CYPRUS Law and Practice Contributed by: Ioanna Solomou, Stephanos Ayiomamitis, Andria Kouloumi and Lefteris Eleftheriou, Michael Kyprianou & Co LLC
regimes are directly applicable. Regulated entities are expected to implement robust sanctions compliance frameworks, including effective screening mecha - nisms, internal controls and escalation procedures. Board-level oversight is essential in this context, with directors responsible for approving and periodically reviewing sanctions policies, ensuring that appropri - ate due diligence and monitoring systems are in place, and receiving regular reporting on compliance. Over - all, while geopolitical risk is not expressly regulated, it is embedded within existing governance structures, whereas sanctions compliance is subject to clear expectations and direct board accountability. The key requirements for companies in relation to reporting on environment, social and governance (ESG) matters derive from the EU regulatory frame - works on sustainability and transparency, which require companies to address (ESG) considerations in their operations and disclosures. The EU initially introduced non-financial reporting obligations through the Non-Financial Reporting Directive (NFRD), which has been transposed into Cyprus law via amendments to the Companies Law, imposing obligations on large undertakings and groups (as defined under the Law) to prepare and publish reports on environmental and social matters. This framework has been further strengthened by the Sustainable Finance Disclosure Regulation, which requires financial market partici - pants and advisers to disclose how sustainability risks are integrated into their decision-making processes. At a supervisory level, for regulated entities, while non-financial reporting is not directly enforced by the Cyprus Securities and Exchange Commission, it is monitored in alignment with EU-level oversight co- ordinated by the European Securities and Markets Authority. Looking ahead, the proposed Corporate Sustainability Reporting Directive (CSRD) is expected to significantly expand the scope and depth of report - ing obligations by introducing mandatory EU sustaina - bility standards, audit requirements and digital report - ing formats. ESG requirements are evolving into a key 7. Environmental, Social and Governance 7.1 ESG Requirements
framework through which companies assess and dis - close risks, opportunities and ethical practices, and Cyprus companies are increasingly integrating these principles into their corporate culture and business strategies. 7.2 ESG Developments In Cyprus, while there have been no fundamental departures from the EU-driven ESG regulatory frame - work, as a result of the current global geopolitical cli - mate – particularly developments such as sanctions regimes, energy security concerns, and supply chain disruptions – ESG is increasingly treated not merely as a compliance exercise but as a strategic tool for resil - ience, risk management and long-term value creation. In terms of the specific ESG pillars, the “E” (environ - mental) component has gained further importance due to heightened focus on climate risk, energy tran - sition and sustainability strategies, particularly in light of geopolitical instability affecting energy markets. The “G” (governance) pillar has also become more prominent, especially in relation to compliance, trans - parency and sanctions-related obligations, as Cyprus – given its role as an international business and finan - cial hub – has faced increased scrutiny following global sanctions developments. At the same time, the “S” (social) component is evolving towards greater emphasis on stakeholder engagement, diversity and corporate accountability, with businesses increasingly expected to take positions on broader societal issues and demonstrate tangible social impact. These developments are complemented by the grow - ing role of the Cyprus Network of Corporate Social Responsibility, which has been instrumental in promot - ing ESG awareness and embedding corporate social responsibility (CSR) into business culture. Established as a network of ESG-conscious organisations, it sup - ports companies in adopting sustainable practices and fostering a culture of responsibility through ini - tiatives, training and collaboration. More broadly, Cyprus companies have increasingly embraced ESG principles in practice, through activities such as envi - ronmental initiatives, community engagement and employee-focused policies, demonstrating a shift from voluntary CSR actions to more structured and measurable ESG strategies.
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