Deloitte Cyprus’ Andreas Andreou: Many organisations confuse ESG with CSR

Starting this year and over the next couple of years, CSRD will require all large and listed organisations in Europe to start reporting according to the requirements of the recently developed and published European Sustainability Reporting Standards (ESRS).

But are local businesses aware and prepared to incorporate environment, social and governance (ESG) in their operations?

Not as much as they should be according to Andreas Andreou, Partner, Audit & Assurance Business Leader, Deloitte Cyprus.

He believes Cypriot companies will face a number of challenges over the coming years. “Many organisations have difficulty understanding the additional layer of work and complexity that arises from the ESG requirements, and confuse ESG with CSR, which includes any Corporate Social Responsibility practices they might have been employing and reporting on in the past,” he explains in an interview with CBN.

What are the current international environment, social and governance (ESG) trends?

Currently, we see a great shift by regulators and standard setters in requiring organisations to become more transparent on the environmental and social impact of their operations and their supply chains, as well as their assessment and management of ESG risks and opportunities. At a global level, the International Sustainability Standards Board developed a first set of sustainability standards, which are slowly being adopted by different countries. Certainly however, the greatest shift is happening in Europe with the adoption of the Corporate Sustainability Reporting Directive (CSRD). Starting this year and over the next couple of years, CSRD will require all large and listed organisations in Europe to start reporting according to the requirements of the recently developed and published European Sustainability Reporting Standards (ESRS). This provides a framework for companies to report on ESG topics using a common methodology, thus ensuring consistency and comparability across organisations, whilst allowing investors, stakeholders, and the public to have clearer information on which to make more informed decisions.

What is the current landscape in Cyprus – are local businesses aware and prepared to incorporate ESG in their operations?

In Cyprus, some local businesses may be further along the sustainability path than others, but across the board we see a very slow adoption of sustainability practices and of enhancement of sustainability reporting capabilities. Besides the regulatory drivers noted above, we see investors, banks and suppliers raising their expectations from companies regarding their sustainability practices and policies. Across industries, we see organisations in Cyprus having to undertake great strides to further incorporate ESG factors, not only as part of their operations, but also as part of their procurement processes, renumeration policies and of their reporting procedures and control frameworks.

Definitely, certain organisations that were either in scope of the Non-Financial Reporting Directive (NFRD) or were voluntarily preparing sustainability reports using the GRI Sustainability Reporting Standards, have a better basis to kick-start their CSRD journey. As Deloitte, we have already launched a series of meetings and information sessions with our existing clients and other large organisations which will be subject to the CSRD requirements to raise awareness of what’s coming and what it means for them.

What challenges do companies face when integrating responsible business and sustainability into their operations?

Companies will face a number of challenges over the coming years. Many organisations have difficulty understanding the additional layer of work and complexity that arises from the ESG requirements, and confuse ESG with CSR, which includes any Corporate Social Responsibility practices they might have been employing and reporting on in the past.

Senior management needs to understand that this will be a big undertaking for an organisation and a task that will constantly evolve over time. There will be operational challenges in both understanding what needs to be reported on, in sourcing data and in operationalising their sustainability reporting processes as CSRD will demand hundreds of data points to be disclosed.

Organisations will also face challenges in identifying the appropriate targets, actions and plans to improve their performance. It’s important to note that as CSRD will require limited assurance from first year of application, this implies that companies need to ensure that the sustainability statements they produce are assurance ready.

What do businesses need to do?

Businesses need to approach sustainability as an opportunity for strategic change. Although it will definitely be a costly and time-consuming exercise, organisations that do not approach this holistically but see it only as a ticking exercise, risk not only on being unprepared in facing ESG hazards and jeopardizing their investor and financing relationships, but also on missing out on the opportunities that will arise from the Green transition.

For example, regulations such as the EU Taxonomy give a scientific view on what type of business activities can be considered as green. This can serve as a great basis for each organisation to see how they can re-align their business strategy over the next decade. I believe that businesses should start educating themselves, and prioritise on aligning resources to focus on sustainability, and not delay this further. Even though for most the first year of CSRD application is in 2025, the implementation of this regulation is an extensive process.

How can Deloitte Cyprus help businesses incorporate ESG standards? What ESG & Sustainability services does it offer?

Deloitte Cyprus has a highly skilled, dedicated ESG & Sustainability team that has been supporting clients across Cyprus and the Middle East over the past 3 years. As you may know, our Cyprus member firm is part of the Deloitte Middle East network and that has provided our Cyprus team with opportunities to support some of the biggest Middle East organisations across their sustainability journey.

Our services range from helping organisations scope their regulatory requirements and understand their material ESG risks and impacts, to performing gap assessments on their disclosure requirements, and operationalising their sustainability reporting and disclosures, and to enhancing their ESG strategy, governance, and controls environment. In addition, leveraging our extensive audit and assurance experience, we support clients in achieving assurance readiness, as well as providing limited assurance over their sustainability reporting.

Last but not least, we should not forget to mention that this is a long journey for our profession as well. We are constantly expanding our skillset and capabilities and those of our auditors, empowering them to apply their mindset and professional scepticism not only on the financial statements of their audit clients, but also on their sustainability statements. This constant enhancement of our capabilities elevates the standard of our profession and reaffirms our commitment to excellence, whilst making an impact that matters, to our people, our clients and our society.