Italian companies progress on ESG disclosure but lag on integration, says regulator

Consob reported that 59% of respondents remain unconvinced that “ESG-oriented strategies have a positive impact on financial performance”

A study of major Italian companies has found increasing adoption of best practice with regards to non-financial disclosures, however ESG integration at board level continues to lag, with a majority of board members saying they were unconvinced about the strategic relevance of ESG.

Italian securities regulator the Companies and Exchange Commission (Consob) has released its annual analysis of “non-financial” disclosures by Italian companies – the second of its kind. Since 2017, large public-interest European companies have been required to make sustainability disclosures under the Non-Financial Reporting Directive (NFRD).

Consob found a 40% increase in the number of reporting companies following best practice in their disclosure of material sustainability factors, particularly among small and medium enterprises. This includes engaging senior management and directors, and establishing data collection processes to support reporting.

However, a survey of board members showed that only 35% of respondents were convinced that the NFRD would trigger change in the “the design of long-term growth strategies” by company boards. This seems to be borne out by the experiences of 73% of respondents who reported no changes to board composition and organisation in the two years following the NFRD’s implementation.

There also appeared to be stark differences of opinion with regards to the materiality of sustainability factors. For example, only 19% of respondents identified CEO remuneration as an ESG objective. Moreover, Consob reported that 59% of respondents remain unconvinced that “ESG-oriented strategies have a positive impact on financial performance”.

Despite the variation among companies with regards to ESG integration, a majority of respondents were well informed of their responsibilities under the NFRD, with 80% of respondents saying that company boards should “proactively” oversee relevant reporting obligations.

Companies across Europe may find themselves facing even more stringent mandatory reporting standards upon the completion of an ongoing review of the NFRD as part of the EU’s Sustainable Action Plan. The European Commission has recently concluded a public consultation on the topic and final proposals are expected to be made in 2021.