The countdown has begun: even small and medium-sized businesses will have to apply sustainability reporting, just as large companies have already been doing for some time. They are going to have to put in place real reporting that can provide the market, the public, and stakeholders with an understanding of the impact of the company's activity on social, economic and environmental sustainability issues, and how these ESG aspects affect the company's performance, its results, the risks it encounters and its operations. We are talking about the European CSRD (Corporate Sustainability Reporting Directive), approved in 2022 by the European Union, and formally implemented last August 30 by our government into Italian law with a legislative decree.

From (almost) every perspective, this is excellent news for those who believe in the possibility of bringing environmental, social and governance aspects (the famous ESG criteria) more into line with the actions of companies. But even though there are several gradual steps planned for the full entry into force and application of this legislation, there is no doubt that for the many companies that have not prepared for it, the fear of not being able to handle the news increases.

Which companies are impacted by the CSRD?

The scope of application of the CSRD covers SMEs, listed in the stock exchange, with more than 11 employees (up to 250), assets between €450,000 and €25 million, and net revenues from sales and services between €900,000 and €50 million. We're talking about thousands of companies – many of which have never even considered the subject until now – that will have to draw up (internally, or through outside consultancies) a sustainability report done with all the trimmings and not “stretched out,” compliant with the ESRS, European Sustainability Reporting Standards. They would also have to understand and develop the not-so-simple concept of dual materiality, that is, the analysis and evaluation of how ESG issues affect a company's financial performance (financial materiality) and how the company's activities impact social and environmental issues (external materiality).

There is no doubt that fully acquiring these features will ultimately strengthen businesses, make them more financially sound, and also make them more productive, as well as environmentally and socially conscious. But nonetheless, it is clear that it will not be a picnic for many entrepreneurs. As mentioned, the novelty will be implemented gradually. From January 1, 2025, the obligation will impact companies with more than 250 employees, turnover of 50 million, balance sheet of 25 million (at least two of the three criteria). From January 1, 2026, it will be the turn of SMEs and other listed companies, but also small companies acting as suppliers to companies that are required to report on sustainability, and are part of their supply chain.

“It has been estimated that CSRD will bring the number of companies obliged to report on sustainability from the current 208 to about 7,000, including listed and unlisted companies,” clarifies Anna Doro, coordinator of the Technical Committee on Sustainability, Benefit Companies and B corp of Assonext, the Italian association of listed SMEs. “For listed SMEs that already publish a voluntary sustainability report, it will be about introducing the main novelties of the Directive, namely taxonomy, double materiality and ESRS, while for the others it will be a quantum leap.”

For example, as of today, only 25 percent of the companies listed on Euronext Growth Milan have published at least one sustainability report, although some of them will begin to do so in reference to 2023, Doro says. Even SMEs that are not subject to the obligation will be involved as suppliers or customers of large companies obligated by CSRD to provide ESG data from their value chain. The main challenge for SMEs will be to adopt a reliable data collection and measurement system that enables monitoring of ESG performance. According to Doro, “CSRD requires small and medium-sized companies to make a change of course, a commitment of human, intellectual and economic-financial resources, but it is also an opportunity to introduce those organizational changes in the company regarding long-term strategy, governance, and business management that can only strengthen them and make them grow, especially in Italy.”

Confartigianato’s doubts

Not everyone applauds the news, however. As Marco Granelli, president of Confartigianato, says, “We appreciate any attempt to involve micro, small and medium-sized enterprises, which certainly do not want to be left out of the sustainability path and which share the objectives and motivations behind it. However, precisely because of this, there is a need for maximum consistency and proportionality of actions and measures that impact small businesses.” For the artisans' association, the European Union's approach is one “designed for a large company, and it seems unrealistic to apply it to a small or very small company.” Confartigianato's goal is to “avert the risk of passing on to SMEs regulations designed for companies with entirely different characteristics.” From this stems the call for a regulatory model “that pushes the production system toward innovation, taking into account the characteristics of companies and providing investment support for transition and aid for structural consolidation.” And that above all, says Confartigianato's number one, “must be backed up by tools that support companies, especially smaller ones, for example by adopting the Next Generation EU as a general scheme of support for industrial policies, putting in place resources that encourage companies' adaptation investments.”

Who is offering advice and tools to manage CSRD obligations

As one could understandably imagine, for many entrepreneurs the novelty poses no small problem. A sizeable minority of SMEs had already made preparations; all the others will have to take action to understand how reporting works, what kind of reporting standards they need to follow, what kind of data they need to report. Admittedly, there are already companies announcing instead that they will provide those who have not prepared with the essential tools to deal with CSRD. Such is the case with Circularity, an innovative startup and benefit company that offers technical and strategic consulting services to companies on sustainability issues. As Circularity's CEO Camilla Colucci explains, “We are directly involved in supporting our client companies not only to meet the new regulations that have come into force, but also to carry out medium- and long-term projects to continue improving their sustainability standards and performance. In this first phase, we act as ESG managers for our client companies, to support them in drafting and not only reporting all the data, but also in compiling the sustainability report. Obviously, for a typical company in Italy, where the industrial fabric is basically made up of small and medium-sized companies, this is not easy: they often have no expertise on the subject and to understand what to do and how to do it, they have to put the business aside.” In short, consultants will have to support companies to figure out how to move first, with the subsequent goal of enabling them to internalize the skills, and tend to solve the problem themselves. And that is why Circularity has developed a digital tool, the ESG Reporting Tool, aimed at digitizing the entire data collection phase.

Andrea Zuanetti is co-founder of Up2You, a young company studying solutions to enable businesses to reduce their environmental impact. For Zuanetti, “the difficulties in drawing up a sustainability report according to CSRD are many: from the collection of complex and diverse data, to the need to integrate this information in a way that is consistent with the new regulations on reporting standards (ESRS). We recommend, including for those who do not have to prepare financial statements right away, to start working on data collection and organization now. Preparing in advance offers the opportunity to manage the transition more smoothly and make the most of the benefits of sustainable reporting, without getting caught unprepared at the last moment.”

Giuffré Francis Lefebvre, a company that offers traditional and digital publishing services for the legal, tax and labor sectors, has also drafted a printed guide. As CEO, Stefano Garisto, says, the group, together with GRI (Global Reporting Initiative) and Pascal Durand, Member of the European Parliament and official rapporteur of the Directive, designed the CSRD Essentials guide, which will be published on the Giuffrè Francis Lefebvre website in early October.

What do companies think about it

For Cristina Lupattelli, Sustainability Committee coordinator for the well-known food group Colussi, “The change in approach from current sustainability reporting is radical. Our first Sustainability Report is from 2019. However, with this new directive, the work to be done is even more challenging as it introduces stricter requirements and demands a significant commitment also in terms of investments to align with the new regulations and meet the growing expectations of stakeholders and civil society. However, we are confident that it will represent an important strategic lever of differentiation not only in terms of innovation but also in terms of social, economic and environmental responsibility.”

Davide Trapani, president of Edileco, a cooperative company specializing in eco-friendly construction and renovation founded in 2005 in the Aosta Valley, says that “some small and medium-sized enterprises already have assets that make them virtuous in terms of sustainability. In Edileco, for example, we chose to voluntarily draw up our sustainability report, even though it was not required by legislation. I think it is important that reporting on these aspects of corporate life also becomes mandatory for SMEs, both to give voice to virtuous experiences and to be able to make increasingly sustainable choices. However, adopting the same reporting standards as large companies may not be the most suitable method: we need to consider the specificities of SMEs and identify parameters that can incorporate this specificity.”

“At SproutWorld we don't just see reporting as a resource-intensive task, we see it as a competitive advantage, and that's how I believe it will be for SMEs, at least the more forward-thinking ones,” says Michael Stausholm, founder of SproutWorld, the scale-up that invented the world's first plantable pencils that are reborn into plants, flowers, and herbs. “If a company works strategically on data, technology, employees, sustainability, and customer relations, it ensures that it can deliver exactly the products and services that customers expect now, and in the future. Therefore, reporting should not be an issue.” “This is moving in the direction of creating a kind of ‘green guarantee’ that businesses will be able to enforce with consumers but also with stakeholders,” says Emanuele Colli, CEO of iLMeteo.it, Italy's leading provider of weather forecasts. “This is an important step forward, which also leads us to reflect on how attention to sustainability also means attention to climate change. In fact, sustainability represents a comprehensive approach to addressing and mitigating its causes and effects. Finally, we only hope that the bureaucratic aspects will be as light as envisioned.”

“The introduction of CSRD is a crucial step toward transparency and corporate responsibility. As a startup promoting digital menus, we are fully aware of the importance of reducing environmental impact. Our commitment is to provide sustainable solutions to help businesses, particularly those in the restaurant industry, do their part in the ecological transition. We believe that integrating sustainable practices is not only a must, but also a strategic opportunity for the future,” explains Alessio Marzo, founder of Leggimenù, a startup that offers a free digital menu used by nearly 30,000 Italian restaurants. “In a context that is increasingly attentive to the impact and preservation of our ecosystem, I find the progressive extension of sustainability reporting to more companies appropriate. In fact, businesses perform a social function in addition to generating profit: I think it is fair that increasing attention is being paid to this social function and the way it is materially carried out.” Marco Tilesi, CEO and founder of Century21 Italia, Italian branch of the leading American real estate giant.

“The new CSRD is definitely a positive opportunity, although in some respects its implementation could be quite complicated for SMEs,” comments Ali Benkouhail, founder of Human Maple, the startup that has developed a system for collecting and recycling cigarette and e-cig filters in stuffing. “It will certainly improve performance on the environmental level, but it is inevitable that, on the other hand, it will increase the price of supplies and consequently the products/services on the market. This is why it will be important to think in terms of a 'short' supply chain, meaning favoring realities from their territory as much as possible that have embraced the principles of the directive in a practical way by enhancing their value proposition, which goes beyond price.”

Gerard Albertengo, CEO and Founder of Jojob, a company that has developed an innovative carpooling service for commuters, applauds the innovation. “The CSRD,” he says, “represents an important step towards greater environmental and social sustainability in the private sector. The merit of the new directive is to broaden the audience of companies involved so that awareness of the issue can spread and so that more and more companies, even the smallest ones, start a process of taking responsibility and reducing their impact.”

Gloria Mazzoni, president of Airbank, Italy's leading anti-pollution and environmental safety company, is also on board. “We welcome Italy's transposition of CSRD, a crucial step toward transparency and corporate sustainability. At Airbank, we have always been committed to promoting environmental responsibility, and this year we have added one more piece, thanks to a Strategic Plan and the drafting of the first Sustainability Report.”

Sabrina Passione, CFO of the Grendi Group, active in the logistics and transportation sector and a benefit company since 2021, says that “we are training to introduce the new extra-accounting reporting model brought in with the CSRD. Like any logistics operator, we know how complex it is to reduce climate-changing gas emissions, and we also know how the risks of climate change on our operations are growing. It is a non-trivial exercise that requires the introduction of new skills with respect to the EU taxonomy for reclassifying operating expenses and investments made and planned. We are also checking the need for external support and the presence of possible cloud platforms for collecting and structuring the data needed to develop the analysis of risks and opportunities related to impact issues. For an integrated logistics group like Grendi, this is an expensive exercise in terms of time and energy that will also require a great deal of collaboration with its partners and suppliers from which we purchase services and products.”

And for Giancarlo Losito, Product & Operations Director of SENEC Italia, company part of the German group EnBW that offers products and services for solar energy production and management and storage, “the implementation of this directive will bring new responsibilities for companies, and this naturally causes some concern, also linked to the fear that compliance may turn out to be only formal and entail only duties and no real benefit. On the other hand, the push toward sustainability and corporate social responsibility that this directive and its eventual implementation in Italy bring can only be a positive thing in the economic context, since it will prompt consumers to increasingly evaluate these aspects in their purchasing choices as well, and it will provide them with clear indicators on which to base their evaluations.”

Image: Envato Elements

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