Sustainability Report
The EU Directive 2022/2464 of December 14, 2022 (“CSRD Directive”) has introduced a new discipline regarding sustainability reporting, replacing the previous Directive 2014/95 on Non-Financial Declaration (“NFD” – implemented in our system with Legislative Decree no. 254/2016) and is based on a new document, the Sustainability Report (also called Sustainability Report). The European intervention aims to strengthen corporate reporting on ESG (Environment, Social, and Governance) issues in response to the demands and expectations expressed by users of this information (investors and other stakeholders). The discipline on the new Sustainability Report requires companies to provide, in the management report, the necessary information to understand the impact of business activities on sustainability factors and how sustainability factors influence the performance, results, and situation of the company.
The CSRD Directive brings significant innovations aimed at expanding sustainability reporting and extends the range of entities involved, including listed SMEs and, for the considerations that will be discussed below, also non-listed SMEs that are part of the supply chain of companies subject to reporting requirements. The CSRD is part of the actions of the European Green Deal and the Sustainable Finance Agenda.
The Directive is intended to be phased in based on the size of the company (ALTERNATIVA: The Directive is designed to be applied gradually according to the size of the company). The new rules will start to be applied between 2024 and 2028:
- from January 1, 2024 (report to be published in 2025) for large companies that already produce the NFD, former Legislative Decree no. 254/2016 (companies with more than 500 employees);
- from January 1, 2025 (report to be published in 2026) for large companies within the scope of the CSRD and that had not yet produced the non-financial statement under Legislative Decree no. 254/2016 (companies with more than 250 employees and/or €50 million in turnover and/or €25 million in total assets);
- from January 1, 2026 for SMEs and other listed companies (report to be published in 2027). These companies still have the option to voluntarily postpone this obligation to 2028 by availing themselves of the so-called “opt-out” clause;
- from January 1, 2028 (report published in 2029) for companies based outside the EU that generate a turnover of at least €150 million in the European Union territory and have a branch in the EU with a turnover of more than €50 million or a subsidiary that qualifies as a large company or listed SME.
With the new Directive, the European Commission has also approved specific Sustainability Reporting Standards (ESRS – European Sustainability Reporting Standards) that represent clear guidelines for operators and, in fact, also impose on companies not formally covered by the CSRD Directive to produce and report sustainability data.
In fact, companies obliged to non-financial reporting are required to include information on the environmental impact of the supply chain. This aspect therefore exposes even companies not included in the above list to produce environmental impact data for reporting companies, significantly extending the range of entities affected by the need to produce some sustainability data.
Furthermore, with a view to adequately covering and evaluating impacts, risks, and opportunities arising from the value chain, ESRSs provide that the reporting scope of the Sustainability Report must coincide with that of the financial report (financial statements). Therefore, companies leading a group of companies must prepare a sustainability report that includes ESG data from the various companies within the scope of financial consolidation.
As a result, companies that are part of a Group implicitly have an obligation to provide their sustainability data to the parent/consolidating company, and consequently, they must provide a reporting system capable of adequately mapping and reporting such data.
It can therefore be observed that the obligation to report and provide sustainability information is not only valid for entities formally obligated by the CSRD Directive but is in practice also extended to all non-listed SMEs that are nevertheless part of the supply chain of companies obligated to such reporting under the new rules contained in the CSRD Directive.
Therefore, these companies will also need to be able to identify, collect, and disseminate a series of information to prevent the risk of losing primary clients who will inevitably be inclined to turn to other operators who, in terms of regulatory compliance, are able to provide them with the necessary information. The new normal will thus be to evaluate a company through a plurality of indicators aimed at representing it, in its complexity, in all its aspects, including its impacts on ESG issues.
The main benefits that companies could obtain from disclosing sustainability information with their financial statements are related to a variety of aspects, including, without claiming exhaustiveness: easier relations with the Public Administration; better access to bank credit and, more generally, to financial resources; development of a sustainable supply chain both with their suppliers and as suppliers; improvement of image and brand reputation; risk assessment and mitigation of both financial and non-financial risks; facilitation in business aggregations and better ability to attract and retain resources.
LDP, in the context of a market increasingly attentive to ethical, social, and environmental issues, is able to provide specific assistance for the production and processing of sustainability data and for the drafting of the information itself, as well as to deal with all the preliminary activities to the drafting of the Report itself (for example: determination of double materiality – financial materiality and impact materiality, GAP Analysis, etc.) and can also issue, through its professionals, a review certification on the information.
