On September 10, 2024, Legislative Decree No. 125 of September 6, 2024 (the «Decree») was published in the Official Gazette, implementing Directive 2022/2464/EU, known as the Corporate Sustainability Reporting Directive or CSRD, on sustainability reporting.

Below is a summary of the main innovations for companies.

MAIN INNOVATIONS

The CSRD – which amends Regulation (EU) No. 537/2014, Directive 2004/109/EC, Directive 2006/43/EC, and Directive 2013/34/EU – introduces significant changes in corporate sustainability reporting and aims to promote corporate transparency on the environmental, social, and governance (ESG) impacts of their activities by strengthening annual reporting obligations. The Decree implementing the CSRD will replace Legislative Decree No. 254 of December 30, 2016, which implemented Directive (EU) No. 2014/95 on non-financial statement («NFS»). Below are the main innovations stemming from the application of the Decree:

• expansion of the subjects affected by the reporting obligations;
• broadening the scope of sustainability communications, which must include sustainability information and any negative impacts not only in relation to the company’s activity but also in relation to its upstream and downstream value chain;
• double materiality approach;
• harmonization of reporting criteria through the use of common standards (European Sustainability Reporting Standards or ESRS);
• certification of the conformity of data included in the sustainability report;
• inclusion of sustainability information in the management report;
• digitalization of communication.

SCOPE OF APPLICATION

The provisions of the Decree will be applied gradually over time, depending on the type and size of the recipients. Specifically, the entities required to prepare a sustainability report are:

• large listed companies, including parent companies of large groups, with more than 500 employees on average during the year (i.e., companies currently required to publish a non-financial statement under the previous regime): required from January 1, 2024, for reports published in 2025;
• large companies, both listed and unlisted, and parent companies of large groups other than those mentioned above: required from January 1, 2025, for reports published in 2026;
• small and medium-sized listed companies (excluding micro-companies), small non-complex credit institutions, and captive insurance and reinsurance companies: required from January 1, 2026, for reports published in 2027;
• non-EU groups – with a non-EU parent company – with significant activities in the EU: required from January 1, 2028, for reports published in 2029.

One of the most significant changes is the expansion of the definition of «small and medium-sized listed companies,» as the threshold for the average number of employees during the year has been modified to no less than 11 and no more than 250.

CONTENTS OF THE SUSTAINABILITY REPORT

Sustainability information must include:

• a detailed description of the business model and corporate strategy concerning sustainability-related aspects;
• time-bound sustainability objectives;
• a description of the role, expertise, and capabilities of administrative, managerial, and supervisory bodies regarding sustainability issues;
• a description of the sustainability policies implemented;
• information on incentive schemes related to sustainability issues for members of administrative and supervisory bodies;
• a description of the due diligence process carried out on the value chain, highlighting current or potential negative impacts and the measures taken to monitor and prevent them, along with the outcomes of such actions;
• the main risks the company faces concerning sustainability issues and how they are managed;
• indicators for reporting the aforementioned information.

DOUBLE MATERIALITY

One of the main innovations introduced by the CSRD is the concept of «double materiality,» which refers to the analysis companies must conduct, evaluating not only the impact of their actions on the environment and society but also how environmental, social, and governance factors may affect the company’s financial and operational stability. For more details on how to conduct a materiality analysis, refer to the contribution «EFRAG Guidelines for the Implementation of ESRS IG-1 – Materiality Analysis» published on June 11, 2024.

REPORTING STANDARDS

The Decree requires that sustainability reporting complies with common standards defined at the European level and developed by the European Financial Reporting Advisory Group (EFRAG). These standards cover the E, S, and G dimensions and aim to ensure consistency, comparability, and quality of the information reported.

EFRAG has also developed reporting standards for listed SMEs (ESRS for Listed Small-Medium Enterprises – LSME) and a voluntary simplified standard for non-listed SMEs and micro-enterprises (Voluntary Standard for Non-Listed SMEs – VSME), proportionate to the complexity, size, and characteristics of these companies.

CERTIFICATION OF CONFORMITY

The Decree stipulates that the sustainability report must be subject to certification regarding the accuracy of the data and compliance with the standards developed by EFRAG, in accordance with the attestation principles to be adopted by the European Commission by October 1, 2026, and, in the interim, developed at the national level by associations and professional bodies in collaboration with the Ministry of Economy and Finance and CONSOB.

The certification must be carried out by a statutory auditor or an audit firm (who may also be responsible for auditing the financial statements) authorized to issue certifications of compliance for sustainability reporting.

The certification process aims to achieve limited assurance, which could later evolve into reasonable assurance. The Decree does not foresee exercising the option under the CSRD that would allow independent attestation service providers to offer certification services. However, the option may be exercised if the Ministry of Economy and Finance and CONSOB, in a study to be conducted within 18 months of the Decree’s entry into force, verify its actual benefits in terms of competitiveness, integrity, and quality of attestation services, as well as the protection of recipients of sustainability information.

DIGITALIZATION AND LOCATION OF SUSTAINABILITY INFORMATION

The sustainability report becomes an integral part of the management report prepared by directors, constituting a specific section. As a result, the adoption and publication of the sustainability report will follow the timelines and procedures set by national law for the approval and publication of financial statements, facilitating the connection between sustainability and financial information.

The information must be available in the European Single Electronic Format (ESEF), in XHTML, as a web page with XBRL tags. The creation of the European Single Access Point (ESAP) is underway, allowing all interested parties to access sustainability information from companies subject to reporting obligations.

RESPONSIBILITIES AND PENALTIES

The penalty regime established in the Decree takes into account the specific nature of sustainability information to be included in the annual report and is organized to ensure compliance with the principle of proportionality.

In summary:

• a penalty system applicable exclusively to listed companies is defined;
• a specific responsibility for the directors of companies subject to reporting obligations is introduced in case of non-compliance with the sustainability information included in the report;
• to facilitate adaptation to the new regulations, for the first two years following the Decree’s entry into force, monetary penalties are subject to maximum limits;
• for minor violations characterized by low offensiveness or risk, less severe penalties apply, such as the publication of a statement by the violator, the nature of the violation, and the order to correct the contested infractions;
• in determining the type and amount of the penalty, CONSOB evaluates the procedures adopted by the administrative body for the preparation of sustainability reporting and considers whether the violations result from information wrongly communicated or omitted by third parties.

SUPERVISORY AUTHORITIES

The supervisory, investigative, and sanctioning powers necessary to ensure compliance with the obligations under the Decree for listed issuers are entrusted to CONSOB.

Non-listed companies do not fall under CONSOB’s supervision and are subject only to civil code regulations. Supervision of compliance with sustainability reporting obligations is exercised by the control body, which must report to the shareholders’ meeting. The Decree also grants specific supervisory powers to the Ministry of Economy and Finance and CONSOB to ensure compliance with the provisions related to certification, with penalties for the audit firm, the auditor, and the sustainability officer, including both disqualification and monetary fines.