ESG criterias and corporate sustainability reporting are become fundamental economic tools, not only for companies and their stakeholders, but also at every levels of investment decisions. This trends seems to be borne out by the extension reporting obligations and reference standards for sustainability report developing by supranational institutions to protect environment and society.
THE NEW PROVISIONS CONTAINED IN DIRECTIVE (EU) 2022/2464
We are thinking, indeed, of the new provisions contained in Directive (EU) 2022/2464 of the European Parliament and Council about corporate sustainability reporting. These, which came into force on 5 January 2023, amend the previous EU legislation and introduce important innovations on the subject and represent one of the new main challenges for Italian companies.
The amendments of the ‘Corporate Sustainability Reporting Directive’, called CSRD, support a long-term vision in which the ecological transition is promoted through a sustainable economic system based on the establishment of a resource-efficient concept.
First of all it introduces the broadening of stakeholders: all large companies and all companies listed on EU regulated markets, as well as non-EU companies that are listed on EU regulated markets and EU subsidiaries of non-EU companies, will have to draw up a sustainability report. Only micro-companies are exempted from this obligation. The new reporting obligations – it has been estimated – affect about 40,000 companies in Europe and of these more than 4,000 listed companies and other companies in Italy, while, until now, only 192 companies prepared the Non-Financial Disclosure (DNF) Declaration annually.
The new provisions also provide for an expansion of the information contained in the report, increasingly focusing on sustainability issues such as resilience to risks, sustainable opportunities for related businesses, and the company’s plans for environmental transition. At the same time, the report should include a description of how all these actions affect the company’s performance, results and situation. If this information is not available or cannot be disclosed because it could compromise the company’s business position, specific grounds for omission are provided for, but these must ensure that the understanding of the company’s performance as well as its impact and results is not impaired.
The application of the new regulations will follow the size criterion, so that as of 1 January 2024 large companies with more than 500 employees on average during the financial year will be the first to be affected, while listed SMEs will follow on 2026.
OTHER NEWS RELATED TO SUSTAINABLE FINANCE
Next to the new regulations, on 1 February the European Commission presented the new Green Deal Industrial Plan, that aims to boost European production capacity for the net-zero technologies and products, needed to aim the EU’s climate targets.
As the European community shows continued commitment, the European Central Bank (ECB) published new experimental and analytical indicators to analyse climate-related risks for financial sector and monitor the development of sustainable finance. These provide an overview of sustainable debt instruments issued and held in the EU, present information on portfolio-related issues, securities and loans, and the financial sector’s exposure to counterparties with carbon-intensive business models; they also measure the impact of natural rosk on the performance of loans, bonds and equity portfolios.
FUTURE SCENARIOS
As evidenced by the constant activity of all major European supervisory bodies, such as the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Banking Authority (EBA), which have published their technical advice on the draft European Sustainability Reporting Standards (ESRS) relating to the Corporate Sustainability Reporting Directive (CSRD), ESG issues will become increasingly strategic. Not only from a financial point of view but also for communication, as they will contribute to increasing operators’ awareness also to greenwashing practices, a communication strategy aimed at building a deceptively positive self-image in terms of environmental impact. In the future the weight of ESG criteria will be proved not only by the extension of reporting obligations but also thank to the circulation of increasingly detailed reference standards consistent with European regulations. These data will play a central role in the evaluation of companies by investors and stakeholders, as to become increasingly decisive for the evaluation of business models, attractiveness and competitiveness of companies.