What is ‘ESG’?

The term ‘ESG’ refers to environmental, social and corporate governance issues that can affect a company’s ability to generate value. The acronym summarizes the three sustainability criteria – factors of Environment – Social – Governance.

The Environment criterion (E) covers issues of environmental protection, tackling climate change, decarbonization, air/water pollution, energy efficiency, waste management, biodiversity conservation, water and energy efficiency, deforestation, resource conservation and recycling.

The Social criterion (S) covers issues of human rights, equal opportunities, working conditions, employee diversity, health and safety, child labor and slavery, relation with local communities and philanthropy.

The Corporate Governance criterion (G) covers issues of business ethics and transparency, executive remuneration, diversity and structure, corruption, political pressure and donations, tax strategy, compliance and shareholder rights.

Although these criteria are often referred to as “non-financial indicators” they do influence and are linked to a company’s performance and the way of managing them may have financial consequences for the latter. Disclosure of the companies’ information related to ESG factors enables investors, organizations, consumers, financial institutions and interested parties in general to evaluate their sustainability performance.

Regulatory framework

The transition to a greener and more sustainable economy has already become a priority for the European Union. Following the “European Green Deal” which aims to achieve climate neutrality in EU countries by 2050, legislative efforts are being made at European level towards sustainability and sustainable development by integrating these criteria into the EU’s financial policy framework. A number of regulatory texts have been adopted, which have already been implemented and incorporated into national legislation and some are expected to be incorporated in the future.

In addition, a number of guidelines on information disclosure and standards on sustainable development deserve special mention. One of the most important corporate sustainability initiatives is the United Nations Global Compact (UNGC), in which a significant number of companies participate, as well as the disclosure standards developed by the Global Reporting Initiative (GRI Standards), which are considered to be among the most credible, as they were developed by a variety of interested parties.

Non-Financial Reporting Directive (NFRD)

The Non-Financial Reporting Directive (NFRD 2014/95/EU) on the disclosure of non-financial information establishes the requirements for the disclosure of non-financial and diversity information by certain large companies and groups. This Directive, which entered into force on 5/12/2014, applies to large public-interest companies with more than 500 employees on average over a financial year and was incorporated into the national legislation by Law 4548/2018 on the disclosure of non-financial information and Circular No. 62784/06-06-2017 of the Ministry of Economy and Development. Large companies are required to disclose specific information regarding the way they operate and manage environmental and social challenges. More specifically, the non-financial management report includes information on the development, performance, position and impact of the company related to environmental, social and labour issues, respect for human rights, anti-corruption and issues related to bribery.

It is noted that this Directive has been replaced by the CSRD Directive, which significantly extends the scope of the NFRD Directive, as discussed below.

Corporate Sustainability Reporting Directive (CSRD) 

The Directive CSRD 2022/2464/EU on corporate sustainability information disclosure was proposed as an amendment to the existing information disclosure requirements of the NFRD and entered into force in January 2023. The proposal extends the scope to all large companies and all companies listed on regulated markets (except for listed micro-enterprises), and to insurance companies and credit institutions regardless of their legal form. The new Directive strengthens the existing rules on the disclosure of non-financial information, sets more detailed reporting  requirements, as well as a requirement to disclose information on more sustainability issues according to obligatory EU standards. Finally, it strengthens the rules related to the social and environmental information, that companies must report.

Compliance with the Directive’s rules starts from financial year 2024 and is gradually extended to other companies depending on the size of the company up to 2026 or later. More specifically:

  • From the financial year 2024, large public interest entities already subject to the Non-Financial Reporting Directive (NFRD), i.e. large public interest companies that exceed 500 employees on average during an economic year are required to report from year 2025.
  • From the financial year 2025, large entities that are not already subject to the Non-Financial Reporting Directive (NFRD) and meet two of the three criteria, i.e. companies with an average of 250 employees and/or a total balance sheet of EUR 20,000,000 and/or a net turnover of EUR 40,000,000, will be required to report from year 2026.
  • From the financial year 2026, listed small and medium-sized enterprises which are public interest entities, small and non-complex credit institutions and dependent insurance enterprises are required to report from year 2027. Small and medium-sized enterprises may be given a transitional period of two years (until 2028) and exempted from the sustainability reporting requirements.

Member States have a deadline until 6 July 2024 to incorporate the provisions of this Directive into their national law.

Sustainable Finance Disclosure Regulation (SFDR)

The Regulation SFDR 2019/2088/EU on sustainability related disclosures in the financial services sector, entered into force for the most part of it on 10 March 2021. This Regulation establishes harmonized rules for financial market participants, investors and financial advisors, to provide sustainability related disclosures in the informational material of a financial product. In particular, the information required to be disclosed to final investors relates to transparency regarding the integration of sustainability risks by financial market participants and for financial products that pursue the objective of sustainable investment.

The Regulation, as known, is binding and directly effective in all Member States.

EU Taxonomy Regulation (Taxonomy)

The EU Taxonomy Regulation 2020/852/EU on establishing a framework to facilitate sustainable investments entered into force on 12 July 2020. It establishes criteria to determine the extent to which an investment is environmentally sustainable. It applies to measures adopted by member states to impose requirements on financial market participants or issuers regarding financial products or corporate bonds marketed as environmentally sustainable. It further applies to financial market participants, that have financial products and to companies subject to the non-financial disclosure obligation.

According to Article 8 of the Regulation, any company subject to the obligation of reporting non-financial information, shall include in its non-financial statement or consolidated non-financial statement, information on how and to what extent its activities are linked to financial activities, that are designated as environmentally sustainable.

The Regulation is binding and directly effective in all Member States.

Hellenic Corporate Governance Code

The new Corporate Governance Code was established pursuant to article 17 of Law 4706/2020 and applies to companies with securities listed on a stock market. It is based on the principle of “compliance or explanation”, which means that it does not impose any obligations, but allows each company to choose the applicable code independently, so that the choice can be made on the basis of its specific characteristics. The code is a model of good compliance practices for each company that adopts it, and if the latter does not comply with certain provisions of the code, it is obliged to justify this deviation.

Law 4607/2020 establishes the obligation to adopt and implement a corporate governance code, provided that it has been compiled by a recognized entity. Furthermore, it establishes a general authorization to the Capital Market Commission to determine any specific matter related to the implementation of the Corporate Governance Code.

Listed Sociétés Anonymes shall adopt a corporate governance code of their choice and compose a corporate governance statement, which is included as a specific section in their management report (Article 152 of Law 4548/2018).

The new Code, for the first time, clearly addresses sustainability/ESG issues and the impact of a company based on important ESG factors. The corporate governance issues envisaged are among others the composition and functioning of the administrative, management and supervisory bodies and their committees, the main characteristics of the internal control and risk management systems and the description of the company’s policies in relation to diversity issues.

In the event that a listed Société Anonyme does not adopt a code or the code adopted is not compiled by a recognized entity, the Capital Market Commission may impose penalties.

It should be noted that Law 4972/2022 on Corporate Governance of Public Sociétés Anonymes and other subsidiaries of the Hellenic Holding and Property Company was published on 23/9/2022 and its purpose is to modernize corporate governance and the system of rules governing the operation of Sociétés Anonymes, whose share capital is owned by an absolute majority by the Greek State.


Sustainable finance concerns businesses, creditors and investors and there is a growing interest in the economic materiality of each ESG criterion separately. ESG criteria are a sustainable and increasingly popular way for both investors and financial institutions to evaluate companies. In the near future, companies that comply and achieve high performance in relation to these criteria will enjoy privileges, both at financial and investment level.

In the area of corporate finance, the ESG criteria will play an important role, as companies that have complied with them are likely to receive more favorable financing terms from credit institutions or others may be excluded from financing because of their non-compliance. At the same time, credit institutions themselves will also gain higher ESG performance, when selecting entities/businesses for financing/investment, that have a correspondingly high ESG performance.

In the investment sector, there seems to be a trend towards the adoption of sustainability and sustainable development principles, as institutional investors are now choosing to invest significant amounts of their capital in companies sharing the same values with them regarding sustainable development. Already in Greece, the Athens Exchange’s Athex ESG Index signifies the efforts of the Greek Stock Market to strengthen the attempts of improvement on ESG criteria. In order for a company to be included in this index, it must have published data based on ESG indicators in its Annual Financial Report, and will then be selected based on the final ESG score it receives [1]. The existence of the ESG index makes companies that have been included more attractive, as investors now choose “greener” companies, contributing to sustainable development through their investment behavior.

ESG applies to all companies regardless of their size, since a company’s activities are normally, to a greater or less extent, linked to all three ESG criteria. The positive performance of a company based on these criteria contributes to the sustainability of the planet, to social well-being and to the profitability of the company itself.


In addition to the undeniably positive impact of adopting ESG criteria both for the planet’s future and climate change and for sustainability in general, well-being, equality and non-discrimination, the compliance burden that companies will have to bear cannot be ignored. If we consider the stringent regulatory texts that the EU has been increasingly adopting in most areas in recent years, there is a differentiation in the obligations of companies within the EU compared to third countries.

Furthermore, it is a fact that ESG factors are a very distant scenario for companies operating in third countries, where institutional control in general is very limited or even non-existent. Therefore, the adoption of ever stricter criteria at EU level, in addition to the ESG criteria, raises serious concerns about unfair competition phenomena.

However, apart from concerns about the burden on companies to comply with the ESG criteria, the establishment of strict regulatory texts and disclosure requirements is mainly positive. This is because the phenomenon of so-called “greenwashing”, i.e. the false ecological identity presented by some companies, will be greatly reduced, as they will now be subject to analytical data disclosure obligations for all sectors covered by ESG. Finally, companies that do comply may initially bear the financial burden of compliance, but will enjoy long-term benefits, both on a financial and an investment level.

[1]https://www.athexgroup.gr/documents/10180/6599246/ESG+Reporting+Guide+2022-2202.pdf/d5fe6a40-c493-46a7-b307-37494b6ca49d, ESG Reporting Guide of  Athens Exchange Group