ESG for large companies: CSRD

ESG

Legislative Decree 125 of 6 September 2024, published in the Official Gazette on 10 September 2024, transposed the European Corporate Sustainability Reporting Directive (CSRD) into Italian law. With the CSRD, sustainability reporting becomes part of the annual financial statements for all large companies, even those not listed on the stock exchange, with the obligation of a specific audit by the auditing company, which will have to certify compliance with the ESRS standards developed by EFRAG

WHAT ARE YOU WAITING FOR?
THE CSRD DOESN'T WAIT!

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.

There are currently twelve ESRS standards. They require the publication of corporate policies, actions and targets (PATs) with respect to sustainability issues (ESG) relevant to the company:

1.Environmental issues: climate change, pollution, water and marine resources, biodiversity and ecosystems, circular economy;

2.Social issues: own and value chain workforce including gender equality, impacted communities, and consumers-end users;

3.Governance issues, including whistleblowing, anti-corruption, supplier relations and payment practices, animal welfare and political involvement.

ESRS also requires the consolidation of value chain sustainability information, i.e. that concerning subsidiaries and business partners.

Companies obliged

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

From 2024 and thus from published budgets in 2025	The obligation concerns companies listed on regulated markets, banks and insurance companies with more than 500 average employees
From 2025 and thus from published budgets in 2026	The obligation extends to large companies, including unlisted ones, that have exceeded, in the first financial year or for two consecutive financial years, at least two of the following parameters, including at consolidated level: - Revenues > € 50 Milioni; - Total assets > € 25 Milioni; - Average annual employees > 250.
From 2026 and thus from budgets published in 2027	The obligation will also be extended to small and medium-sized listed companies, small and non-complex credit institutions and captive insurance companies
From 2028 and thus from published budgets in 2029	The obligation will also apply to non-EU parent companies, through their EU subsidiaries and branches, which have generated, during the last two consecutive financial years, at group level or, if not applicable, at individual level, net revenues from sales and services in the territory of the Union of more than EUR 150 million

Increased responsibilities for directors, auditors and CFOs
Measuring ESG data is therefore the challenge European companies will have to face in the coming years.

This novelty entails a radical expansion of corporate governance and the reporting process for the CFO: from increased responsibilities for directors and the board of auditors, to the involvement of other corporate functions, to the requirement for a specific review of sustainability information by the auditing firm.

To ensure the reliability of sustainability information with respect to the complexity of European ESRS standards, obliged companies must have a structured internal control system and sustainability accounting software.

The obligation to review sustainability reporting

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 legal requirements. The appointed party may be different from the one appointed for the statutory audit of the annual financial statements.

RSM with companies on the path to CSRD

RSM has already been working on CSRD compliance projects for some time.

We are ready to put at the service of the company a competent and multidisciplinary Team, made up of professionals adequately trained in ESRS and highly integrated with each other.

RSM has established the national ESG Professional Practice to support the Teams. At an international level, RSM Italy participates in the weekly meetings of the CSRD Synergy Group, which is in charge of defining and updating RSM's international methodology on various areas, including dual materiality assessment and assurance.

We have the ability to integrate financial knowledge with the requirements of sustainability reporting, so that top management and the CFO can know the gaps with respect to CSRD and then define the road map and progressively comply with the regulations.

The Taxonomy for Preventing Green Washing

The CSRD also includes the obligation to quantify in accounting terms the degree to which the company's activity is 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.