In today’s economic climate, companies’ strategic decisions are no longer based solely on financial data (which can be derived directly from the income statement, balance sheet and cash flow statement), but also tend to take “extra-financial” data into account. This is where ESG (Environmental, Social and Governance) assessments come into play. On the one hand, they represent a relevant basis for determining a future strategy that pursues the goals of efficiency and effectiveness for companies, as well as attracting funding from financial institutions, and on the other, a new economic model towards greater environmental and social sustainability.
The approach to sustainability
Back in 1987, the European Commission defined social sustainability as “…development that meets the needs of the present without compromising the ability of future generations to do the same…”. In concrete terms, a socially sustainable company commits to undertake useful actions to affirm the rights (economic, social, political, cultural) of its stakeholders, guaranteeing fair conditions of human well-being for all classes and genders.
As far as environmental sustainability is concerned, which is the main pillar of the recent National Recovery and Resilience Plan, the aim is to minimise the negative impact on the environment, society and the economy in general by using, for example, quality raw materials or those derived from recycling, exploiting renewable energy sources, managing waste production responsibly and obtaining appropriate environmental management system certifications (e.g. ISO 14001).
The direction of accounting doctrine
Both the National Council of Chartered Accountants and Confindustria (the Confederation of Italian Industry) have expressed their views on the subject for several years, drawing particular attention to the Report on Operations. In this regard, it is pointed out that in order to illustrate in greater detail the performance and economic-financial development of the company, the Report must be enriched with information relating to the environment and personnel.
It is therefore clear that environmental and social information in economic and financial reporting should not be understood as an objective in itself, but rather as one of the many possible analysis that may be required for understanding the company’s performance and as a measure of evaluation by the company’s stakeholders.
Financial implications of sustainability
Sustainability for companies also provides advantages in terms of access to credit. Some banks (including Intesa Sanpaolo and BNP Paribas), for example, offer products to finance investments aimed at growing a company in an environmentally sustainable way, with the aim of improving the environment, society and corporate governance (ESG criteria). The benefits are recognised in a reduced interest rate, flexibility of the amortisation schedule and a state guarantee. Better access to credit, more investment opportunities, better returns and more growth are the key to success.