, ESG has become a top priority for European regulators, dominating the EU’s agenda.

On November 28, the European Council approved a directive proposal outlining regulations for the period between 2024 and 2028.

Starting from January 1, 2024, large public-interest companies (with over 500 employees) already subject to the non-financial reporting directive must comply, with reports due in 2025.

Beginning January 1, 2025, large companies not currently subject to the non-financial reporting directive (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets) are required to comply, with reports due in 2026.

From January 1, 2026, listed SMEs and other undertakings must comply, with reports due in 2027. SMEs have the option to opt-out until 2028.

For countries like Cyprus, the adoption and adjustment to these principles represent not only a commitment to responsible development, but are also deemed crucial for economic resilience and maintaining a positive global reputation, according to local stakeholders.

In comments to the Financial Mirror, ESG expert Nicole Phinopoulou noted that adopting ESG criteria, and ratings have a dual meaning.

“From one perspective, they provide valuable information for states, businesses, and policymakers regarding what they need to improve,” said Phinopoulou.

“On the other hand, they provide valuable information to international organisations and investors in relation to the countries (in our case, Cyprus) in which they plan to invest or transfer operations, as has been the trend in recent years,” she added.

She continued to explain that if, for example, a technology company plans to relocate its offices to Cyprus, searching for personnel from the local market, obviously, the mismatch of skills, especially for tasks related to technology and digitisation, will have a negative effect on our country during the competitive decision-making process.

Attract investment

“Accordingly, focusing on renewable energy sources can attract investment, strengthen energy security, and position Cyprus among the leading countries for sustainable development within the EU,” she said.

“A strong political commitment and a clear policy in this direction is required,” she commented, noting that the evolving ESG landscape is reshaping how countries approach development, as well as how investors approach countries.

Therefore, she explained, these specific criteria can serve as a crucial tool for investors when assessing the sustainability and ethical impact of a potential investment in a business or the creation of sustainable social projects (sustainable development).

“The utilisation of ESG criteria is evolving into an increasingly important pillar of the investment process, and the methods for measuring the real impact of an investment or financing are becoming more and more crucial,” Phinopoulou noted.

Investments embedding ESG criteria have increased exponentially in recent years and are estimated to exceed $53 trillion by 2025.

She added that adopting ESG criteria now plays a crucial role in ratings of the island’s economy.

Moody’s recent assessment included not only the double upgrade to investment grade, but also an assessment of where the country stands concerning sustainability issues and the implications for its business sector and the wider economy.

The rating agency’s recent evaluation of Cyprus went beyond upgrading its investment grade, delving into sustainability matters and their impact on the country’s business sector and the broader economy.

“A specific part of the report went unnoticed by almost everyone, which should at least spark immediate concern”.

Running behind

“Otherwise, as in the past, we will find ourselves running behind developments” she said.

The ESG expert continued that sustainable development criteria are a key pillar in EU’s financing policy, as  the bloc is stepping up action on the legislative level of sustainable investing, governed by the ESG triad.

“For Cyprus, the pillar of sustainable investments is a significant aspect of its Recovery and Resilience Plan, and for its proper implementation, cooperation between the government and the parliament is necessary to enact the appropriate legislative changes and updates that unlock the 1.2 billion euros in funding from the EU,” noted Phinopoulou.

A point of concern for Cypriot businesses is the ‘greenwashing’ phenomenon, arising primarily from abusive marketing practices that exaggerate or misrepresent the sustainability characteristics of a product, a service, or a strategy, said a local agency.

Unfortunately, just as abroad, a number of local businesses in their attempt to capitalise on this growing ESG market, are overpromoting their “green” credentials, said CSR Cyprus, established as a non-profit organisation and serves as the national business network for corporate sustainability and responsibility.

The agency’s chairman, Dr. Marinos Voukis, told the Financial Mirror that the practice of ‘greenwashing’ is a growing concern as more consumers seek eco-friendly options and companies attempt to capitalise on this trend.

“One of the primary issues with greenwashing is that it can mislead consumers who are trying to make environmentally responsible choices. It can undermine the trust consumers have in brands and may lead to scepticism about legitimate environmental claims,” explained Voukis.

Erosion of trust

He noted that this erosion of trust can be costly for businesses, as consumer loyalty and brand reputation are crucial for long-term success.

“Additionally, greenwashing can have broader implications. It may hinder genuine environmental progress by giving the false impression that adequate steps are being taken to address environmental issues, when in reality, more substantive action is needed,” he added.

“The damage to businesses and consumers from greenwashing is substantial. For businesses, being caught in greenwashing can lead to loss of consumer trust, legal challenges, and a tarnished reputation, impacting their market value and investor relations,” said the CSR Cyprus chair.

“For consumers, the cost lies in being misled into supporting products or companies that do not align with their environmental values, potentially diverting support away from genuinely sustainable practices and products,” he commented.

Concerning ESG reporting, Voukis said that CSR Cyprus has identified a lack of standardisation and regulation, calling authorities and stakeholders to step up actions to address the issue.

“This ambiguity can lead to inconsistent reporting practices and makes it challenging to compare companies’ environmental performance,” said CSR Cyprus’ chair.

CSR Cyprus’ annual programme entails educational seminars, webinars, conferences and networking events, all aiming to raise and promote awareness of sustainability.