The Ministry of Economy and Finance has announced that the Treasury Department has initiated a public consultation on the draft decree for the implementation of Directive (EU) 2022/2464 (CSRD Directive – Corporate Sustainability Reporting Directive), which has significantly strengthened companies’ reporting obligations regarding sustainability with the ultimate goal of promoting transparency and disclosure of information concerning the environmental, social and governance (ESG) impacts of their activities.

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The deadline for submitting comments is March 18, 2024. Therefore, while awaiting the implementation of this Directive in our legislation by no later than July 6, 2024, it is appropriate to examine the key innovations introduced by the CSRD.

• The obligation to report on sustainability is extended to all listed companies and all large companies (at the EU level, the current 12,000 companies subject to the so-called Non-Financial Reporting Directive are expanded to a group of 49,000 obligated companies; In Italy, the number of obligated companies increases from 200 to 4,200 subject to the new reporting requirement).
• The sustainability report becomes an integral part of the management report, with all the consequences regarding the responsibilities of the management body and the control body, as well as the attestation by the designated manager.
• The sustainability report must be prepared in accordance with the new ESRS (European Sustainability Reporting Standards) standards.
• The sustainability report must be prepared in XBRL format (the schema is still being defined) and must be transmitted to the centralized ESAP (European Single Access Point) system.
• The reporting must be based on a double materiality approach (impact materiality and financial materiality).
• The consolidation scope of the report will not only be limited to the consolidation perimeter of the consolidated financial statements but will also extend to the company’s value chain, upstream and downstream, or, more precisely, to those entities in the value chain that significantly impact the company’s activities.
• The report must be subject to external assurance.
• The information provided must be retrospective and prospective: therefore, the report will not only contain historical or final data of the companies but must also provide information: i) on the company’s sustainability strategies, ii) on the sustainability objectives set, and iii) on the progress made towards achieving these objectives.
• The sustainability report must also contain information required by the European taxonomy.

Timelines for the Introduction of ESRS Reporting Obligations 

The introduction of the reporting obligation, which must follow ESRS standards, will be gradual, as indicated below. 

• Starting from the 2024 fiscal year (report to be prepared in 2025), companies already subject to the Non-Financial Declaration obligation (large listed companies and PPIs, i.e., Public Interest Entities such as listed companies, banks, and insurance companies) are obligated.
• Starting from the 2025 fiscal year (report to be prepared in 2026), all large companies (different from those mentioned in the previous point) are obligated.
• Starting from the 2026 fiscal year (report to be prepared in 2027), listed SMEs are obligated (with the option, however, to abstain for two years, essentially deferring the effective obligation to the 2028 fiscal year).
• Starting from the 2028 fiscal year (report to be prepared in 2029), parent companies resident in non-EU countries are obligated if they generate net revenues in the EU exceeding €150 million for each of the last two consecutive fiscal years and have at least: i) a subsidiary that meets the size requirements of the CSRD; or ii) a branch that generated net revenues exceeding €50 million in the previous fiscal year.

Double Materiality 

Double Materiality is probably the most significant innovation of the ESRS reporting principles, which sets it apart from other sustainability reporting systems used worldwide. Double Materiality represents the sum of the relevant sustainability issues in terms of impact (on the environment and society) and financial materiality. It essentially involves analyzing a company’s activities from a dual perspective: 

• Impact materiality – this perspective examines how business activities impact environmental and social issues. It includes aspects such as resource exploitation, greenhouse gas emissions, waste management, working conditions, and contributions to the well-being and development of local communities.
• Financial Materiality – This perspective evaluates how environmental, social, and governance (ESG) factors can influence the financial and operational stability of an organization. For example, climate change may pose a material risk if it damages production facilities or disrupts the supply chain. Similarly, social issues, labor practices, and/or legislative changes can impact the company’s reputation and performance, thereby limiting its growth potential.

To assist companies in implementing Double Materiality, EFRAG (European Financial Reporting Advisory Group), the advisory body of the European Commission in the field of corporate reporting, has developed a specific guide called “Materiality assessment implementation guidance.” This guide was put out for consultation at the end of December 2023 and describes reporting obligations regarding materiality assessment, including outlining the possible phases of the process to identify information to be reported regarding the impacts, risks, and opportunities (IRO) of one’s activities in environmental, social, and governance matters. It also contains frequently asked questions on the assessment of double materiality (from the perspective of impact relevance or financial relevance or both) to provide practical guidance on implementation.