Legislative Decree 125/2024: New Sustainability Reporting Obligations for Italian Companies

The Decree significantly expands the range of companies required to report on sustainability. It no longer applies only to large enterprises but also includes listed small and medium-sized enterprises, parent companies of large corporate groups, and branches or subsidiaries of non-EU parent companies that exceed certain revenue thresholds within the European Union.

In particular, large enterprises and listed SMEs are required to include a section in the management report dedicated to the information necessary to understand the company's impact on sustainability issues. This entails detailed reporting not only on the company's own activities but also on the value chain, encompassing products, services, business relationships, and the supply chain.

Large enterprises and listed SMEs may be exempted from the individual reporting obligation if the required information is already included in the parent company's consolidated sustainability report. However, this exemption does not apply to large companies whose securities are traded on regulated Italian or European markets, emphasizing the importance of transparency for businesses operating in public financial markets.

Decree 125/2024 provides a detailed specification of the information that companies must disclose, with particular attention to various sustainability aspects. Businesses are required to describe their business model and corporate strategy, highlighting how these are aligned with sustainability and how they integrate environmental, social, and governance considerations into operational and strategic decision-making.

Devono inoltre definire gli obiettivi temporali connessi alle questioni di sostenibilità, indicando le tempistiche e le metriche utilizzate per misurare i progressi. È fondamentale illustrare il ruolo e le competenze degli organi direttivi riguardo a queste tematiche, dimostrando l’impegno del management nell’implementazione delle politiche di sostenibilità.

The corporate policies adopted in this area must be clearly outlined, along with the existence of incentive systems linked to the achievement of sustainability goals. This aspect highlights how companies are required to integrate sustainability into their remuneration and incentive mechanisms, promoting behaviors consistent with the declared objectives.

A crucial element concerns the due diligence process implemented by the company to identify and manage the main negative impacts, whether potential or actual, arising from its activities and value chain. This process must be described in detail, highlighting the methodologies used to identify risks and the actions taken to mitigate them.

Companies must also analyze the main sustainability-related risks for the business, including dependencies on sustainability issues, and explain how these risks are managed. This requires a thorough assessment of the company's vulnerabilities concerning environmental, social, and governance factors, as well as the strategies adopted to address them.

For the first three reporting periods, if all value chain information is not available, companies may omit such data, provided they explain the efforts undertaken to obtain the missing information, the reasons for its absence, and future plans to acquire it. This phased approach acknowledges the challenges associated with collecting data across the entire value chain, offering businesses a transition period.

Sustainability reporting must comply with the European Sustainability Reporting Standards (ESRS), adopted by the European Commission through Delegated Regulation (EU) 2023/2772. The ESRS specify the information that companies must disclose, ensuring a uniform and comparable approach across Europe.

The European Sustainability Reporting Standards (ESRS) were developed by the European Financial Reporting Advisory Group (EFRAG), an independent body established to support the European Commission in defining the regulatory framework for sustainability reporting. The goal is to provide clear and detailed standards that help companies effectively communicate their sustainability performance and enable stakeholders to compare information across different companies and sectors.

A significant innovation introduced by the CSRD, compared to the previous Non-Financial Declaration, concerns the type of information to be included and the specification of reporting requirements and scope through the ESRS. These standards are linked to environmental objectives and the principles of Minimum Safeguards outlined in the European Taxonomy, ensuring that the information provided aligns with the EU’s environmental and social policies.

The ESRS serve as the unified criteria to be followed in the reporting process, promoting uniformity in reporting requirements across all EU countries. This effort also aimed at aligning with the main global sustainability reporting standards, such as GRI, TCFD, SBTi, CDP, and SASB. This alignment seeks to prevent inconsistencies in comparison and facilitate reporting for companies, reducing the administrative burden associated with compliance with multiple standards.

The task of EFRAG is not yet complete, as sector-specific standards must be defined by 2026. These standards will provide specific guidelines for different economic sectors, acknowledging that sustainability challenges and opportunities vary across industries. Currently, within the ESRS framework, two general standards and ten specific thematic standards have been identified, covering a broad spectrum of environmental, social, and governance issues.

Companies are required to prepare the management report in electronic format, as stipulated by Article 3 of Delegated Regulation (EU) 2019/815, and to tag their sustainability reporting using the digital taxonomy XBRL, in accordance with Article 8 of Regulation (EU) 2020/852 (Taxonomy Regulation). The European Commission has tasked EFRAG with developing the XBRL digital taxonomy for the first set of ESRS, a proposal that was submitted to the European Securities and Markets Authority (ESMA) and the Commission in August 2024. ESMA will be responsible for drafting the regulatory technical standards for sustainability reporting tagging, which will be adopted by the European Commission through a delegated act.