What is the sustainability report? What are the goals and characteristics of the report?

A sustainability report is a form of non-financial reporting that allows companies to communicate their progress toward established goals on various sustainability-related parameters, including environmental, social, and governance metrics, as well as current and future risks and opportunities. Let’s find out what the primary objectives and features of this report are.

The primary objective of the sustainability report is to generate concrete actions and efforts that lean toward greater sustainability of the company in terms of not only environmental, but also social and governance.

To guarantee complete transparency in communicating sustainability progress, the reporting format may include numerical data, graphs, photographs, infographics, etc.

The sustainability report therefore also helps the company itself to align with Corporate Social Responsibility or CSR goals, take stock of it’s current situation and set future goals, helping in the long run to increase opportunities for cost savings.

Turning sustainability into action and value for companies: support from Alens

In a context where sustainability is a central theme for corporate identity and growth strategy, the Sustainability Report is an essential tool for companies wishing to position themselves as relevant players and responsible, innovative stakeholders. Alens, with its long-standing expertise in the field of corporate sustainability, guides organizations through the various stages of the process of creating a Sustainability Report, which not only fulfills regulatory requirements but also helps to optimize internal company flows, communications and management, moving toward an increasingly transparent, sustainable and fair way of doing business.

THE SUSTAINABILITY REPORT: WHAT IT IS, WHO IT IS MANDATORY FOR, AND HOW TO PREPARE IT

In the current scenario, the law requires companies and corporations listed on EU-regulated markets and large companies in the banking and insurance sector to prepare and submit a sustainability report.

This requirement comes from Directive 2014/95/EU, introduced in 2014 and officially adopted in the EU at the end of 2016. However, the regulations regarding sustainability reporting are continually evolving to respond to a rapidly changing environment. The regulation establishes mandatory sustainability reporting for all “large companies that are public interest entities, including entities that are parent companies of a large group, having on average more than 500 employees.”

This regulatory requirement is intended to promote greater transparency and accountability by companies on major key issues such as environmental, social and governance (ESG) sustainability by providing incentives to create more informed corporate policies.

WHAT IS THE PURPOSE OF A COMPANY’S SUSTAINABILITY REPORT?

As mentioned above, under current EU legislation for some entities the sustainability report is a legal obligation. But it is important to mention that from January 2023, with the entrance into force of the CSRD directive, this obligation has been extended to an even greater number of companies on European territory, reaching today almost 50,000 entities required by law to prepare a sustainability report.

Many organizations not required to do so chose voluntarily to have their own sustainability report, for strategic evaluations. In fact, the sustainability budget or report is an important tool for communicating externally an organization’s commitment to it’s various stakeholders, investors and society, positioning itself as a responsible stakeholder to it’s own impact and attentive to collective issues of major importance. To this end, the information contained in the report must be clear, highly detailed and relevant.

Why is it important and what is it for?

Report writing involves the acquisition and validation of a large amount of detailed information covering a variety of indicators, which must be constantly monitored and periodically updated.

Below we list some of the benefits of producing a sustainability report:

• Improved overall management of the organization by identifying risks and opportunities for saving and optimizing resources and costs;
• Strengthened internal communication and sense of ownership. In large organizations, employees are often not aware of all the actions taken by the company with a view to reducing and improving its impact, and with which they might identify;
• Improved corporate reputation and image;
• Increased transparency to investors and stakeholders, resulting in improved financial relationships, which can rely on internal company agreement and a regular sharing of verified and reliable information.

THE SUSTAINABILITY REPORT IN ITALY: AN OVERVIEW

The concept of sustainability reporting is anchored in a growing awareness of the importance of encouraging responsible business practices and containing the impact of economic activities on the environment and society. This tool, which has become crucial for companies aiming to communicate their commitment to sustainability, began gaining importance in the 1990s as a response to a need for greater transparency and accountability on the part of companies and organizations.

The diffusion of sustainability reporting in Italy is part of a global movement that has taken place since the United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro in 1992. This event marked a turning point, setting the stage for a new era of environmental and social awareness.

In the following years, the concept of sustainability experienced a gradual integration into business strategies, either as a voluntary alignment or out of the need for regulatory compliance.

In Italy, the process of adopting sustainability reporting was initially led by large publicly traded companies, which recognized the importance of communicating to stakeholders not only the financial benefits, but also the social and environmental impacts of their activities.

Legal recognition and formalization of sustainability reporting was further stimulated by the introduction of the European Union’s Directive 2014/95/EU, the Non-Financial Reporting Directive (NFRD), which required groups and large companies to report on social, environmental and governance issues. Italy implemented this directive in 2016.

Today, the sustainability report is considered not only a reporting tool but also a strategic asset for Italian companies that intend to position themselves as responsible players in their sector, improve relations with stakeholders, and attract more investment and talent, in a market that increasingly recognizes the value of policies in the areas of sustainability and environmental and social responsibility.

THE SUSTAINABILITY REPORT WITH ALENS

Alens supports companies in the process of creating a sustainability report. The service includes the development of a sustainability project and support in creating the report, with the goal of integrating sustainability into business processes, creating value, reducing costs through innovations, improving stakeholder relations, and preparing for market changes.

Alens offers a customized approach, providing coaching and strategic advice to help companies improve their ESG indicators and effectively communicate sustainability goals and achievements to stakeholders. The sustainability report is the first concrete step in preparing companies to implement a larger corporate sustainability strategy and create a real competitive advantage in terms of market reputation, attraction of sustainable investments, and compliance with increasing regulatory requirements globally.

Alens goals are to position companies at the leading edge of sustainability practices, ensuring that they are ready not only to respond to current challenges but also to capitalize on future opportunities related to the ecological transition.

THE DIFFERENCES BETWEEN NON-FINANCIAL STATEMENT (DNF) AND SUSTAINABILITY REPORT

The Non-Financial Declaration (DNF) was introduced by the European Union’s Directive 2014/95/EU, adopted in Italy by Legislative Decree 254/2016. It is a mandatory requirement for certain categories of large companies, such as listed companies, credit and insurance institutions, and other public interest companies that exceed certain size criteria.

These companies are required to include a non-financial information section in their annual report that informs about environmental, social, and governance aspects (e.g., related to employees, anti-corruption and anti-bribery, payment arrangements, and supplier relationships). The goal of the DNF is to provide a comprehensive overview of policies, risks, and outcomes related to these issues.

The sustainability report and the non-financial statement have, therefore, many similar aspects in common and goals in terms of communicating the company’s commitment to sustainability. The main difference is that while the sustainability report has the main purpose of improving communication with stakeholders, the non-financial statement is more focused on the goal of attracting new capital.

The sustainability report can also include a larger range of information than the DNF and is usually designed according to international sustainability reporting standards, such as those proposed by the Global Reporting Initiative (GRI) or the International Integrated Reporting Council (IIRC).

In summary, while the DNF is a regulated and mandatory statement for certain companies, and focuses on specific non-financial aspects of the company’s business, the sustainability report is part of a broader and sometimes voluntary initiative that creates an opportunity for companies to tell the story of their commitment and intentions regarding environmental and social responsibility.

THE REGULATORY PUSH AND EXTERNAL INITIATIVES

During 2024, a significant acceleration toward greater corporate responsibility and transparency is also being noted in Italy. Important regulatory updates today extend the ESG reporting requirement to more companies, and update indices and criteria to be included in the report. These measures are intended to encourage the adoption of more conscious and sustainable practices, and to set the stage for a more responsible and equitable economy.

In parallel, external initiatives, such as discussion forums, think tanks, workshops, and public-private partnerships, play a crucial role in supporting companies in their journey to conform to these standards. Such initiatives not only provide companies with the knowledge and resources needed to implement effective sustainability practices, but also help to fuel a more integrated sustainability culture in the Italian business fabric.

The Non-Financial Statement (DNF) is now a mandatory sustainability reporting requirement for specific categories of entities, including public interest entities such as banks and insurance companies of any size, as well as for listed companies with more than 500 employees and established financial thresholds (net income over €40 million or assets over €20 million).

The regulatory landscape in this regard is constantly evolving, especially since the new CSRD directive comes into force in January 2023, which extends the ESG reporting requirement to more European companies and increases the amount and specificity of indicators and KPIs to be included in the financial statements.

The mandatory requirement today also extends to listed companies and SMEs, with the exception of microenterprises, which employ less than 10 workers and have an annual turnover of less than €2 million. SMEs will have to comply with this legislation as of January 1, 2026, marking an important step toward greater transparency and corporate responsibility in the context of sustainability.

In this normative context and growing awareness of sustainability, the 17 United Nations Sustainable Development Goals (SDGs) play a central role in guiding global actions and efforts toward greater accountability. The SDGs provide a clear and universal framework for addressing the most pressing global challenges, including reducing poverty, promoting health and education, combating climate change and protecting the environment. Italy, along with other countries, is actively committed to achieving the SDGs through policies, programs and concrete actions intended to integrate these goals into national development strategies and business practices.

Aligning national legislation and external initiatives with the SDGs is essential to ensure consistent and meaningful progress toward a sustainable and inclusive future. For an expanded discussion of the 17 Sustainable Development Goals SDGs visit www.sdgs.un.org/goals

SUSTAINABILITY REPORTING: BEST EXAMPLES

Many leading companies in their sectors have embraced the practice of regularly publishing their sustainability reports, reflecting a growing commitment to transparency and corporate responsibility.

Of these, let’s look together at some of the most virtuous examples:

1. Energy companies: companies such as Enel and Eni were among the first in Italy to publish sustainability reports, given the highly significant environmental impact of their industry. These companies tend to provide detailed ESG reports that inform about actions taken to reduce emissions and promote renewable energy, among other things.
2. Financial institutions: banks and insurance companies, such as Intesa Sanpaolo and Generali, publish sustainability reports that show not only their environmental impact but also the governance practices and social initiatives taken.
3. Manufacturing and consumer goods companies: companies such as Pirelli and Ferrero are examples of manufacturing and consumer goods companies that regularly report on their efforts to reduce environmental impacts and improve social conditions within their supply chains.
4. Fashion sector: companies such as Prada and Armani, as part of their commitment to more sustainable fashion, publish sustainability reports detailing initiatives to reduce environmental impacts and promote ethical labor practices.

WHAT ARE THE DIFFERENCES BETWEEN ANNUAL REPORT AND SUSTAINABILITY REPORT?

The annual report and the sustainability report are two corporate reporting tools that serve different purposes and reflect different aspects of a company’s operations:

Annual financial statements: nature and objectives

The annual report is a mandatory accounting document that every company must prepare at the end of the fiscal year. It’s main objective is to provide a true and fair view of the company’s financial position, financial position, and results of operations.

• Content: includes the income statement, balance sheet, and notes to the financial statements, which together provide a complete view of the company’s results of operations, assets, and liabilities.
• Regulation: is governed by national and international accounting standards (such as IFRS), as well as by the law of the country in which the company operates. In Italy, for example, the relevant regulations are contained in the Civil Code.
• Target audience: the main stakeholders are shareholders, investors, banks and tax authorities, who use the annual report to evaluate the company’s economic and financial performance and make informed decisions.

Sustainability report

The sustainability report, also known as a sustainability report or ESG (Environmental, Social, Governance) report, is a document that some companies prepare on a mandatory basis and others choose to produce on a voluntary basis, to communicate their environmental, social and governance commitment and performance.

• Content: includes information on environmental impacts (e.g., scope 1, scope 2, and scope 3 emitters, sources of raw materials, water and energy supplies, etc.), labor practices, business ethics, contributions to the community, and other non-financial aspects of the company’s operations. The document can follow international standards such as those of the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB).
• Regulatory: it’s preparation is guided by voluntary principles and internationally recognized reporting standards, and regulated by the CSRD Directive of January 2023.
• Target audience: it is aimed at a broader range of stakeholders, including customers, employees, business partners and society as a whole, anyone interested in understanding the company’s commitment to sustainability and social responsibility.

In summary, the annual report focuses on the economic and financial health of the company and is mandatory in nature, while the sustainability report is oriented toward highlighting how the company addresses environmental, social, and governance issues, with a mandatory nature for some types of companies and a voluntary and strategic focus for others, and with the goal of communicative transparency and ethical commitment.

RSI (OR CSR, CORPORATE SOCIAL RESPONSIBILITY) AND ESG: LET’S HAVE CLARITY

In the context of energy and sustainability, the abbreviations CSR (Corporate Social Responsibility) and ESG (Environmental, Social, and Governance) stand for two concepts that, while closely related, have some key differences in their approach and focus.

Corporate Social Responsibility (CSR)

CSR refers to the voluntary commitment by companies to contribute to sustainable development by working to improve society and the environment, as well as to achieve economic goals. This concept emphasizes business ethics and the positive contribution a company can make on various fronts: environmental, social and economic.

CSR takes a more holistic approach that views the company as an integral part of society, with an ethical responsibility to citizens, workers, investors and the environment.

It includes a large range of activities, such as donations to charities, corporate volunteer initiatives, ethical business practices, improving working conditions, and reducing environmental impact.

The goal is a positive social impact and improved corporate reputation, as well as economic success.

Environmental, Social, and Governance (ESG)

ESG focuses on three critical pillars in investment decisions and evaluation of corporate performance: environmental (Environmental), social (Social), and management (Governance). This approach is often used by investors to evaluate companies to invest in, based on their ability to manage risks and opportunities for change related to these three factors.

ESG evaluates specific company criteria and practices from environmental, social, and governance perspectives, with a focus on sustainability and long-term risks.

Includes management of CO₂ emissions, efficient use of resources, respect for human rights, diversity and inclusion on boards, and transparent and accountable governance practices.

The goal is to provide investors and other stakeholders with a comprehensive assessment of a company’s degree of sustainability and ethical responsibility, which influences investment decisions and risk assessment.

To summarize, while CSR also known as Corporate Social Responsibility (CSR), is more focused on companies voluntary commitment to a positive social and environmental impact, ESG is a criteria used to evaluate how companies manage specific aspects related to environmental, social, and governance, with a strong emphasis on sustainability and long-term risks for investors. Both concepts are fundamental in promoting responsible and sustainable business practices, but they are different in approach, objectives, and applications.

MAIN SUSTAINABILITY REPORTING GUIDELINES

The main sustainability reporting guidelines and standards for Italian companies are mainly aligned with directives issued by the European Council, integrated by national regulations. To date, the main reporting guidelines for this document in Italy can be considered:

• EU directive on non-financial reporting (Directive 2014/95/EU)

This directive, transposed in Italy by Legislative Decree 254/2016, requires large public interest companies with more than 500 employees to report on environmental, social, staffing, human rights, and anti-corruption issues. The directive sets the framework for reporting, without imposing a strict format, allowing companies to subscribe to recognized international standards.

• Corporate Sustainability Reporting Directive (CSRD)

This directive updates the previous standard and regulates the manner and timing of corporate sustainability report production. It’s introduction has actually increased the number of companies on European territory obliged to compulsorily produce this report.

• GRI, Global Reporting Initiative

This is one of the most commonly used standards worldwide for sustainability reporting. It provides a detailed framework that companies can follow to report properly, transparently and comparably on their environmental, social and economic impacts. An organization that adopts the GRI standard for it’s reporting can benefit from international credibility and recognition.

• Sustainability Accounting Standards Board (SASB)

The SASB provides industry-specific standards focused on the reporting of financially material sustainability issues. This approach allows an organization to effectively communicate to investors how they are managing sustainability-related risks and opportunities in their specific sector.

• Task Force on Climate-related Financial Disclosures (TCFD)

TCFD recommendations address climate-related financial disclosures, helping companies communicate risks and opportunities that may have significant financial impacts. The adoption of TCFD’s recommendations is increasingly becoming a standard for companies committed to the transition to a low-carbon economy.

• National regulations

In addition to EU directives and international standards, Italian companies must also take into account any additional national regulations or specificities that might affect sustainability reporting. These may include additional disclosure requirements, incentives for sustainable practices, or other relevant laws.

Orientation toward these guidelines and standards is critical for Italian companies’ sustainability reporting to meet investor expectations and comply with regulatory requirements, contributing to greater transparency and corporate responsibility.

AN EXAMPLE OF A SUSTAINABILITY REPORT

In a global context where sustainability is emerging as an indispensable criteria for assessing corporate performance, the 2024 Sustainability Report emerges as a key tool for understanding companies commitment to responsible practices.

An essential for tracking progress and setting future goals, this document provides a window into environmental, social and governance initiatives that not only target the well-being of the planet and the community, but also strengthen the market position of the companies involved. Through an accurate and transparent examination, Sustainability Report 2024 reveals how these responsible practices have become pillars for sustainable development and corporate success, inviting readers and stakeholders to reflect on the importance of a concrete and measurable commitment to sustainability.

Here are a few points as examples of a hypothetical sustainability report for an Italian company.

Introduction and message from the CEO

• Presentation of the company’s commitment to sustainability.
• Overview of sustainability goals for the year and beyond.

Company Profile

• Brief description of the company, including business sector, size and location.
• Company vision, mission and values related to sustainability.       

Approach to sustainability

• Sustainability policies adopted.
• Sustainability governance structure.
• Stakeholder engagement and collaborations.

Environmental performance

• Initiatives to reduce CO₂ emissions and carbon footprint.
• Efficient use of resources, including energy, water and materials.
• Waste management and recycling.

Social impact

• Employee welfare policies and employee development initiatives.
• Contributions to the local community and social initiatives.
• Respect for human rights along the supply chain.

Governance

• Ethical and transparent governance practices.
• Internal control mechanisms to prevent corruption.
• Compliance with applicable laws and regulations.

Results and objectives

• Summary of achievements during the reporting year.
• Future goals and action plans to further improve sustainability performance.

Reporting methodology and standards

• Details of reporting standards followed (e.g., GRI, SASB).
• Explanation of data collection and analysis methodology.

Conclusion

• Final reflections on the importance of sustainability for the company.
• Commitment to continuous improvement.

This hypothetical example follows the general guidelines for preparing a sustainability report, including the main ESG pillars (environmental, social, and governance) and reflecting a transparent and accountable corporate commitment to sustainability.

The specific structure and content should vary from time to time to accurately describe the unique characteristics of the company, it’s industry, and the reporting standards adopted.

FAQ: FREQUENTLY ASKED QUESTIONS ABOUT SUSTAINABILITY REPORT

1. Why should a company prepare a sustainability report? Preparing a sustainability report helps a company evaluate and communicate it’s impact on the environment and society, improve corporate image, meet customer and investor expectations, and identify areas for savings and operational improvement.
2. What are the main reference standards for preparing a sustainability report? Popular standards include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) principles, and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
3. Is it mandatory for Italian companies to prepare a sustainability report? The preparation of a sustainability report is mandatory for large public interest enterprises with more than 500 employees, according to Legislative Decree 254/2016 implementing EU Directive 2014/95/EU. SMEs can draw it up voluntarily.
4. How can Alens support companies in preparing a sustainability report? Alens offers a complete service that includes preliminary analysis, identification of relevant ESG indicators, definition of the content of the report, and strategic support to integrate sustainability into business processes, guaranteeing effective and transparent communication of sustainability goals.
5. How long does it take to compile the sustainability report? The time required can vary depending on the size of the company, the complexity of it’s operations, and the availability of data. Generally, the process can take from a few months up to a year.
6. What benefits does it bring besides regulatory compliance? In addition to regulatory compliance, publishing a sustainability report helps improve and strengthen corporate reputation, which can translate into attracting sustainable investment, but also into optimizing processes and costs, generating a concrete competitive advantage.
7. Who is the corporate sustainability report meant for? The corporate sustainability report is addressed to a large range of stakeholders, and is essential for transparently communicating a company’s sustainability and corporate social responsibility (CSR) efforts and commitment. Stakeholders include not only employees, customers, and suppliers, but also local communities, government authorities, potential and current investors, and the media. The sustainability report, generally published annually, serves as a bridge of communication between the company and these groups, building trust and supporting dialogue on issues of collective importance.
8. Is corporate sustainability reporting mandatory? According to Directive 2014/95/EU, and the subsequent CSRD of 2023, sustainability reporting has become a mandatory requirement for any large public interest company, including corporate groups with an average of more than 500 employees, credit and insurance institutions, and publicly traded companies, with the exclusion of microenterprises.
9. Is it crucial to involve the entire supply chain for high standards of sustainability? Absolutely. Involvement of the entire supply chain is crucial to ensure the overall sustainability of a company. From materials sourcing to production to distribution, each stage has a significant impact on a company’s environmental and social performance. A strategic focus on sustainability throughout the supply chain not only improves efficiency and reduces risk, but also helps to solidify a company’s truly “green” image.
10. What is the difference between sustainability report, social report and integrated report?
11. The “sustainability report,” “social report,” and “integrated report” are corporate reporting tools that share the goal of providing a complete view of corporate performance, but are different in focus and respective content:
    • 1. Sustainability Report:
    • Scope: includes information regarding the company’s actions and performance in terms of economic, social and environmental sustainability.
    • Objective: transparently and comprehensively communicate the company’s overall impact on the environment, society and the economy.
    • 2. Social Report:
    • Focus: focuses primarily on the social impacts of the company’s activities.
    • Scope: includes information about the company’s involvement in socially responsible activities, such as charitable projects, community initiatives, employee working conditions, etc.
    • Purpose: to account for the company’s social investments and positive impact on society.
    • 3. Integrated financial statements:
    • Focus: integrates financial and non-financial aspects of the company into a single view
    • Scope: incorporates traditional financial information along with data on sustainability, environment, governance, human resources, and intellectual capacity.
    • Goal: to provide a comprehensive and integrated view of company performance, recognizing the interdependence of financial and non-financial aspects and their impact on overall company value. In summary, while sustainability reporting focuses on all aspects of corporate sustainability, social reporting emphasizes social impacts, and integrated reporting provides a larger, more integrated view that includes both financial and non-financial aspects.
12. What is materiality analysis? Materiality analysis is a process used by companies to identify and consider the issues that are most relevant to their business and stakeholders. In the context of ESG (Environmental, Social, and Governance), Materiality Analysis focuses on issues that have a significant impact on the company itself and its ability to create long-term value. Companies should focus on ESG issues that are relevant to their industry, their supply chain, their employees, and the communities in which they operate. These can include environmental issues such as climate impact, natural resource use, and waste management; social issues such as worker health and safety, diversity and inclusion, and human rights; and governance issues such as transparency, business ethics, and risk management. Identifying and managing these material issues is essential for companies that want to improve their ESG performance, reduce risk, and create long-term value for all their stakeholders.
13. What is the SA 8000 standard? The SA 8000 standard is an international benchmark for corporate social responsibility. It establishes an ethical framework for working conditions, promoting respect for workers’ rights, workplace safety, fair pay, and the rejection of practices such as child labor and discrimination. By adopting the SA 8000 standard, an organization proves its commitment to maintaining high ethical and social standards in its global operations.

PRODUCING YOUR SUSTAINABILITY REPORT WITH ALENS

The production of the corporate sustainability report is set within the current paradigm shift regarding the environment. The ongoing Climate Change, accelerated also by CO₂ emissions and the massive use of nonrenewable resources and energy sources, will bring radical changes in the consumption, production and development scenario.

Alens offers to support companies in drafting and producing the Sustainability Report: a first step on a path toward sustainability and responsibility for a company. In addition to this, Alens provides a coaching service (Sustainability Development Project), through a series of assessments and preliminary actions that will lead to the design of a strategic plan with the aim of improving the company’s ESG parameters and initiating a more transparent communication with all stakeholders regarding future goals and actions already taken.

Why prepare a sustainability report with Alens?

• To follow the major changes taking place quickly;
• To effectively integrate sustainability into business processes and generate a positive impact;
• To discover that a sustainable approach can become a driver of cost reduction, and contribute to the development of innovative products and services;
• To establish a relationship with stakeholders based on trust and effective communication;
• To develop a marketing strategy that can communicate the active approach and commitment taken by the company.