ESG Regulatory Compliance for Greek Companies: Challenge or Opportunity?
Panagiotis Drakopoulos and Alexandros Katsantonis, managing partner and partner at Drakopoulos, discuss the ESG compliance burden on Greek firms and the possibility of generating value through the process.
Driven by the constant change, complexity and ambiguity of today’s competitive landscape, leading Greek companies aim to identify all those key and non-volatile corporate elements that will eventually help them keep on a steady, upward course towards expansion and internationalisation. Current trends show the increasing significance of environmental, social and governance (ESG) metrics and their measurable impact on companies’ value generation, sustainable business growth, competitive advantage and actual financial performance.
“Greek companies should be also in readiness for a set of upcoming legal acts expected to come into effect after 2024.”
Modern investors are known to process ESG data in order to forecast the impact of macroeconomic factors on companies’ profitability and assess companies’ sustainability engagement strategies and resilience to change. Hence, Greek businesses, irrespective of size and dynamics, acknowledge the urgent need to invest in natural, social and human capital to facilitate access to investment funds and start planning their expansion projects.
ESG compliance in practice
Regulatory compliance is, for most companies, a process through which they are required to:
- learn how to navigate the applicable legal and regulatory framework;
- acknowledge all existing challenges, including current ESG megatrends such as climate change, workplace diversity and internal risk management;
- set and monitor specific core metrics; and
- in consideration of the above, implement custom-built and bulletproof policies and procedures addressing all ESG considerations.
“Non-compliance with ESG regulatory requirements might expose companies to substantial financial and reputational risks.”
Upon initiating their ESG compliance journey, Greek companies encounter a complicated multi-level regulatory framework, comprising national legislation, European guidelines, leading reporting frameworks and upcoming legal acts. In terms of mere regulation, Greek companies should take into account the provisions of:
- the national Corporate Governance Law (Law 4706/2020);
- the new Hellenic Corporate Governance Code for companies with securities listed on the stock market in accordance with Article 17 of Law 4706/2020;
- the recent national Climate Law (Law 4936/2022);
- the EU Taxonomy Regulation (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088);
- the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector); and
- the Non-Financial Reporting Directive (NFRD - Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups), in association with the Greek law transposing some of the NFRD’s provisions at national level (Law 4548/2018 and Circular No 62784/06.06.2017 of the Ministry of Economy and Development).
In addition to their compliance with the currently applicable legislation and regulations, companies may also opt to implement certain key national and international reporting frameworks for the purposes of reporting non-financial information to their stakeholders. The preferred frameworks among Greek companies include:
- the Global Reporting Initiative (GRI) outlining sustainability reporting guidelines;
- the Task Force on Climate-related Financial Disclosures (TCFD) on the reporting of information and financial risk related to climate;
- the Sustainability Accounting Standards Board (SASB); and
- the Greek Sustainability Code on transparency and sustainable development.
Upcoming EU directives
In the course of mapping out their internal compliance layout, Greek companies should be also in readiness for a set of upcoming legal acts expected to come into effect after 2024, namely the Corporate Sustainability Reporting Directive (CSRD), proposed in April 2021 with the intention to impose stricter reporting obligations on large and listed companies, the Commission’s proposal for a regulation establishing European green bonds and the Corporate Sustainability Due Diligence Directive (CSDDD).
How to avoid the risks of non-compliance
Although the scenario in which Greek companies will be able to increase their ESG blueprint and generate significant value by integrating ESG metrics into their business practices is ideal, a reality check confirms that a significant number of national companies, especially small and medium-sized enterprises, struggle with achieving ESG compliance even at a basic level. The challenges that such companies need to overcome in this respect are mainly related to the absence of a standardised method of reporting and consolidating ESG data so that the results are comparable among companies, the difficulty in interpreting and following up with the regulatory framework and, last but not least, the significant costs laid on the companies and related to, inter alia, service providers, legal advisors, IT infrastructure and additional human capital.
All in all, non-compliance with ESG regulatory requirements might expose companies to substantial financial and reputational risks and, therefore, businesses should prioritise complying with all mandatory requirements that apply to their size and sector, focus on generating value in the long term instead of going after short-term profits, reallocate their natural and human capital in a resourceful way and onboard a trustworthy legal advisor to ensure that they remain below the radar of regulatory scrutiny.