Sustainability reporting: everything there is to know about it

The impact on communities and territories generated by companies is increasingly in the spotlight due to a growing demand for transparency on non-financial information. The value of a company is now determined not only by its economic performance but also by its environmental and social impacts. In this sense, sustainability reporting offers an opportunity to talk about one’s business by placing it in a broader context. By involving stakeholders, defining sustainability goals and adapting to international standards, companies can provide a deeper insight into their activities, values and governance model. In this way, the sustainability report is not only a regulatory obligation, but becomes an opportunity to improve the organisation’s planning, including sustainability, efficiency and effectiveness.

What is Sustainability Reporting?

Sustainability reporting, also known as non-financial or ESG (Environmental, Social, Governance) reporting, aims to provide a broader picture of organizations rather than traditional financial reports. Sustainability Reports, in fact, include in-depth descriptions and information on the environmental, economic and social impacts generated by the day-to-day activities of companies.
The growing importance given to this type of reporting is also underlined by the various initiatives launched at European level, including the promotion of impact finance and ESG investments. These have been followed by various directives that aim to place European companies within this framework. Going into detail, the directives are:

1. The EU Directive 2014/95 on the disclosure of non-financial information;
2. The European Regulation 2019/2088 – Sustainable Finance Disclosure Regulation – SFDR
3. The EU Taxonomy
4. The EU Directive 2022/2464 – Corporate Sustainability Reporting Directive – CSRD
5. The EU Directive 2024/1760 – Corporate Sustainability Due Diligence Directive – CSDD

The Corporate Sustainability Reporting Directive (CSRD)

With the Corporate Sustainability Reporting Directive (CSRD), companies are required to integrate sustainability into their operations and strategies through the drafting of Sustainability Statements. The CSRD came into force on 5 January 2023. On 6 September 2024, Legislative Decree No. 125 implementing it was published in Italy, and the measure came into force on 25 September 2024.

With Directive (EU) 2026/470, the European Union has approved the Omnibus package aimed at simplifying reporting obligations. Sustainability reporting is mandatory only for EU companies with more than 1,000 employees and an annual turnover exceeding 450 million euros.
The agreement also limits the amount of information that companies subject to the regulation may request from smaller companies in their supply chains, allowing companies with fewer than 1,000 employees to refuse to provide information that goes beyond that required by the voluntary sustainability reporting standard for SMEs (VSME), and encouraging companies subject to the CSDDD to rely primarily on reasonably available information, rather than systematically requesting information from smaller companies within the value chain.

The main new features of the directive are:

• Placement of reporting within the Management Report;
• Introduction of the concept of dual materiality);
• Single reporting standard (ESRS – European Sustainability Reporting Standard) to ensure that the information is comparable;
• Mandatory assurance (limited assurance until 2028) to verify the compliance of reporting with the ESRS standards.

However, even for companies that are not obliged, there are numerous benefits to voluntarily producing these reports, including:

• Improved corporate reputation
• Increased stakeholder trust
• Competitive advantage in the market
• Improved ESG risk management
• Recognising ESG performance and developing a corporate strategy accordingly
• Attraction of funding
• Reputation and market positioning by demonstrating to stakeholders the ability to generate value, avoid negative impacts and maximise positive effects

Writing a Sustainability Report: where to start?

Preparing a Sustainability Report requires an in-depth knowledge of reference standards, which are essential tools for ensuring comparability, reducing selective disclosure and the risk of misleading information. These standards serve as a common basis for understanding organisations, their activities and their reporting system.

With the introduction of the Corporate Sustainability Reporting Directive (CSRD), the European Sustainability Reporting Standards (ESRS) have become the main reference, flanking the already well-known GRI standards. Both follow the Environmental, Social, and Governance (ESG) criteria framework, a three-level paradigm that analyses corporate impacts on the environment, society, and governance.

ESRS standards

ESG criteria are strategic tools to provide stakeholders with a comprehensive information basis for assessing risks and opportunities of the company, after careful internal analysis. They allow a holistic view of the company, going beyond mere financial analysis and embracing a long-term sustainability perspective.
Sustainability reporting, therefore, is not a mere compilation of information, but a circular process that starts with an introspective analysis of the organisation on the three ESG levels to reach the construction of a strategy that incorporates sustainability into the entire value chain and decision-making process.

In this perspective, stakeholder involvement becomes indispensable. ARCO’s approach promotes the adoption of participatory methods to establish a reporting practice in synergy with the organisation’s key stakeholders.