Implementation of Corporate Sustainability Reporting

On June 10, 2024, the Council of Ministers approved the Legislative Decree implementing the EU CSRD Directive in Italy. The Decree integrates corporate sustainability reporting rules on environmental, social, and governance (ESG) aspects to enhance transparency by including sustainability information in the management report pursuant to Article 2428, second paragraph, of the Civil Code.

The EU Directive 2022/2464, known as the Corporate Sustainability Reporting Directive (CSRD), replaces the previous non-financial reporting provided by Legislative Decree 254/2016. Compared to the previous directive, the CSRD broadens the scope, including not only information related to the company or its group but also to the value chain, upstream and downstream, with the associated challenges and complexities.

With CSRD, the Sustainability Declaration becomes an integral part of the management report prepared by the directors under Article 2428 of the Civil Code, and it constitutes a specifically identified section. Consequently, the adoption and publication of sustainability reporting will follow the timelines and procedures established by national regulations for the approval and publication of the company’s financial statements, with the involvement of the company’s corporate bodies according to their respective roles and responsibilities.

The approved regulations gradually extend the obligations to report sustainability information. Ultimately, they will apply to all large enterprises and parent companies of large groups, including non-listed ones, as well as to small and medium-sized enterprises (as long as they have issued financial instruments traded on regulated markets, excluding micro-enterprises), and third-country companies, provided they meet certain requirements. The goal is to enhance transparency and the dissemination of information on the environmental, social, and governance (ESG) impacts of business activities.

The CSRD also requires companies to prepare the management report – including sustainability reporting – in the European Single Electronic Format (ESEF), i.e., in Extensible HyperText Markup Language (XHTML) format as a web page with xbrl (tag) markers, to improve usability and link the information to the European Single Access Point (ESAP), which is under development. Additionally, companies must publish sustainability information on their websites to ensure free access.

The company must report on the impacts and risks, both real and potential, it generates regarding ESG aspects, as well as the impacts, risks, and opportunities, both real and potential, it faces due to ESG aspects related to its activities, products, services, and upstream and downstream value chain relationships.
Furthermore, the reporting process must comply with the ESRS reporting standards (mandatory compliance). From this perspective, the ESRS LSME (the standard proposed for Listed Small and Medium Enterprises) introduces a gradual and simplified approach in accordance with the “value cap chain” principle, while the ESRS VSME (voluntary standard for non-listed Small and Medium Enterprises) identifies content that will help SMEs and micro-enterprises meet the information demands of obligated companies and banks.