In the recent years, EU has significantly increased its regulatory efforts in the ESG area: indeed, the EU regulatory landscape has evolved through various provisions, Directives and Regulations, as part of the so called “Green Deal” initiative, aimed at promoting sustainability and corporate responsibility across the EU member states.
However, the regulatory landscape has often been fragmented, involving a series of challenges for businesses trying to navigate it. To address these complexities, the EU Commission President has recently anticipated the release of an Omnibus Package, with the aim of enhancing transparency, improving consistency of ESG reporting and reducing the burdens and complexities of the set of Directives and Regulations part of the EU Green Deal (e.g. Corporate Sustainability Reporting Directive – “CSRD”[1], EU Taxonomy Regulations, Corporate Sustainability Due Diligence Directive, Eco-design Regulation, etc.). The EU Commission is scheduled to publish the Omnibus Package proposal on February 26, 2025.
The extent to which the Omnibus Package will amend the relevant provisions is not yet known; however, the objective should be to rationalize the legal framework without undermining its objectives. In any event, the adjustment to be made by the Omnibus Package could impact national laws, including the recently approved Legislative Decree transposing the EU Corporate Sustainability Reporting Directive (the “CSRD Decree”)[2].
The CRSD Decree at a glance
The main features of the CSRD Decree may be summarized as follows:
Companies targeted by the reporting obligations
The obligations related to the sustainability report shall apply to all large companies[3], parent companies of large groups[4], listed small and medium sized companies (“SME”), banks and insurance companies, and large or listed SMEs that are subsidiaries of non-EU companies having specific turnover requirements[5].
Micro-companies and not listed SMEs are excluded from these obligations, but they can decide to voluntarily adhere to them. Furthermore, SMEs might indirectly deal with the CSRD and CSRD Decree requirements, as suppliers to large companies. However, the CSRD and CSRD Decree do not provide a specific framework for these types of companies to follow.
In light of the above, the European Financial Reporting Advisory Group (“EFRAG”) developed a set of sustainability reporting standards for non-listed micro-companies and SMEs (“VSME Standard”), with the aim to (i) simplify and standardize the several ESG data requests, representing a significant cost for these kinds of entities, and (ii) provide better access to lenders, investors and clients. VSME Standard has been delivered by EFRAG on December 17, 2024, along with the EU Commission’s SME Relief Package[6].
Sustainability report as part of the financial statements
Pursuant to Article 3 of the CSRD Decree, the sustainability report shall be included in a special section of the management report of the financial statements: therefore, it shall be prepared by the directors of the companies, approved by the shareholders’ meetings, and filed with the Register of Enterprises within the deadlines mandatorily provided by the law for financial statements; furthermore, it will be subject to the review of the statutory auditors and external auditing companies.
The sustainability report should include all information necessary to understand how sustainability issues affect the company’s performance, results and position. Specifically, the report shall include, amongst others, information on products, services, relationships and supply chain, corporate strategies related to sustainability issues and their compatibility with the transition to a sustainable economy and limitation of global warming, business objectives and policies on sustainability, as well as due diligence procedures.
Certification of the report by a sustainability auditor
The report shall be drafted in accordance with the ESRS and, as set forth in Article 8, subject to a specific assessment by a “sustainability auditor”. The sustainability auditor may be the same person already appointed to audit the financial statements only if he or she fulfils the specific requirements laid down by the same Decree. In this respect, Article 9 of the CSRD Decree establishes a series of amendments to the external auditors’ law currently in force[7], in order to set forth duties, powers, responsibilities and requirements of the sustainability auditor and also specific rules related to the sustainability assessment. The sustainability auditor shall assess that the sustainability standards required by the CSRD Decree and the CSRD are met, providing a formal attestation of this compliance.
Duties and sanctions
Article 10 of the CSRD Decree expressly provides further duties and responsibility over directors and statutory auditors, in addition to those already established by Italian corporate law. Hence, directors will be responsible for ensuring that the sustainability report is made in accordance with the provisions of the CSRD Decree and statutory auditors shall be entrusted with a general duty of control on the compliance with the provisions established in the CSRD Decree by the directors.
Furthermore, Article 10 establishes specific administrative sanction that may be imposed by the Italian Stock Exchange Authority (ITA: “CONSOB”) in case of non-compliance with the sustainability reporting obligations against companies, directors and statutory/external auditors[8].
Although the CSRD Decree does not provide for criminal sanctions, the question arises as to whether misrepresentation in the sustainability report could constitute the offense of false accounting given that the sustainability report will become an essential part of the management report of the financial statements[9].
A definitive answer is not easy to find, as it should be first established whether the information included in the sustainability report falls within the purview of the provision on false accounting, expressly referring to misrepresentations of companies’ “economic, monetary and financial situation”[10]. Indeed, while sustainability information is not directly related to economic, monetary, and financial factors, it could affect companies’ operations and relationships with third parties, thus indirectly impacting their revenue and financial position. To date no clarification is provided in the CSRD Decree nor in the explanatory report[11].
Implementation dates
Reporting requirements shall be based on the information from previous financial years.
Specifically, the new obligations provided by the CSRD Decree will be applicable as indicated below:
- From 2025, based on the information as of FY 2024: (a) large public interest entities that, as of the balance sheet date, exceeded 500 employees; (b) public interest entities that are parent companies of a large group and that, on a consolidated basis, exceeded 500 employees;
- From 2026, based on the information as of FY 2025: to the other large companies and parent companies of large groups;
- From 2027, based on the information as of FY 2026: (a) to listed SMEs; (b) to the so called “non-complex entities”[12], provided that they are large companies or listed SMEs; and (c) to captive insurance and reinsurance companies, provided that they are large companies or listed SMEs;
- From 2028, based on the information as of FY 2027: to extra EU companies.
***
As companies prepare to comply with requirements of the CSRD Decree, the Omnibus Package could introduce new complexities, including the reshaping of existing rules. This could lead to additional challenges in (A) ensuring compliance with the most up-to-date ESG systems and practices; and (B) bearing the economic costs of the changes that will need to be made due to ongoing updates to the regulatory framework. Indeed, to comply with the CSRD Decree, companies are called to:
- promptly evaluate their current ESG practices and compliance, also conducting specific audits to identify potential gaps;
- implement an ESG internal controls sytem;
- review their data collection and management systems, policies, guidelines, and information flows, to make a true, clear and complete sustainability report;
- assess the possibility that the current external auditors may also be appointed by the shareholders’ meetings as sustainability auditor;
- deliver periodic training to the management, control body and employees involved at various levels on ESG matters, to raise awareness on new duties and responsibilities.
In this context, regular monitoring of the regulatory framework and close collaboration with internal and external advisors are crucial, to ensure timely and efficient compliance with the latest ESG regulations and practices.
[1] An overview of the main features of the CSRD is available at the following link.
[2] i.e., Legislative Decree No. 125/2024 approved on September 10, 2024. The CSRD Decree also replaces the previous national regulation on non-financial disclosure obligations. The publication follows the approval of the final draft by the Council of Minister as of June 10, 2024, and the discussion of the Italian Parliament, after the conclusion of the public consultation launched by the Italian Minister of Economics and Finance in February, aimed at collecting useful feedback from the stakeholders concerned.
[3] i.e., companies that in their first financial year of activity or for two consecutive financial years, exceeded two of the following thresholds: i) balance sheet total: EUR25,000,000; ii) net revenue from sales and services: EUR50,000,000; iii) average number of employees: 250.
[4] “Large groups” means groups consisting of a parent company and subsidiaries to be included in the consolidated FS and which, on a consolidated basis, exceed, in their first financial year of operation or for two consecutive financial years, at least two of the three following thresholds: i) balance sheet total: EUR25,000,000; ii) net revenue from sales and services: EUR50,000,000; iii) average number of employees employed during the financial year: 250.
[5] i.e, with net revenues from sales and services exceeding EUR150,000,000 in the last two consecutive financial years, at group level or, if not applicable, at individual level, generated in UE.
[6] Published by the EU Commission in 2023, including 19 actions aimed at providing short-term relief, trigger long-term SME competitiveness and resilience, and provide a fair and business environment. In particular, Action 14 of the Package established that EU shall: “Ensure that SMEs have a simple and standardized framework to report on ESG issues, by limiting the risk of disclosure requirements trickling down on non-listed SMEs in the value chain of undertakings in the scope of Corporate Sustainability Reporting Directive, and ensuring the rapid delivery of voluntary standards for non-listed SMEs.”. The EU Commission Relief Package is available at the following link.
[7] i.e., Legislative Decree No. 39/2010.
[8] The CSRD Decree expressly refers to Articles 154-ter and 193 of the Italian Consolidated Law on Finance and to the external auditors’ specific regulations on corporate reporting obligations and the applicable sanctions for the relevant violations.
[9] Therefore, it will be subject to the principles, requirements and obligations that govern the drafting and approval of financial statements (e.g., principles of correctness, transparency, truthfulness, etc.).
[10] See Articles 2621 and 2622 of the Italian Civil Code, related to false accounting.
[11] Even if the draft version under consultation included the choice to sanction the misrepresentation of the sustainability report under Artt. 2621 and 2622 of the Italian Civil Code.
[12] Pursuant to the definition included in Art. 4, Par. 1, section 145) of the UE Regulation No. 575/2013 of the EU Parliament and Council as of June 26, 2013 related to prudential requirements for credit and investment institutions.
