EU Directive 2022/2464: a new ESG challenge for companies


Curated by Salvatore Providenti and Francesca Tanzi Marlotti

With the entry into force of the CSRD Directive, Europe confirms its commitment to the creation of a framework that aims to increase corporate responsibility on sensitive sustainability issues and to spread common reporting standards. Italian companies will soon face a new challenge toward sustainable economic development.

Regulatory context and scope

On January 1, 2023, EU Directive 2022/2464 (Corporate Sustainability Reporting Directive, or “CSRD Directive“) on corporate sustainability reporting came into force, amending the EU 2014/95 Non-Financial Reporting Directive, or “NFRD“), with the aim of guiding companies toward a more sustainable economy.

The need to provide for sustainability reporting, stems from the commitments made by the European Union with (i) the Paris Agreement ratified by the EU in 2016, which committed governments to keep the global average temperature increase below 2°C compared to pre-industrial levels and to limit this increase to 1. 5°C, (ii) the 2018 Sustainable Finance Action Plan, which identified ten priority actions to be taken to achieve a financial system that is fit to promote development that is genuinely environmentally, socially, and economically sustainable, and (iii) the 2019 Green Deal, which defined a set of policy initiatives aimed at achieving the goal of climate neutrality by 2050.

As member states, including Italy, are obliged to transpose the new provisions into national legislation by July 6, 2024, companies will, therefore, soon be required to publish detailed information regarding sustainability issues.

What does the CSRD require of companies?

Companies subject to the obligation will have to prepare sustainability reporting in accordance with the European Sustainability Reporting Standards (“ESRS“) being developed by the European Financial Reporting Advisory Group (“EFRAG“) and expected to be approved by the European Commission in June 2023.

With the new regulations, not only will the term “non-financial reporting” no longer be used, but rather sustainability reporting, but the number of companies covered will also be expanded as well as the information set to be reported in a special section of the management report; this information set, based on the so-called principle of dual materiality, will include both the effects of the company’s activities on people and the surrounding environment and how developments in the field of sustainability affect and have an effect on the company. It is also required that sustainability reporting be made available in digital format, as well as subjected to “limited assurance” by statutory auditors and accounting firms, with the aim of strengthening the reliability of the information reported therein.

Transparency on how the company will address the above issues will enable the company to increase its responsibility, awareness and understanding of risks and opportunities related to the environment, social issues and business conduct, as well as improve dialogue with all stakeholders and investors.

Addressees and date of application

The new sustainability disclosure rules will apply to all large listed and unlisted companies, including non-European companies where certain conditions are met. The rules will also apply to listed SMEs, taking into account their specificities, although an exemption (“opt-out”) will be possible during a transitional period, exempting them from the application of the CSRD Directive until 2028.

To these entities, the CSRD Directive, and therefore the obligation to prepare and publicly disclose a sustainability report, will apply in four distinct phases:

  • in 2025, reporting on fiscal year 2024 for companies that currently already prepare a non-financial statement-contained in the management report accompanying the annual financial statements-under the NFRD;
  • in 2026, reporting on fiscal year 2025 for large enterprises not currently subject to the NFRD Directive;
  • in 2027, FY2026 disclosure for listed SMEs (except micro enterprises), small and non-complex credit institutions, and captive insurance companies;
  • in 2029, FY2028 communication for non-EU firms with net sales and service revenues exceeding €150 million in the EU, if they have at least one subsidiary or branch in the EU that exceeds certain thresholds.