TerraLex Cross-Border Guide to Cross-Border Guide to ESG and Sustainable Finance

The following statutory environmental, social, and governance disclosure (“ESG”) obligations currently apply in Bulgaria:

Transparency on non-financial matters

There is a general requirement applicable to Bulgarian undertakings to include in their annual activity reports information on non-financial indicators such as environmental issues and issues related to the employees. In addition to that, there are more specific ESG reporting requirements applicable to special categories of undertakings.

According to the Bulgarian Public Offering of Securities Act (POSA) all public companies are required to publish a corporate governance statement which should contain information, inter alia, on whether the company complies with the Corporate Governance Code adopted by the Financial Supervision Commission (FSC) or another equivalent code (the Code) or clear reasoning for not doing so. The corporate governance statement should also describe the diversity policy concerning the age, gender, education and experience of the members of the administrative, management and supervisory bodies of the company.

In 2024, the Bulgarian Accountancy Act (AA) was amended to incorporate the provisions of the Corporate Sustainability Reporting Directive (CSRD). The AA now mandates the production of a sustainability report, replacing the previous non-financial statement under Directive 2013/34/EU (NFRD). Additionally, the scope of entities required to provide non-financial information has significantly expanded, bringing a larger number of organisations under this reporting obligation.

A sustainability report must include key, intangible resources, an explanation of how the enterprise’s business model depends on them, and how these resources are a source of value for the undertaking. The report is subject to a mandatory audit opinion report by a registered independent auditor.

On 28 February 2025, an amendment to the AA came into force, postponing the reporting requirements by one year. As a result, these new sustainability reporting obligations will apply as follows:

For the 2025 reporting period, the new requirements to prepare a sustainability report will apply to large Public Interest Entities (PIEs) with more than 500 employees, as well as to large PIEs, which are parent companies of large groups of undertakings with more than 500 employees on a consolidated basis. For 2026, the scope will expand to all other large undertakings and parent companies of large groups of undertakings.

For the 2027 reporting period, the requirements will apply to small and medium-sized PIEs, excluding micro-undertakings. By 2029, sustainability reporting obligations will extend to subsidiaries and branches of non-EU companies.

Taxonomy Compliance Disclosures

Pursuant to Article 8 of Regulation (EU) 2020/852 (the “Taxonomy Regulation”) undertakings which are subject to an obligation to publish non-financial information pursuant to Article 19a or Article 29a of Directive 2013/34/EU (the NFRD) (e.g. large PIEs, parent undertakings of large groups) are required to include in their non-financial reports information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation. The requirements to Taxonomy Compliance Disclosures are further set out by Commission delegated Regulation (EU) 2021/2178 (“Disclosures Delegated Act”) which includes the KPIs and reporting templates to be applied by financial and non-financial institutions.

With the transposition of the CSRD into the AA, entities subject to sustainability reporting requirements (such as small and medium-sized PIEs) will also be required to comply with Article 8 of the Taxonomy Regulation.

Disclosures under Regulation (EU) 2019/2088 (the Sustainable Finance Disclosure Regulation or SFDR)

The SFDR sets out mandatory ESG disclosure obligations applicable to all Financial Market Participants (“FMPs”) within the meaning of the SFDR such as AIFMs, UCITs, fund managers, management companies, portfolio managers, pension funds and investment advisors, etc. Disclosure obligations apply on “comply or explain” basis. Disclosures should be made both at entity level and product level, meaning that FMPs are obliged to report on the integration of sustainable practices within their entire business but also on the ESG-characteristics of each product that they offer within the EU. For the purpose of product-related reporting the Regulation divides financial products into three categories explained in Articles 6, 8, and 9 depending on whether and to what extent the products make ESG claims and target sustainable investment.

The SFDR also introduces different channels through which disclosures should be made depending on whether they concern the business as a whole or a specific product of a given category, i.e., the entity’s website, pre-contractual documentation, and periodic reports. In addition, the start of the application of the SFDR also varies for each type of disclosure. For instance, disclosures for Article 8 and 9 products, i.e., those who either promote ESG characteristics or have for objective sustainable investments must contain extensive information on the products’ environmental and social characteristics, objectives, and methods for determining those characteristics. Since 1 January 2023, companies include this information in their pre-contractual documents and periodic reports.

Clarification of the specific information that needs to be disclosed under the SFDR as well as templates are provided in Regulatory Technical Standards adopted by the European Supervisory Authorities (EBA, EIOPA and ESMA).

Transparency in raw material companies

Article 53 of the AA requires large companies and PIEs that are involved in the extraction of minerals, oil or natural gas, or the harvesting of timber in primary forests, to prepare an annual report on the payments they have made to government entities in connection with their business activities in these areas.

If a company is subject to preparing consolidated financial statements, it must also prepare a consolidated report about payments to “state bodies” unless the company is already reflected in a consolidated group payments report.

It is irrelevant whether the payments are single payments or payments in several instalments if they make up at least BGN 195 600. Additionally, the term “state bodies” covers national, regional, or municipal authorities in any country as well as departments and businesses controlled by such authorities.

Total Tax Contributions Report (TTCR)

The TTDR is a voluntary framework for the disclosure of selected and targeted information on a company’s tax policy, tax risk management, and most importantly on the amount of corporate and indirect taxes effectively paid by the company. Given the serious tax evasion issues entailing social discontent in the country this framework gains popularity among large companies who are responsible taxpayers and want to demonstrate corporate responsibility and good governance.

ESG index of the Bulgarian Stock Exchange (BSE) (to be launched)

The BSE announced in 2022 that it is preparing its own ESG index in partnership with LSEG Data & Analytics (previously Refinitiv), one of the world’s largest providers of financial markets data and infrastructure. The future index will be open exclusively to Bulgarian public companies and will aim to attract ESG-conscious investors to invest in the country. The criteria for assessment under the index are yet to be announced.

ESG rating of the BSE

In May 2024 the BSE announced a new ESG rating, which will serve as the foundation for launching the ESG index. Public companies in Bulgaria are able to obtain an ESG rating from LSEG Data & Analytics. LSEG Data & Analytics manages and provides data on the sustainable performance of Bulgarian public companies. The data are in the form of ratings and serve for the selection of companies that may be included in the future ESG index of the companies on the BSE with the most sustainable performance.

Oxygen initiative

In March 2022 the BSE launched Oxygen. Тhe initiative aims to enable Bulgarian companies to measure and report on their environmental, social, and corporate impact by obtaining an assessment of their carbon footprint as well as further ESG-related indicators.

One of the advantages of Oxygen, especially for public companies, is the ability to generate the Non-Financial Declaration, which has been developed in accordance with the EU Taxonomy and includes the ESG indicators established in world practice. The generated declaration contains quantitative and qualitative information structured textually and graphically in three main parts – environmental, social and corporate governance. This facilitates public companies as much as possible, especially in the reporting period.

Public companies can also calculate their carbon footprint entirely free of charge thanks to the partnership with the global Synesgy platform, a digital solution for assessing environmental, social, and corporate sustainability (ESG) provided by the international company ICAP CRIF.

The Oxygen platform is currently the only instrument in Bulgaria licensed by the Global Reporting Initiative (GRI), enabling businesses to quickly and easily report following all European and international ESG standards.

Voluntary disclosure under the Green Bonds Regulation

The new Green Bonds Regulation introduces a new voluntary standard for issuers of bonds, who would like to use the designation “European Green Bond” (“EuGB”). The proceedings of such bonds are used for investments in environmentally sustainable projects. Issuers of green bonds are subject to disclosure and reporting requirements under the new Regulation.

The Regulation also includes voluntary disclosure requirements for issuers of other environmentally sustainable bonds and sustainability-linked bonds issued in the EU but not using the “EuGB” designation. The purpose of such voluntary disclosure is to increase investor confidence and prevent greenwashing in the green bonds market.

Voluntary disclosure under the forthcoming amendments to the Accountancy Act

The amended AA provides for the transposition of the sustainability reporting requirements under the CSRD. The amendments in the AA provide a possibility (but not an obligation) for small and medium-sized undertakings, which are not PIEs, to report on sustainability by applying a sustainability reporting standard of their choice adopted by a delegated act of the European Commission.

Bulgarian companies recognize popular international ESG frameworks such as:

UN Global Compact (UNGC)

UNGC is a framework which requires companies to comply in their operations with Ten Principles covering human rights, labour rights, environment, and anti-corruption. They are based on and aim the fulfilment of the 2030 Agenda for Sustainable Development and the Paris Agreement.

Global Reporting Initiative (GRI)

The GRI is among the most reputable and comprehensive sustainability reporting standards. It covers broad areas such as tax, waste management, emissions, diversity and equality, health, and safety, etc.

International Standard Organization (ISO)

The ISO offers certification in several ESG related standards: ISO 14 001 – environmental management; ISO 37000 and the following – good governance of organizations, anti-bribery, and whistleblowing management systems; ISO 26 000 on social responsibility, ISO 50001 – efficient energy management, etc.

OECD Guidelines for multinational enterprises

The guidelines give recommendations addressed by national governments to multinational companies operating in or from adhering countries promoting responsible business conduct in a global context.

International Council for Integrated Reporting

The International Council for Integrated Reporting provides a set of principles and rules aimed to connect financial statements and sustainability-related financial disclosures.

European Sustainability Reporting Standards (ESRS)

On 31 July 2023, the European Commission adopted the first set of ESRS. The new standards would be for use by all companies subject to the CSRD. They encompass a comprehensive range of environmental, social and governance issues, including climate change, biodiversity, and human rights. By providing critical information, these standards enable investors to evaluate the sustainability impact of the companies in which they invest.

The amended АА will require that sustainability report information be disclosed in accordance with the European Sustainability Reporting Standards (ESRS).

Examples of key statutory ESG obligations which would require actions other than disclosure: Diversity policies in banks and investment intermediaries

Investment intermediaries and credit institutions are required to ensure equal opportunities for access into their management and supervisory bodies to persons with different backgrounds in terms of age, gender, education, and professional qualifications, etc. For that purpose, they are required to adopt and effectively apply diversity policies applicable to the appointment of the members of their management and supervisory bodies. Credit institutions and significant investment intermediaries are required to include in their diversity policies a target level for representation of the under-represented gender in their governing bodies. Where the target level has not been achieved a reasonable time-period for its accomplishment should be provided along with suitable measures.

Public procurement

One of the criteria for awarding public procurement provided in the Bulgarian Public Procurement Act is the optimal correlation between quality and price, which is measured also on the basis of environmental and social factors related to the subject of the procurement.

The ESG reporting obligations stemming from national law apply only to Bulgaria – based entities. Disclosure obligations introduced by directly applicable EU law such as the SFDR and the Taxonomy Regulation apply not only to EU-based entities but also to third-country companies who provide services in the EU.

It is somewhat debatable whether third-country undertakings within the scope of the CSRD will be obliged to comply with Article 8 of the Taxonomy Regulation, as opinions diverge on whether the CSRD expressly mandates the extraterritorial application of the Taxonomy Regulation to these entities. However, the European Commission, in its Commission Notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets, indicates that the Taxonomy Regulation extends to third-country undertakings with securities listed on EU-regulated markets.

No, there is no specific legislation regarding advertising with ESG claims. However, the general rules on misleading advertising shall apply also when an advertisement contains misleading ESG claims. Misleading advertising is prohibited both by the Protection of Competition Act (PCA) and the Consumer Protection Act (CPA) as a type of misleading commercial practice. Under the PCA misleading advertising is any advertising which in any way, including with its presentation, misleads or may mislead its addressees and may influence their economic behaviour to the detriment of competitors. The CPA qualifies a commercial practice, including an advertisement, as misleading if (i) it contains false information and is therefore untruthful or in any way, including overall presentation, (ii) deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the elements indicated in Art. 68e (2) CPA, and (iii) in either case causes or is likely to cause a consumer to take a transactional decision that he would not have taken otherwise. Article 68e (2), item 2 indicates that among the relevant elements of the product or service are their main characteristics, such as advantages, risks, composition, the results to be expected from their use or the results and material features of tests or checks of the product or service. Although there is currently no case law of the Commission for Protection of Competition (CPC) and the Commission for Consumer Protection (CCP) on misleading ESG claims in the financial sector, it is likely that the ESG characteristics of a financial product or service shall be considered to be among their main characteristics within the meaning of Art. 68e (2), item 2 CPA.

Based on these provisions, all information about the offered products and services must be correct, verifiable, and backed by recognized scientific evidence.

No, there is no legislation in Bulgaria imposing specific ESG-related obligations on suppliers. However, the ESG-related rules of environmental law, labour law, criminal law (e.g., anti-corruption, prohibition of human trafficking, anti-money laundering), anti-discrimination law etc. apply accordingly.

There are no special ESG-related liability regulations in Bulgaria and general corporate law rules would apply. Bulgarian corporate law provides for general avenues of redress where the company has suffered damages as a consequence of a breach of fiduciary duty by the members of its corporate bodies/representatives, including when this behaviour relates to the ESG policies of the company. The action seeking compensation for damages may be brought by the company itself, but derivative claims are available to the shareholders as well.

Thus, Article 240a of the Commerce Act (CA) entitles the shareholders in a joint stock company owning at least 10% of the shares to file a claim for damages on behalf of the company against members of the board of directors or the supervisory or managing board, who by act or omission in breach of their fiduciary duties have caused damages to the company. Derivative claims for damages caused to a public (listed) company by the members of its management and supervisory bodies are available to shareholders holding at least 5 per cent of its capital (Article 118 (2)(1) of the Public Offering of Securities Act (POSA)).

Pursuant to Article 118a of POSA persons who exercise control over the public (listed) company are jointly and severally liable with the members of the management and supervisory bodies where the former have used their influence to induce the latter to act or refrain from acting in the best interest of the company.

In a limited liability company, the damages claim against its management can be brought on behalf of the company subject to a decision of the General Meeting of shareholders adopted with a majority of more than 50% of the shares, unless otherwise provided in the articles of association.

The liability of management and supervisory bodies of joint stock and limited liability companies is contractual and covers all foreseeable damages which are a direct consequence of an act or omission committed in breach of the duty of care / fiduciary duty, caused by negligence or wilful misconduct.

Against this backdrop, the claim can only be successful if the defendant has breached the applicable laws or the internal rules of the company or failed to comply with a shareholder’s resolution by negligence or wilful misconduct and the damage is a direct consequence of this conduct. Thus, adverse economic consequences for the company such as financial losses, decrease in the value, etc. are not sufficient to render the representatives/corporate bodies of the company liable unless they are caused by a breach of the duty of care.

Hypothetically, if the representative/member of a corporate body of the company takes certain ESG-related actions, which are not required by law, in breach of explicit provisions of the internal acts and policies of the company, they can be held accountable if it does not bring value to the company but ensue losses to the company. However, the burden of proof is very high, and the action can only seek damages caused to the company and not to its shareholders.

There are no special ESG-related liability regulations in Bulgaria and general corporate and civil law rules would apply. Corporate law

Bulgarian corporate law provides for general avenues of redress where the company has suffered damages as a consequence of a breach of fiduciary duty by the members of its corporate bodies/representatives, including when this behaviour relates to the ESG policies of the company. The action seeking compensation for damages may be brought by the company itself, but derivative claims are available to the shareholders owning at least 10 % of the capital in a private company or 5 % of the capital in a listed company as well.

Persons who exercise control over the public (listed) company are jointly and severally liable with the members of the management and supervisory bodies where the former have used their influence to induce the latter to act or refrain from acting in the best interest of the company.

The liability of management and supervisory bodies of joint stock and limited liability companies is contractual and covers all foreseeable damages which are a direct consequence of an act or omission committed in breach of the duty of care / fiduciary duty (such as breach of applicable laws or internal rules of the company or failure to comply with shareholder resolutions, caused by negligence or wilful misconduct.

Therefore, if for example the company has suffered damages as a result of non-compliance with statutory ESG rules or disregard of internal ESG policies on the part of a member the corporate bodies of the company, which caused damages to the company, they can be held liable.

Unfair competition

Any natural or legal person who has suffered damages as a result of an infringement of competition law (e.g., misleading advertising through greenwashing), including shareholders and investors, is entitled to refer the matter to the Commission for Protection of Competition and file a claim for damages before the civil courts.

There are no specific ESG-related liability rules in Bulgaria. However, the following general legal remedies can also apply where damages are caused due to non-compliance with ESG rules. Unfair competition

Pursuant to Article 105 of the PCA any natural or legal person who has suffered damages as a result of an infringement of competition law is entitled to full compensation. Based on this provision, for instance, customers, creditors, or competitors of an undertaking which has engaged in misleading advertising by making unbacked ESG claims, can request compensation for all damages they have suffered as a result of the infringement. The claim can be filed irrespective of whether there is a final decision of the competition authority establishing the existence of a violation. The presence of such a decision, however, alleviates considerably the burden of proof for the claimant because it is binding on the court as to the fact of the infringement, and the identity of the infringer.

General tort

Any company, whose unlawful act or omission by willful misconduct or negligence causes damages to another person which are directly result from the unlawful act or omission (there is a casual link between them) may be held liable to compensate these damages under the general rules of Bulgarian tort law.

N/A

No.

Being an EU Member State, Bulgaria implements the EU legislation regarding ESG and impact indicators, such as the EU Taxonomy and SFDR.

EU Taxonomy Classification

Regulation (EU) 2020/852 (the “Taxonomy Regulation”) introduces a classification system (EU Taxonomy) for environmentally sustainable economic activities. The current focus of the Taxonomy Regulation is on classifying relevant activities into two fundamental categories: climate change mitigation (Mitigation) and climate change adaptation (Adaptation). An economic activity aligns with the EU Taxonomy if it can be demonstrated that it meets the following four performance requirements:

• the activity contributes substantially towards to one or more of the following six environmental objectives: (1) Climate change mitigation; (2) Climate change adaptation; (3) The sustainable use and protection of water and marine resources; (4) transition to a circular economy; (5) Pollution prevention and control; (6) protection and restoration of biodiversity and ecosystems.
• the activity does not significantly harm any of these environmental objectives (DNSH);
• the activity is carried out in compliance with the minimum safeguards (minimum social standards or MSS) (such as adherence to international social and business standards and conventions); and
• the activity complies with technical screening criteria established by the EU Commission (TSC).

The technical screening criteria for the first two environmental objectives including the criteria for determining whether significant harm is being caused for any of these objectives are developed by the EU Commission in its Commission Delegated Regulation (EU) 2021/2139 (“Climate Delegated Act”). Technical screening criteria for the rest of the objectives (3 to 6) are provided in Commission Delegated Regulation (EU) 2023/2486 (“Environmental Delegated Act”).

The EU Taxonomy recognises three different types of environmentally sustainable economic activities:

• Activities that in and of themselves contribute substantially to one of the six environmental objectives.
• Transition activities: These are activities for which there are no technologically and economically feasible low-carbon alternatives, but that support the transition to a climate-neutral economy.
• Enabling activities: activities that enable other activities to make a substantial contribution to one or more of the objectives.

Financial Market Participants (“FMPs”) subject to the ESG disclosure requirements under Regulation (EU) 2019/2088 (the Sustainable Finance Disclosure Regulation or SFDR), such as AIFMs, UCITs, fund managers, management companies, portfolio managers, pension funds and investment advisors, etc., are required to comply with the EU Taxonomy when classifying their products and activities.

Taxonomy Compliance Disclosures

Pursuant to Article 8 of the Taxonomy Regulation all undertakings which are subject to an obligation to publish non-financial information pursuant to Article 19a or Article 29a of Directive 2013/34/EU (the NFRD) (e.g. large PIEs, parent undertakings of large groups) are required to include in their non-financial reports information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable under the Taxonomy Regulation (“Taxonomy Compliance Disclosures”).

The requirements to Taxonomy Compliance Disclosures are further set out by Commission Delegated Regulation (EU) 2021/2178 (“Disclosures Delegated Act”), which included KPIs and reporting templates to be applied by financial and non-financial institutions. By way of an example, the main KPI for banks is the Green Asset Ratio (GAR) which shows the proportion of exposures related to Taxonomy-aligned activities compared with the total covered assets of those banks. Exposures to undertakings which are not obliged to publish non-financial information are not considered in the GAR numerator.

For a Taxonomy-eligible activity to be Taxonomy-aligned, it needs to Substantially Contribute (SC) to one of the six environmental objectives (complying with the relevant screening criteria), as well as to comply with the Do No Significant Harm (DNSH) and Minimum Safeguards (MS) criteria. An activity that is Taxonomy-eligible but not Taxonomy-aligned is an activity that is listed in the Climate Delegated Act but does not comply with one or more of the criteria indicated above.

Since 1 January 2023 non-financial undertakings disclose both Taxonomy eligibility and alignment, including KPIs and accompanying information under the Disclosures Delegated Act.

For the reporting period from 1 January 2022 until 31 December 2023, financial undertakings were required to disclose only (i) the proportion in their total assets of exposures to Taxonomy non-eligible and Taxonomy-eligible economic activities, (ii) the proportion in their total assets of the exposures to central governments, central banks, and supranational issuers and derivatives, (iii) the proportion in their total assets of the exposures to undertakings which are not obliged to publish non-financial information, (iv) some further qualitative information. Credit institutions are also expected to disclose the proportion of their trading portfolio and on-demand interbank loans in their total assets.

From January 2024 onward, financial undertakings should report both Taxonomy eligibility and alignment including KPIs and accompanying information under the Disclosures Delegated Act.

In regard to the transposition of the CSRD into the Accountancy Act, entities falling within the scope of the sustainability reporting requirements (e.g., all PIEs except micro-enterprises) will also be obligated to comply with Article 8 of the Taxonomy Regulation.

Disclosures under SFDR

The SFDR sets out mandatory ESG disclosure obligations applicable to all Financial Market Participants (“FMPs”) within the meaning of the SFDR such as AIFMs, UCITs, fund managers, management companies, portfolio managers, pension funds and investment advisors, etc. Disclosure obligations apply on “comply or explain” basis.

Disclosures should be made both at entity level and product level, meaning that FMPs are obliged to report on the integration of sustainable practices within their entire business but also on the ESG-characteristics of each product that they offer within the EU.

The SFDR introduces different channels through which disclosures should be made depending on whether they concern the business as a whole or a specific product of a given category, i.e., the entity’s website, pre-contractual documentation, and periodic reports.

The SFDR requires, inter alia, FMPs to publish their policies which they should apply on comply or explain basis regarding the consideration of principal adverse impacts of investment decisions on sustainability factors, transparency of remuneration policy in relation to the integration of sustainability risks and others.

Disclosure of pre-contractual information is introduced for example by Article 6 of the SFDR. These disclosures are implemented on comply or explain basis and relate to how sustainability risks are integrated into the investment decisions and the results of the assessment of the likely impact of the risks on financial returns of the products.

For the purpose of product-related reporting the Regulation divides financial products into three categories explained in Articles 6, 8, and 9 depending on whether and to what extent the products make ESG claims and target sustainable investment.

Firstly, products that neither have sustainable investment objective, nor do they embrace investment in assets with environmental or social benefits. Secondly, products that promote investments or projects with positive environment or social characteristics and with good governance principles (Article 8). Lastly, products that target a sustainable investment primary objective (Article 9).

FMPs must disclose the methodologies used to assess the financial products. Information is to be disclosed through different channels for the different market participants, for example in annual reports.

Delegated Regulation (EU) 2022/1288 sets out technical standards on the content and layout of information in relation to disclosures on websites, in pre-contractual documents and periodic reports for financial products investing in environmentally sustainable economic activities.

The purpose of the disclosures is primarily focused on guaranteeing the transparency around sustainability claims in the financial market as well as preventing greenwashing and aiming at facilitating capital flow towards sustainable investment.

Below we give examples of voluntary sustainable finance and investment frameworks followed by market participants in Bulgaria: Principles of Responsible Banking

The Principles of Responsible Banking (PRB) were developed with the support of UN Environment Program Finance Initiative (UNEP FI). With over 300 signatory banks, the PRB are the world’s foremost sustainable banking framework. Through the Principles, banks take action to align their core strategy, decision-making, lending and investment with the UN Sustainable Development Goals, and international agreements such as the Paris Climate Agreement. PRB include the Net-Zero Banking Alliance, which is the climate-focused initiative of this global framework. The PRB is designed to be integrated into banks’ strategies and across their portfolio of activities, bringing purpose, vision, and ambition on sustainable finance to the core of the organisation.

National Code of Corporate Governance

The National Code of Corporate Governance is an act of the Financial Supervision Commission, which is not binding while its provisions are only recommended for companies. Its main focus is to provide guidance on corporate governance, such as the structuring of governing bodies in way as to prevent conflict of interest and policies on remuneration of members of governing bodies, equal treatment of the shareholders and other provisions.

In line with new trends in corporate governance, in 2021 the Code introduced two new chapters, one on financial and non-financial reporting, and one on stakeholders and sustainable development.

The amended Code now gives guidelines for disclosing non-financial information such as directions to include in the company’s annual reports information on how and to what extent a company's activities qualify as environmentally sustainable.

EU Commission Guidelines

The EU Commission has also published Guidelines on non-financial reporting: supplement on reporting climate-related information to assist companies concerned to disclose non-financial information in a relevant, useful, consistent, and more comparable manner. The Guidelines are non-binding.

Bulgarian legislation provides specific requirements to consider ESG factors when making investment decisions or recommendations. Investment intermediaries and banks providing portfolio management services, insurers and reinsurers who provide life insurance products, as well as pension insurance companies and UCITs management companies should publish on their websites engagement policies, in which they explain how ESG considerations are integrated in their investment strategy when it comes to equity participation in other companies. This includes a description of the social and environmental impact of the companies in which they invest, their corporate governance and how actual or potential conflicts of interest are tackled. The publication of this statement is not fully mandatory but the “comply or explain” principle applies. These companies are required to publish on an annual basis a report on the implementation of their engagement policies. The non-financial information includes the monitoring of relevant aspects of the performance of the companies in which it invests, including strategy, financial and non-financial performance and risk, capital structure and social impact, environmental impact, and corporate governance.

In accordance with Delegated Regulation (EU) No 231/2013 and Delegated Directive (EU) 2021/1270 AIFMs and UCITs managers are required to consider risks to sustainability in different aspects of their activities such as in the selection process, conducting due diligence and ongoing monitoring of investments.

Under the SFDR, these undertakings are required to publish, inter alia, a statement on their due diligence policies with respect to principal adverse impacts of their investment decisions on sustainability factors on a comply or explain basis. At the same time, for companies with more than 500 employees the publication of such a statement is mandatory.

Bulgarian law does not provide for any tax or other benefits to encourage financial or pension institutions to integrate ESG factors into their investment decisions.

The SFDR contains a general obligation for the financial market participants and financial advisers to ensure that their marketing messages do not contradict the information disclosed pursuant to the regulation. No specific measures or sanctions for non-compliance has yet been introduced in Bulgarian law.

Although there is currently no case law of on misleading ESG claims in the financial sector, it is likely that the ESG characteristics of a financial product or service shall be considered to be among their main characteristics. On that basis, greenwashing perceived as deception regarding sustainable properties of products and services can be viewed as misleading advertising which is sanctioned under the Bulgarian Consumer Protection Act (CPA).

In the absence of specific provisions sanctioning greenwashing the financial markets supervisory authorities such as the Financial Supervision Commission would rely on more general conduct of business regulations of investment advisors, AIFMs, UCITS management companies, portfolio managers, pension fund managers, etc., preventing deception of customers, clients, and investors on the properties of financial products and services. The same approach would apply to disclosure obligations of issuers in respect of information contained on prospectuses for public offerings of securities or other including ESG disclosure obligations, where breach of the relevant obligation may qualify as administrative offence.

In addition, greenwashing may be prosecuted as a criminal offence if it qualifies as fraud.

We are not aware of any recent enforcement actions or case law in relation to “greenwashing”.

Corporate Sustainability Due Diligence Directive (CSDDD)

On 24 May 2024 the CSDDD has been adopted by the Council of the European Union. The CSDDD puts forward legislative framework for substantive corporate duty for some companies to perform due diligence to identify, prevent, mitigate, and account for external harm resulting from adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and in the value chain.

The companies which will be covered by the new rules are determined according to various criteria, including the size of the company, number of employees, the turnover and the main activity.

Member states will be required to set out rules for these companies to integrate due diligence into all corporate policies and have an annually updated due diligence policy aiming to identify, prevent and end actual or potential adverse human rights and environmental impacts in their own operations, in their subsidiaries and at the level of their established direct or indirect business relationships in their value chain. The companies will need to ensure that there is a possibility to submit complaints in case there is a legitimate concern regarding actual or potential adverse human rights and environmental impacts as well as periodically assess the implementation of their due diligence measures.

Member States will also be mandated to establish a supervisory authority responsible for overseeing and enforcing the CSDDD by imposing effective, proportionate, and dissuasive penalties.

Additionally, a civil liability regime will be instituted to ensure that victims receive compensation for damages resulting from an intentional or negligent failure to carry out due diligence.

The CSDDD came into force 20 days after its publication in the Official Journal of the European Union. Member States have three years to transpose the CSDDD into national legislation and depending on their number of employees and turnover, companies will have to implement the new rules within three to five years of the directive’s entry into force.

As of May 2025, the Directive has not yet been transposed into the national legislation and no specific measures have been taken in this respect.

Women on Boards Directive

On 27 December 2022, Directive (EU) 2022/2381, aimed at improving gender balance in corporate decision-making positions within the EU's largest listed companies, came into force.

This directive, which is meant to be temporary and is set to expire on 31 December 2038, seeks to enhance gender balance on corporate boards of listed companies across the EU.

Member States are required to transpose the Directive into national law by 28 December 2024 and to ensure compliance by the companies. The companies which do not meet the target of 40 % among non-executive board members or 33% among all directors of the under-represented sex by 30 June 2026 will have to ensure fair selection procedures for the selection of candidates for board positions. Non-compliant companies will be required to report their reasons and the corrective measures that will be taken. For companies that fail to comply with the selection and reporting obligations, Member States will impose penalties, such as fines or annulment of appointments.

As of May 2025, the Directive has not yet been transposed into the national legislation. However, a draft bill has been prepared for its transposition into the Bulgarian Act on Equal Status of Women and Men.

The importance of the ESG factors in M&A transactions has grown recently and this tendency is expected to continue due to the associated reputational and legal risks if ESG factors are not addressed and the increasing pressure investors are facing to uphold higher standard across industries and regions.

The legislative and regulatory developments in connection with ESG obligations and consideration of ESG factors in sustainable finance are likely to affect M&A transactions as well.

The Corporate Sustainability Due Diligence Directive (CSDDD) will impose certain duty to perform due diligence to identify, prevent, mitigate and account for external harm resulting from adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and in the value chain, which is expected to affect the decision-making process and investment decisions.