Corporate Sustainability Reporting Directive (EU) 2022/2464, CSRD, also finds applicationin Italy, through Legislative Decree no. 125 of September 6, 2024, effective September 25, 2024 (1,2).
The new rules, as we have seen, introduce specific requirments for companies to report on ESG criteria (Environmental, Social and Governance) (3,4,5).
1) Scope of application
The reporting requirements in question apply:
– to joint stock companies, limited partnerships, limited liability companies or equivalent, when established in Member States other than Italy; (6)
– to general and limited partnerships, if they have the aforementioned companies as partners
– to insurance companies and credit institutions, regardless of their legal form (legislative decree 125/24, article 2).
The following are excluded: the Bank of Italy, financial products and micro-enterprises – that is, those that ‘do not exceed the numerical limits of at least two of the following three criteria on the balance sheet date:
– balance sheet total, 450.000 euros,
– net revenues from sales and services, 900.000 euros
– average number of employees employed during the fiscal year, 10′ (7,8).
2) Corporate Sustainable Reporting, the duties of companies
‘Large as well as small and medium-sized listed enteprises include in a specific section of the management report
– the information that is necessary for understanding the company’s impact on sustainability issues, as well as
– the information that is necessary for understanding how sustainability issues affect the company’s performance, results and situation’(Legislative Decree 125/24, article 3).
Corporate Sustainability Reporting duties can be divided, at a conceptual level, into the following four parts.
2.1) Individual sustainability reporting. Preamble
Individual sustainability reporting kicks off with ‘a brief description of the business model and strategy’ that indicates:
1) the resilience of the company’s business model and strategy in relation to risks related to sustainability issues;
2) the opportunities for the company related to sustainability issues;
3) the company’s plans, where prepared, including implementation actions and related financial and investment plans, aimed at ensuring that the business model and strategy are compatible with
– the transition to a sustainable economy, with limiting global warming to +1,5°C, in line with the Paris Agreement on Climate Change (9) and the EU goal of achieving climate neutrality by 2050. (10) As well as, if applicable, the company’s exposure to coal, oil and gas-related activities;
4) how the company’s business model and strategy take into account stakeholder concerns and their impact on sustainability issues;
5) how the company’s strategy is implemented with regard to sustainability issues (Legislative Decree 125/24, Article 3.2.a).
2.2) Reporting on objectives and progress
The company’s goals and progress on the various fronts of sustainability are also subject to reporting in the following terms:
– exposure of the company’s objectives, defined over time, related to sustainability issues. Including, ‘if applicable’
– quantitative targets for reducing greenhouse gas emissions, at least for 2030 and 2050;
– a description of progress in achieving the defined objectives; and
– a statement as to whether the company’s objectives related to environmental factors are ‘based on conclusive scientific evidence’ (legislative decree 125/24, article 3.2.b).
2.3) Governance
The governance of the company must be included in the Corporate sustainability reporting by description of:
– the role of the governing and supervisory bodies, as it relates to sustainability issues, as well as ‘the and their skills and capabilities in relation to the performance of that role’ or ‘the access of those bodies to those competencies and capabilities” (through external resources, ed.);
– a description of the company’s policies in relation to sustainability issues;
– existence of incentive systems related to sustainability issues, intended for members of the administrative and control bodies (legislative decree 125/24, article 3.2, letters c,d,e).
2.4) Due diligence
Due diligence – which is subject to additional and specific requirements, reserved for companies with more than 1000 employees and a turnover of €450 million (11) – is in turn included in the Corporate sustainability reporting. It includes a description of:
1) due diligence procedures applied by the company in relation to sustainability issues;
– main actual or potential negative impacts related to the company’s activities and its value chain, including its products and services, business relationships and supply chain;
– actions taken to identify and monitor such impacts and other negative impacts that the company is required to identify under other obligations established in the EU (e.g. Deforestation Regulation); (12)
– any actions taken by the company to prevent or mitigate actual or potential adverse impacts, or to remedy or end them, and the results of such actions;
2) a description of the principal risks to the enterprise related to sustainability issues, including a description of the enterprise’s principal dependencies on those issues, and how the enterprise manages those risks;
3) relevant indicators for reporting all the information that is required in sustainability reporting (legislative decree 125/24, article 3.2, letters f,g,h). (13)
2.5) Consolidated reporting, third country companies
The parent companies of a large group include in a specific section of the management report the information necessary to understand:
– Group impact on sustainability issues
– how sustainability issues affect the group’s performance, results and situation.
Branches and affiliates of non-EU parent companies that have generated in the EU, at group or individual level, net revenues from sales and services exceeding 150 million euros in each of the last two financial years, are in turn subject to Corporate sustainability reporting(legislative decree 125/24, article 5).
3) Compliance Certification
A qualified auditor must certify the conformity of the sustainability reporting with the Corporate Sustainability Reporting Director (CSRD) and its implementing provisions (legislative decree 125/24, article 8).
The certification shall also includes compliance with the disclosure requirements set out in Regulation (EU) 2020/852 on the establishment of a framework conducive to sustainable investment.
4) Advertising
The individual and consolidated sustainability statements included in the management report pursuant to this decree as well as the attestation report on compliance shall be published:
– within the terms provided for by the Italian civil code (articles 2429, 2435), as well as
– on the company’s website. That is
– made available in paper copy of the same documents to anyone who requests them (in the absence of a website. Legislative Decree 125/24, article 6).
5) Responsibilities and sanctions
The responsability for ensuring compliance of reports with the Corporate Sustainability Reporting Directive(CSRD) lies with:
– to company’ directors, who act in a professional and dilligent manner;
– to the auditing body, for supervising compliance with the established provisions and its annual report to the shareholders’ meeting (legislative decree 125/24, article 10.1).
5.1) Sanctions
Administrative pecuniary sanctions for violation in Italy of the obligations defined by the Corporate Sustainability Reporting Directive (CSRD) are established as follows:
– from 5.000 to 10 million euros, or up to 5% of the company’s turnover, when it exceeds ten million euros;
– from 5.000 to 2 million euros, against persons performing administrative, management or control functions, as well as personnel, if their conduct has contributed to determining said violations by the legal person, unless the act constitutes a crime;
– identical sanctions against subjects authorised by Consob for the dissemination and storage of regulated information; (14)
– in the two years following the entry into force of the Decree, the above sanctions cannot exceed, respectively, €150.000 for companies, €2.500.00 for subjects authorised by Consob, €125.000 for audit firms and €50.000 for auditors.
Alternative sanctions are determined in cases of infringements’characterized by low offensiveness or dangerousness’ (Legislative Decree 125/24, article 10, paragraph 2,3).
5.2) Sanctions, determination
Consob – in determining the type and amount of administrative pecuniary sanctions for the violation of the obligations set forth in the Corporate Sustainability Reporting Director (CSRD) – takes into account at least one of the following circumstances:
a) procedures adopted by the company’s administrative body for the preparation of the sustainability report, also in light of any guidelines or indications provided by national and European Authorities; (4)
b) violation of the obligations of this decree connected with the omission or disclosure of information by companies included in the value chain but not controlled by the same company (legislative decree 125/24, article 10.4).
6) Supervision and coordination between authorities
The coordination between Consob, public administrations and public bodies – ‘in compliance with mutual competences and without new or greater burdens on public finances’ – is identified in various forms,
– including through memoranda of understanding or the establishment of coordination committees
– in order to facilitate the exercise of their respective functions in the areas of environmental and social sustainability, as well as the protection of human rights (Legislative Decree 125/24, Article 11).
The collaboration already underway between Consob and the Bank of Italy, COVIP, IVASS, as well as the authorities and committees that make up the SEVIF and the European Central Bank (ECB) continues in the meantime.
7) Application
The application in Italy of the Corporate Sustainability Reporting Directive (CSRD) is progressive, with regard to company size. The reporting must therefore be introduced in relation to the financial years:
- 2024, for public interest entities that are large companies or their parent companies with an average number of 500 or more employees employed during the financial year;
- 2025 for other large enterprises and their parent companies
- 2026 for small and medium-sized listed enterprises, small and non-complex entities, captive insurance and reinsurance companies, excluding micro-enterprises;
- 2028 for parent companies of a large group, as well as subsidiaries and branches of non-EU parent companies;
- 2030 for non-EU parent companies whose EU subsidiaries have already provided consolidated reporting in the EU country where the highest revenue was achieved in at least one of the last five previous years (Legislative Decree 125/24, Articles 17 and 18.3).
8) Perspectives
The reporting standards developed by the European Financial Reporting Advisory Group (EFRAG) should allow for a homogeneous reporting approach on an European level. (3)
The ESG data integration into corporate management can also be optimised through digitalisation and open innovation projects:
– fillind in the questionnaire of the EU research project Wasteless, for example, allows operators in the agri-food chain to prepare the circular economy declaration (ESRS 5); (15)
– Wiise Srl benefit, the company managed by the writer that created the aforementioned system, is ready to develop further applications to consistently comply with the Corporate Sustainability Reporting Directive.
Dario Dongo
Footnotes
(1) Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34 /EU, as regards corporate sustainability reporting https://tinyurl.com/yb5wsdm5
(2) Legislative Decree 6 September 2024, n. 125. Implementation of Directive 2022/2464/EU https://tinyurl.com/yh6uw6sv
(3) Dario Dongo, Elena Bosani. Corporate Sustainability Reporting. Mandatory ESG reporting for companies is under way. GIFT (Great Italian Food Trade).
(4) Dario Dongo, Alessandra Mei. CSR, European Sustainability Reporting Standard. The new obligations for businesses. GIFT (Great Italian Food Trade).
(5) Dario Dongo, Alessandra Mei. European Sustainability Reporting Standards, EU criteria defined. GIFT (Great Italian Food Trade). 8.8.23
(6) See Annex I to Accounting Directive 2013/34/EU. Consolidated text on EUR-Lex https://tinyurl.com/5thbhwjf
(7) Accounting Directive 2013/34/EU, Article 3 (as amended by Directive (EU) 2023/2775)
(8) The subjects participating in the financial markets and the financial advisors are in turn subject to specific rules. See the previous article by Dario Dongo, Elena Bosani. Sustainability reports and responsible investments, ESG and CSR due diligence. EU Reg. 2022/1288. GIFT (Great Italian Food Trade).
(9) The Paris Agreement adopted in Paris on 12 December 2015 within the framework of the United Nations Framework Convention on Climate Change was ratified and made effective in Italy by Law 204/2016 https://tinyurl.com/2dwkyest
(10) The EU objective of achieving climate neutrality by 2050 is defined by the European Climate Law, Reg. (EU) 2021/1119 https://tinyurl.com/zcxs3ks4
(11) Dario Dongo. Directive (EU) No 2024/1760 on Corporate Sustainability Due Diligence, the ABC. GIFT (Great Italian Food Trade).
(12) Dario Dongo. Deforestation Regulation. Due diligence on critical raw materials begins. GIFT (Great Italian Food Trade).
(13) Small and medium-sized listed companies, small and non-complex entities, captive insurance companies and captive reinsurance companies are subject to simplified reporting (Legislative Decree 125/24, Article 3.8)
(14) Legislative Decree 58/1998, article 193, in addition to defining the pecuniary sanctions, provides ‘a public statement indicating the legal person responsible for the infringement and the nature of the infringement’ and ‘an order to eliminate the contested infringements, with an indication of the measures to be adopted and the deadline for compliance, and to refrain from repeating them’, in cases where the infringements are characterised by low offensiveness or dangerousness
(15) Dario Dongo, Andrea Adelmo Della Penna. CSR, reporting of food loss and waste. GIFT (Great Italian Food Trade).
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
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