Sustainability reporting-one of the most popular commitments now among Italian food industries-can serve quite different purposes than communication and marketing, in ESG and due diligence perspectives. Insight.
1) Sustainability Report. Background
The idea of accounting for an organization’s favorable interactions with the community and external environment dates back to the days of so-called Corporate Social Responsibility (CSR). The financial industry giants, over the past quarter century, have thus tried to tint the most well-known brands green-or social. However, this paradigm is drowned in the greenwashing that still characterizes most CSR ‘budgets,’ as noted (1,2,3).
In turn, the corporate structure can be adapted to socio-environmental goals that complement those of profit. Turning a company into a benefit corporation (even with a view to B-Corp certification) is the simplest operation, at least on the surface. Italy, by the way, was the first EU country to introduce this opportunity by reforming the Civil Code (4,5). Moreover, the risk of contingent liabilities related to greenwashing remains a largely underestimated critical issue, in spite of albeit rare but exemplary sanctions (6).
2) ESG(Environment, Social, Governance)
The Sustainable Finance Disclosure Regulation (SFDR), reg. EU 2019/2088, requires financial and insurance market participants to provide transparent information on investment products that:
– promote environmental or social characteristics (Art. 8),
– are presented as ‘sustainable investments‘ (Art. 9). (7)
Financial investments cannot go without the application of ‘good governance practices‘ and ‘regulatory technical standards‘ by the target enterprises. Which, in turn, must communicate so-called ‘sustainability factors‘-‘environmental, social and personnel issues, respect for human rights, and issues related to combating active and passive corruption‘-and the management of related risks (Art. 2, points 22,24).
2.1) Sustainable investments
Reg. EU 2019/2088 Refers sustainable investment to the two areas of economic activities that contribute to:
a) ‘An environmental target, measured, for example, by key resource efficiency indicators concerning
– The use of energy and the use of renewable energy,
– The use of raw materials and water resources and land use,
– waste generation,
– greenhouse gas emissions as well as -the impact on biodiversity and the circular economy‘,
b) ‘A social objective, particularly an investment that
– contributes to the fight against inequality, or that
– Promotes social cohesion, social integration and industrial relations, or
– An investment in human capital or economically or socially disadvantaged communities.
Provided that such investments do not cause significant harm to any of these objectives, and provided that the enterprises benefiting from such investments comply with good governance practices, particularly with regard to sound management structures, employee relations, staff remuneration, and compliance with tax obligations’ (SFDR, Article 2.17).
3) Corporate Sustainability Reporting
Corporate Sustainability Reporting
is the new meaning of the acronym CSR, introduced on 4/21/21 in the proposed EU directive on corporate sustainability reporting. In reform of the Non-Financial Reporting Directive (NFRD), dir. 2014/95/EU. (8) The new proposal:
– extends the scope to all enterprises and companies listed on regulated markets (microenterprises excluded),
– introduces a requirement to follow the EU sustainability reporting standards, which are being developed, (9) in the drafting of the ‘sustainability report’,
– Prescribes audits of statements,
– provides for digital recording of reports, in view of the capital markets union (CMU). (10)
4) Taxonomy
‘Sustainable finance’ is then subject to the limits defined in reg. EU 2020/852, so-called ‘taxonomy regulation’. Where precisely the taxonomy of economic activities considered sustainable is defined, taking into account the so-called.
European Green Deal
and the Sustainable Development Goals(SDGs). (11)
The environmental objectives stated in the Taxonomy Regulation pertain to climate change mitigation and adaptation, protection and restoration of biodiversity and ecosystems, sustainable use and protection of water and marine resources, transition to a circular economy, and pollution prevention and control. (12)
5) ESG and Due Diligence, Work in Progress.
The agribusiness supply chain is also considered in both the EU draft directive on ESG Corporate Sustainability Due Diligence, (13) and the proposed EU regulation on due diligence in the supply-chain of palm, soybean, coffee, cocoa and timber. (14) Both regulatory projects aspire to ensure the socio-environmental sustainability of critical supply chains through reporting obligations and accountability of their economic actors.
This approach is, on closer inspection, consistent with the
Guiding Principles on Business and Human Rights
‘ (2011), in the ‘Protect, Respect and Remedy‘ framework-program of the United Nations. As well as with the
OECD Guidelines for Multinational Enterprises
(2011), with special declination on agribusiness supply chains (15) and child labor.
6) Interim Conclusions
Greenwashing has its hours counted for companies with even potential interest in being able to turn to the financial market (which includes institutional investors and pension funds). It exposes operators to increasing risks of class actions and draconian penalties in various markets (e.g., UK, US. See notes 16,17), as well as those of being dropped from vendors’ lists of strategic clients and suffering even severe reputational damage.
Therefore, the strategy should be consistent with the requirements of applicable international standards and involve all functions of the enterprise. In a medium- to long-term perspective that in itself does not postulate higher costs, but rather a different allocation of resources. So that substance precedes form and actions-perhaps guaranteed by public and incorruptible blockchain (18)-confirm words.
Our FARE team is available to those who intend to take this path.
Dario Dongo
Notes
(1) Dario Dongo. Expo 2015 Milan, brands and sustainability. In search of a new paradigm, from CSR to CSV? GIFT (Great Italian Food Trade). 18.3.16,
(2) Dario Dongo. Coca-Cola, false health and wellness propaganda aimed at teens. Scientific study. GIFT (Great Italian Food Trade). 22.12.19,
(3) Dario Dongo. Coca-Cola, obesity and the right to water. Scientific study. GIFT (Great Italian Food Trade). 19.7.20,
(4) Dario Dongo.
Wiise srl benefit company, the 2019 Impact Report.
. GIFT (Great Italian Food Trade). 16.8.20,
(5) More complex configurations, on the other hand, involve the transfer of corporate assets to foundations and other third-sector entities, often established on an ad hoc basis with stated philanthropic goals and significant tax benefits
(6) Dario Dongo, Giulia Caddeo.
Biodiesel from palm oil, Antitrust condemns ENI.
. Égalité, 8.2.20,
(7) Reg. EU 2019/2088, on sustainability reporting in the financial services sector. Consolidated text as of 12.7.20 at https://eur-lex.europa.eu/legal-content/IT/TXT/?uri=celex%3A32019R2088
(8) Proposed Directive Amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No. 537/2014 regarding corporate communication on sustainability
(COM/2021/189 final). https://bit.ly/3PjIX9E
(9) European Commission. Reports on development of EU sustainability reporting standards. https://bit.ly/3oeBjBG
(10) European Commission. Capital markets union 2020 action plan: A capital markets union for people and businesses. https://bit.ly/3ctyN7C
(11) EC. EU taxonomy for sustainable activities. https://bit.ly/3B3Hyjc
(12) ‘Environmentalists’ fought in vain to exclude natural gas and nuclear power from the EU taxonomy. Not as many items have been spent on heavy weapons and nuclear devices. V. Erik Assadourian. Nukes Are Environmentalists’ Problems Too. Earth Island. 4/22/22, https://bit.ly/3ofQnPu
(13) Dario Dongo.
Due diligence and ESG, corporate social and environmental sustainability, the proposed EU directive
. GIFT (Great Italian Food Trade). 20.4.22,
(14) Dario Dongo.
Due diligence, the EU draft directive on socio-environmental responsibilities in the value chain.
. GIFT (Great Italian Food Trade). 27.7.21,
(15) Dario Dongo.
FAO, China in charge.
. GIFT (Great Italian Food Trade). 27.6.18,
(16) Dario Dongo, Giulia Orsi.
Green claim vs greenwashing and misleading advertising, antitrust guidelines in UK.
. GIFT (Great Italian Food Trade). 25.6.21,
(17) U.S. District Court – Southern District of California. Renee Walker v. Nestle Usa Inc. Case No. 3:19-cv-723-L-DEB. Class action. Order denying defendant’s motion to dismiss. 3/28/22, https://bit.ly/3zfhhx5
(18) Dario Dongo.
Public blockchain and agribusiness supply chain, sustainability for producers and consumers.
. GIFT (Great Italian Food Trade). 28.2.21.
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
