ESG for large companies: the CSRD

ESG

The new Corporate Sustainability Reporting Directive (CSRD), effective as of 5 January 2023, envisages the gradual expansion of the group of companies obliged to publish sustainability reporting in their annual report. This includes all large companies, even those not listed on the stock exchange. Transposition of the CSRD by Italy and the other member states must take place by 6 July 2024

The CSRD expands the number of companies obliged to publish sustainability reporting from the current 11,000 to approximately 50,000. The CSRD provides for mandatory reporting of sustainability information:

From 2024 and thus from published financial statements in 2025, for listed companies and banks obliged to DNF;
From 2025 and therefore from the financial statements published in 2025, for large companies, including unlisted ones, that have exceeded at least two of the following parameters, including at consolidated level: Turnover > € 50 million; Total assets > € 25 million; Average annual workforce > 250;
As of 2026, and thus from published financial statements in 2026, the obligation will also extend to listed small and medium-sized companies, small credit institutions and captive insurance companies.

Measuring ESG data is therefore the challenge European companies will have to face in the coming years.

With the CSRD, the European Commission defines for the first time a common reporting framework for sustainability data, providing for specific reporting standards that are particularly stringent and detailed. Sustainability Reporting will, in fact, have to be prepared in accordance with the European Sustainability Reporting Standards (ESRS) developed by EFRAG, adopted on 31 July 2023 by the European Commission. The ESRS include the obligation - at a consolidated level - to publish corporate policies, actions and targets (PATs) with respect to key sustainability issues (ESG).

The CSRD also includes the obligation to quantify in accounting the degree to which the company's activities are aligned with the European Green Deal, which includes the goal of climate neutrality by 2050. A new accounting requirement, to be calculated according to the rules of the European Green Taxonomy with regard to revenues, operating costs and investments. But also the beacon towards which strategic plans will have to point.

WITH THE CSRD DIRECTIVE, SUSTAINABILITY REPORTING BECOMES PART OF THE ANNUAL REPORT. THIS NOVELTY ENTAILS A RADICAL EXPANSION OF THE REPORTING PROCESS TO BE CARRIED OUT BY THE CFO: FROM THE GREATER INVOLVEMENT OF CORPORATE BODIES AND OTHER CORPORATE FUNCTIONS TO THE OBLIGATION OF A SPECIFIC REVIEW OF SUSTAINABILITY INFORMATION BY THE AUDITING FIRM. OBLIGED COMPANIES MUST HAVE A STRUCTURED INTERNAL CONTROL SYSTEM TO ENSURE THE RELIABILITY OF SUSTAINABILITY INFORMATION WITH RESPECT TO ESRS EUROPEAN STANDARDS

With CSRD, the responsibilities of corporate governance are broadened:

Directors, are responsible for ensuring that Sustainability Reporting is prepared in accordance with legal provisions and thus according to ESRS, acting in a professional and diligent manner;
The board of statutory auditors is responsible for supervising compliance with the legal provisions on Sustainability Reporting and reports in its annual report to the shareholders' meeting.

With the CSRD, large companies are obliged to appoint an auditing company or an auditor with the legal requirements to issue a specific attestation on the compliance of sustainability reporting with the law. The appointed party may be different from the one appointed for the statutory audit of the annual financial statements.