Once upon a time, there was the social report, or sustainability report: a large book in which more responsible companies accounted for their social and environmental impact, reported on their policies toward employees, provided information on the relationship with customers, suppliers and so on. It was a thorough document, but it had a big flaw: It was not (and is not) mandatory, no one controlled or certified it and a company could (and can) declare anything. Even if the company lied, nothing would happen.
But things are about to change and quite quickly. Less than a year ago, the Italian Parliament approved the 30 December 2016 legislative decree no.254 by which Italy transposed and implemented European Directive 2014/95/EU. Although this does not officially cancel the social report, it obliges certain types of companies to publish a much more precise and binding document – a "non-financial Declaration" on the policies implemented by the company regarding the "environmental, social, personnel-related, human rights-related issues, and fight against bribery and corruption.”. Some details should not be overlooked. Once the junk has been abandoned, the Declaration is mandatory, and must be signed by the Board of Directors and checked by an external auditor, filed in the Companies Register and, if it is untrue it will lead to sanctions.
But first things first. The new document is not compulsory for all companies, but only those with specific characteristics. Only the so-called relevant Public Interest Entities (PIEs) as defined by art.16 of Legislative Decree no .39/2010), i.e. banks, insurance and reinsurance companies and Italian securities issuers permitted to trade on the Italian or EU regulated market (i.e. listed on the Stock Exchange) are included. These bodies must have precise size requirements: More than 500 employees and a balance sheet total of at least 20 million Euros, or total net revenues from sales or services of at least 40 million Euros.
The legislation concerns large companies, but could potentially affect almost all Italian SMEs.
As for the Declaration content, there are some changes. It is no longer about declaring what the company generically does to respect the environment or human rights. The law requires that everyone understands the company's activities by describing the "main risks, generated or suffered, connected to socio-environmental issues arising from business activities," the organisational and management model, including the prevention of corruption offences; the control of entrepreneurial impact and the results achieved by such policies. All information must be provided with precision and in compliance with reporting standards issued by authoritative supranational bodies. If a company cannot or does not want to adopt specific policies regarding one of the socio-environmental issues that are considered relevant, it must explain its choices “in a clear and articulate manner” based on the “comply or explain” principle.
Another critical point in the new legislation is the liability of PIEs for incorrect or misleading statements. In contrast to the sustainability reports that many companies published until a few months ago, this Declaration directly involves the Board of Directors, who must ensure that the report is legally compliant. The Board of Statutory Auditors must monitor regulatory compliance and report to the annual Shareholders' Meeting about the subject. The document must be externally audited by a firm that verifies its compliance.
Seneca-Social Environmental Ethical Consulting and Auditing John Stiz explained: “This is enough to make people understand that many things will change within the company's processes, and not just those bodies affected by the new rules. We must consider that when we talk about company’s activities, products and services, the Declaration must include information that concerns supply and subcontracting chains. This will result in a knock-on effect on the entire supply chain that potentially involves almost all Italian SMEs.” All Declarations will be published on the company and the Consob websites. Those who get caught providing incorrect information will be subject to severe fines, ranging from a minimum of 20,000 to a maximum of 150,000 Euros. In terms of transparency and accessibility to big data, there is enough to say that a real revolution is around the corner.