Unlocking Value: ESG integration in Cyprus propels sustainable finance forward

In a bid to enhance sustainable development practices, banking and financial institutions are gearing up to introduce a groundbreaking tool for assessing companies’ compliance with Environmental, Social, and Governance (ESG) criteria.

Spearheaded by the Artemis Credit Bureau, in partnership with the Cyprus Banks Association and ICAP CRIF, this initiative will leverage the Interbank Business Evaluation Project through Synesgy, a cutting-edge global digital platform.

As it has been explained in recent weeks by the stakeholders of this initiative, by facilitating Cypriot companies in evaluating their ESG compliance, the endeavour seeks to cultivate an ESG ecosystem, promoting transparency and sustainability throughout Cyprus.

“Through this important project, it becomes possible to evaluate the performance of Cypriot companies by the companies themselves and the banks in matters related to their ESG,” General Manager of Artemis Credit Bureau Yiannis Tomasides explained.

“Today, the foundations are laid for the creation of an ESG ecosystem in Cyprus,” he added.

It should be noted that since the 1980s, sustainability has evolved beyond environmental concerns into a holistic strategy encompassing social, economic, and governance factors.

This shift from “do no harm” to proactive value creation has reshaped investments, emphasising social and environmental sustainability alongside financial returns.

As global priorities change, a regulatory framework is crucial to define sustainable investments and integrate ESG factors into decision-making.

Corporate sustainability criteria now drive the growing trend of “sustainable” or “ESG” investing, reflecting a broader understanding of value creation that addresses stakeholder concerns and expectations in today’s interconnected world.

According to a PwC Private Equity Responsible Investment Survey, comprising 162 respondents, investors are increasingly integrating sustainability factors into their investment decisions and portfolio management strategies.

The study revealed that annually, 81 per cent of respondents communicate Environmental, Social, and Governance (ESG) matters to their Boards.

Additionally, 67 per cent have recognised and given precedence to Sustainable Development Goals (SDGs) pertinent to their investments, showing a substantial increase from 38 per cent in 2016.

Furthermore, a staggering 91 per cent have either embraced or are in the process of formulating responsible investment or ESG policies.

Moreover, 83 per cent voice apprehension regarding climate risks within their portfolios, indicating a growing awareness and concern among investors about environmental impacts on financial performance.

Meanwhile, consulting firm McKinsey & Company has made note of a US Business Roundtable which issued a statement reaffirming businesses’ commitment to a wide array of stakeholders, marking a shift in corporate priorities.

This change, the firm explained, aligns with the meteoric rise of ESG-oriented investing, which now surpasses $30 trillion globally, a 68 per cent increase since 2014 and a tenfold rise since 2004.

The surge is driven by increased societal, governmental, and consumer scrutiny of corporate impacts, with investors and executives recognising that a robust ESG framework is integral to long-term success.

In addition, extensive research underscores that companies focusing on ESG factors not only avoid value erosion but often enhance value creation.

Strong ESG performance correlates with higher equity returns, reduced downside risk, and improved credit ratings, indicating that ESG considerations are more than a fleeting trend—they are fundamental to business success.

“But even as the case for a strong ESG proposition becomes more compelling, an understanding of why these criteria link to value creation is less comprehensive,” the company said.

“How exactly does a strong ESG proposition make financial sense? From our experience and research, ESG links to cash flow in five important ways,” it added.

The company noted that ESG helps cash flow by facilitating top-line growth, reducing costs, minimising regulatory and legal interventions,increasing employee productivity, and optimising investment and capital expenditures.

“Each of these five levers should be part of a leader’s mental checklist when approaching ESG opportunities—and so should be an understanding of the “softer,” more personal dynamics needed for the levers to accomplish their heaviest lifting,” McKinsey stated.

However, ESG also requires careful monitoring, both from companies and regulators alike, in order to avoid incidents of greenwashing.

Greenwashing entails creating a deceptive impression or providing misleading information regarding the environmental friendliness or sustainability credentials of a company’s products or services.

The issue of greenwashing has taken centre stage recently, prompting advancements in various areas such as reporting, taxonomies, product labels, ESG data, ratings, and corporate due diligence.

As the pressure on investment managers and financial advisers to integrate sustainability risks into their investment and advisory processes grows, climate-related risk measurement and management have become routine supervision tasks for banks and insurers.

While progress has been made, there’s still much work to be done in this regard.

In Cyprus. Environment Commissioner Maria Panayiotou emphasised the need for businesses to cease their involvement in ‘greenwashing’, which undermines responsible social and environmental practices.

Addressing a forum on preventing greenwashing in small and medium enterprises at the Centre for Innovation and Blue Economy of the Limassol Municipality, she stressed the necessity for a collective effort to combat this deceptive practice.

“This practice has worrying ramifications for society, the environment and the economy itself,” she said, as it encourages consumers to make unsustainable choices.

In conclusion, the initiatives led by banking and financial institutions, such as the Artemis Credit Bureau collaboration, underscore a growing commitment to fostering an ESG ecosystem.

This concerted effort seeks to promote transparency and sustainability throughout Cyprus, while also highlighting the need to carefully regulate the depth and quality of corporate ESG initiatives.