The path and timeline of sustainability reporting

published on 8 May 2024 | reading time approx. 4 minutes

Many companies that are part of international groups are questioning their obligations in terms of sustainability reporting. As better explained below, it is important to understand that, even where formally exempted, subsidiaries nevertheless need to implement all the processes useful for reporting purposes.

For convenience, we attach and show hereunder the timeline relating to the progressive entry into force of reporting obligations and, immediately below, the provisions of the CSRD that refer to groups of companies.

N.B.: we are talking about European companies, for third countries the reference is to the criterion of equivalence of reporting.

When do reporting obligations for companies take effect?

Reporting in 2025 on the 2024 financial year for companies already subject to NFRD¹;
Reporting in 2026 on the 2025 financial year for large companies that are not currently subject to NFRD; for large companies we are talking about exceeding 2/3 of the following parameters 250 employees, 50 million Euros in turnover, 25 of total assets;
In 2027, starting from the financial year 2026, for listed SMEs (excluding micro-enterprises), small and non-complex credit institutions and captive insurance companies;
Starting from the financial year 2028 (2029) for third-country companies with a net turnover above 150 million in the EU, if they have at least one subsidiary or branch in the EU that exceeds certain thresholds.

Article 19a (3) and Article 29a (3) of Directive 2013/34/EU exempt all subsidiaries from the obligation to report non-financial information if those companies and their subsidiaries are included in the report on the consolidated management of the parent company, provided that such report contains non-financial information reported pursuant to that Directive.

Nevertheless, it is necessary to ensure that sustainability information is easily accessible by users and to ensure that it is clear which parent company of the exempted subsidiary is communicating the information at group level.

What needs to be carried out for subsidiaries

It is therefore necessary to require such subsidiary companies to include in their management report the name and registered office of the parent company communicating sustainability information at group level, the links to the consolidated management report of their parent company and a reference, in their management report, to the fact that they are exempt from sustainability reporting. Member States should be able to require the parent company to publish the consolidated management report in the accepted languages and the parent company to provide the necessary translation in those languages. This exemption should also apply if the parent reporting company at group level is a third-country company reporting sustainability information in accordance with equivalent sustainability reporting principles.

Therefore, with regard specifically to subsidiaries belonging to a group of companies with a parent company within the EU that draws up a sustainability report in accordance with the CSRD, the subsidiary that enters the scope of consolidation, within certain limits, may limit itself to recalling the consolidated financial statements of the ‘parent’ within which its sustainability report is included. The sustainability report must in any case include the value chain, first and foremost, for the groups, subsidiaries and affiliates.

However, in order to allow the parent company to consolidate, the subsidiary must of course provide the relevant data and information. Practically, it must consequently implement the entire process (materiality analysis, identification and measurement of KPIs, etc.) in order to collect the necessary data to be provided to the ‘parent’ and then, in its own management report, recall the ‘parent's’ report but within certain limits.

It is also very important to point out that the subsidiary cannot limit itself to filling out the checklists prepared by its parent company, based solely on the assessment and materiality analysis carried out at the group level.

It is not a mere mandatory formal fulfilment which, moreover, would result in a very costly process if not properly proceduralized and managed ex ante. The subsidiary must, on the other hand, systematically internalize and manage the process that leads to the generation and, therefore, to the collection of data, adapting it to its own reality that also presents territorial and value chain differences. This occurs because the reporting principles are European, but many regulations are local and the company remains responsible for the accuracy of the data and its ESG performance.

Ultimately, regardless of the progressive entry into force of the reporting obligation, most companies are immediately involved, either at the request of their parent company, or of banks (which are required to evaluate the ESG profile for the purpose of granting loans), or again, for the purpose of participating in calls for tenders. Last but not least, it is the market itself that pushes for reporting, both in B2B to be able to enter or stay in the supply chain as a supplier, and in B2C in consideration of the great influence of the ESG profile on consumer choices.

This is the time to structure and take the necessary actions.

[1] Directive 2014/95/EU, transposed in Italy with Legislative Decree no. 254 of 30th December 2016, which entered into force on 25th January 2017 and whose provisions apply from 1st January 2017.