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In this article some time ago, clarity was shed on the European legislation that sees factors related to sustainability finally entering the metrics, documents and company regulations: ESG factors. The news of a few days ago that the CSDDD has been reached an agreement between the negotiators of the European Commission (last December 14) could again confuse several entrepreneurs who are working to declare the objectives for next year.
The NFS
The first act to consider that identifies ESG factors is Directive 214/95/EU (NFRD) implemented in Italy with Legislative Decree 254/16, i.e. a reporting that obliges companies to adopt non-financial information (NFS) of an environmental, social (relations with consumers and the community of reference), personnel management, protection of human rights and fight against corruption for a target of large listed companies and banks and listed and unlisted insurance. The authority has therefore aligned environmental issues with the principles ofsocial responsibility , i.e. the OECD guidelines on business and human rights. Therefore, the NFS only concerns public-interest entities, such as banks or insurance companies, regardless of size, and listed companies, with at least 500 employees and a balance sheet of more than €20 million or a turnover of more than €40 million. On the other hand, for unlisted SMEs and micro and start-ups, the declaration is not mandatory.
The CSRD
The
Corporate Sustainability Reporting Directive
(CSRD) is the Commission’s recent proposal for a directive on corporate sustainability reporting (CSRD), which revises the NFRD, and therefore an evolution of it: the scope of application would be extended to all large companies and all listed companies, requiring the audit (assurance) of the information reported and thus strengthening the standardization of the information reported empowering the Commission to adopt sustainability reporting standards. This is because there is currently a real greenwhasing on the subject: to date, even at the European level, there is an oversimplification of ESG issues, such as in terminologies, for example that of “sustainable investments” which has so far left room for interpretation, with consequent implications for the market. The CSRD would reduce the ambiguity of ESG terminology and their education and comparability in the market. “Large size” refers to those companies that, from 1 January 2025 to the end of the financial year, exceed 2 of the following 3 criteria: €20 million in total assets, €40 million in net revenues, 250 average annual employees; while from 1 January 2026 it will also cover listed SMEs.
The CSDDD
The Corporate Sustainability Due Diligence Directive (CSDDD) is the directive on corporate responsibility for the environment and human rights. This directive in particular complements the CSRD. The CSDDD concerns the supply chain of companies, even if they are located outside the European Union. The directive obliges companies to take responsibility for their actions both within the EU and outside the EU. While it is true that CSRD also implies impacts in the supply chain, it is still quite generic on the matter, while CSDDD is much more detailed on the actions that companies need to take. Once approved, member states will have two years to transpose the directive into national law. After that, companies will be required to implement the requirements by 2026, depending on the type of company. The CSDDD will only apply to companies with more than 500 employees and a global annual turnover of more than €150 million. For some at-risk sectors such as textiles, agriculture, food production, trade in mineral resources, construction, the limit is lower: companies with more than 250 employees and a turnover of more than €40 million if at least €20 million are generated in one of the sectors mentioned above will fall within the scope of the directive.
Volunteer ESRS
To address any reasonable doubt about the reporting obligation and towards the voluntary adoption of the appropriate sustainability disclosures to be attached to the financial statements, on 8 November 2023, EFRAG sustainability reporting published the draft of the sustainability reporting standard “Voluntary ESRS” for micro enterprises such as startups and unlisted SMEs. It is a standard that can be adopted by those companies that are not subject to the obligation of EU Directive 2022/2464 (CSRD), in force since January 5, 2023. This is certainly excellent news, as, even if it is a draft, being in line with the principles of the CSRD, it will allow in 2024 those companies, such as startups, exempt from the obligation, to still adhere to sustainability reporting, useful to be able to work and operate with large companies subject to this obligation and which will be obliged to request reporting from these startups regarding the sustainability ratings adopted. (Photo by Photo Boards on Unsplash)
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