The Sustainability report

Introduction

Nowdays, the value of a company is no longer based only on economic results, but on an overall assessment that also includes indicators regarding the environmental and social impact that it produces.

The sustainability report, which represents a great opportunity for companies, aims to make this additional information known to all interested parties.

In this short article we talk about what it is and when its drafting is mandatory for companies.

The sustainability report

The sustainability report is an annual report that aims to communicate the sustainability impact of the company.

Its primary purpose is to make known the environmental and social results that the company that creates it has generated with its business.

The sustainability report also implies the assumption of a responsibility (c.d. accountability) towards stakeholders and regarding the performances actually achieved by the company against those that have been planned.

The difference between sustainability report and financial statements

In order not to create confusion, it is useful to highlight the difference with the financial statements, which is defined as the set of accounting documents that a company must to draw up.

The purpose of these financial statements is to correctly and truthfully establish the economic and financial situation and the economic result of the company itself at the end of a reference period.

The content of the sustainability report

The European Union Directive 95 of 2014 (2014/95/EU) also known as the Non-financial Reporting Directive (NFRD), outlines the content of the sustainability report, which must cover:

environmental issues;
respect for human rights;
social issues, including the treatment of employees;
personal characteristics of the members of the corporate bodies (gender; age; educational and professional path);
anti-corruption and anti-birbery.

It is also essential that the sustainability report analyzes and represents the performances achieved by the company against the wide concept of sustainability.

To whom the sustainability report is addressed

The sustainability report addresses all stakeholders to the impact that the company can have.

For example, the sustainability report may be addressed to suppliers, investors, lenders, employees and customers.

Mandatory nature of the sustainability report

The European Union, in its 2001 Commission Green Paper, tells that the sustainability report has a “voluntary” nature.

Subsequently, the Italian Ministry of the Interior defines the “Social Report” as “the outcome of a process in which the administration gives an account” of the choices made in a certain period, with the aim of allowing stakeholders to have the elements to “formulate their own” assessment of the performance of the institutional mission and mandate.

In this case, too, the voluntary communication that the company makes about the environmental and social results obtained in carrying out its activity remains.

With the European Directive number 2022/2464 Corporate Sustainability Reporting Directive, the sustainability report becomes mandatory according to the following timeline:

From 1 January 2024 for enterprises with more than 500 employees (also called large enterprises);
From 1 January 2025 for large companies that, at the end of the financial year, exceed at least 2 of the following requirements: 250 average employees per year; 40 million net revenues; 20 million total assets;
From 1 January 2026 for small and medium-sized enterprises (SMEs) and other listed enterprises.

Very important is the obligation to produce the sustainability report also for companies that are not part of the European Union that achieve more than 150 million net revenues from performance and sales in the European Union, and that, always in European territory, have at least one subsidiary or branch.

This does not rule out the possibility that companies, however, may draw up the sustainability report voluntarily.