Report DNF 2020 - CONSOB AND ITS ACTIVITIES
Report 2020 on non-financial reporting of Italian listed companies
Report 2020 on non-financial reporting of Italian listed companies
Non-financial information as a driver of transformation
|The goals of the Report
The Report analyses the evidence on the implementation of the Directive 2014/95/EU, transposed in Italy by the Legislative Decree no. 254/2016, also with the aim of highlighting the progressive cultural change triggered by the integration of sustainability into the corporate decision-making process. ... more
|The third edition of this Report analyses the implementation of the Directive 2014/95/UE, transposed in Italy by the Legislative Decree no. 254/2016 (the Decree), in Italian listed companies. The Report highlights those behaviours of companies and boards, which show a cultural transformation towards an integration of ESG (Environmental, Social and Governance) factors into the corporate decision-making.
The first section of the Report covers non-financial statements published pursuant to the Decree, focusing on the materiality analysis carried out by companies, and on Strategic plans presented to investors. The second and the third sections explore the relevance of non-financial issues respectively at the board level and within CEOs' remuneration policies. To this aim, on the basis of a desk analysis, evidence was gathered from the guidelines issued by companies prior to the board appointment and from the corporate governance reports.
Finally, the report includes a Survey on board leadership and sustainable business involving members of Nedcommunity, the Italian Association of non-executive and independent directors.
|The three steps of ESG/multicapital integration into corporate governance and strategy
The progression of the cultural transformation triggered by the compliance with obligations on non-financial reporting can be thought as a three-stage phased process including Awareness, Capabilities and Engagement. In this Report, the first two stages are identified through the analysis of NFSs while the third stage refers to the information drawn from the abstracts of Strategic plans. ... more
|Awareness is the precondition for change. It originates from compliance with reporting obligations and results into the acknowledgement of the relevance of ESG issues and of their ability to kick-off the transformation process. Compared to 2019, while the number of companies publishing a NFS and performing materiality analysis is unchanged, some behaviours have become more frequent. In 2020, the involvement of the BoD in the materiality analysis has been recorded in 39 companies, up from 21 in the previous year. Board inductions on ESG subjects, whose frequency had declined over 2018-2019, were held in 32 cases compared to 28, even if description of depth, length and implementation of the inductions are still not available. The number of firms establishing a Sustainability committee reported a significant increase, from 54 to 73 out of 151 companies who published a NFS.
Capabilities is the area that registered the most relevant changes in 2020. As for the materiality analysis, stakeholder engagement kept on recording progress although at a slower pace than that documented in 2019. In detail, external stakeholder engagement was reported in 83 cases (70 in 2019 and 44 in 2018) while engagement with the top management hit 74 cases (69 in 2019 and 47 in 2018). In addition, 20 companies put in place ESG data collection systems and 12 issuers used platforms for stakeholder engagement or big data analytics tools to enrich materiality analysis. Behaviours related to governance and the BoD show the most relevant increases perhaps as a consequence of the introduction of the new Corporate Governance Code in January 2020. The integration of ESG factors into board renewal guidelines passed from 12 out of 43 cases in 2019 to 39 over 50 cases in 2020, while the ESG integration into board self-evaluations grew from 21 to 37 companies. The integration of ESG criteria into CEO's remuneration packages almost doubled over the last year (from 33 to 63 companies) and as a such it can be considered as a booster of transformation.
The area Engagement represents the last step in the transformation of strategies and business models towards the integration of ESG factors. In this phase new behaviours are spontaneously carried out. To capture this process, the analysis moved from NFSs to the abstracts of the Strategic plans presented to investors in the road shows and published in the Investor Relation section of the companies' websites, in order to verify how and to what extent they describe a strategy integrating and connecting financial and non-financial issues. In 2020 59 companies vs 47 in 2019 published the abstracts of the Strategic plans. Of these, 28 (vs 24 in 2019) mentioned some long-term business consideration and 15 (vs 12 in 2019) connected the strategy to the UN Sustainable Development Goals. Seven companies (five in 2019), still all in the Energy/Oil and Gas industry, fully integrated in their strategy storytelling issues that generate value in the short and in the long term and described the connections between financial and non-financial matters. Among these companies, one mentioned the materiality analysis as a pillar of its Strategic plan.
|The Nedcommunity survey ‘Board leadership and sustainable business'
The survey - coordinated by Simona Cosma, Paola Schwizer and Livia Piermattei with the valuable help of Lorenzo Nobile - was aimed to ascertain awareness, engagement perceptions and expectations of governance bodies relating to the integration of non-financial topics in strategy, business models, governance and culture of companies. ... more
|This section reports the results of a study on the awareness, engagement, perceptions and expectations related to non-financial factors at the board level. Data and information were collected through a Survey involving directors and statutory auditors that are members of Nedcommunity (540 in total), the Italian association of non-executive and independent directors.
The role of non-executive directors is well highlighted by the High-Level Expert Group (Final Report 2018 by the High-Level Expert Group on Sustainable Finance, Secretariat provided by the European Commission, https://ec.europa.eu/info/sites/default/files/180131-sustainable-finance-final-report_en.pdf), stating that: ‘business success hinges on executive and non-executive supervisory directors understanding sustainability drivers and being able to translate the risks and opportunities into their business models'.
The 2020 Survey is based on a questionnaire made of 22 questions, grouped into the following areas: awareness of the changes that the introduction of the NFS requires in the role and responsibilities of the BoDs and of non-executive directors (NEDs) as well as in the engagement of the BoDs in the implementation of the Italian Legislative Decree no. 254 of December 30, 2016; board members' perceptions and expectations on ESG issues, and composition and organization of the BoDs regarding ESG issues, including a specific focus on the role of NEDs; interviewees' socio-demographic data.
The response rate is equal to 18% (i.e. 98 Nedcommunity members filled out the complete Survey), one percentage point higher than in 2019. As for respondents' characteristics, 86% are board members and 14% statutory auditors; among the board members, 77% are independent directors and 8% are Chairpersons.
According to the survey, the level of awareness of role and engagement of the board seems to increase over time. However, a gap is still to be filled in the following areas: knowledge of emerging risks, assessment of opportunities and benefits of integrating ESG into business strategy, stakeholder engagement, and development of those business and governance processes which are key sustainable business drivers.
The Report was prepared by:
Nadia Linciano (coordinator) - CONSOB, Head of the Economic Studies, Research Department (firstname.lastname@example.org)
Angela Ciavarella - CONSOB, Corporate Governance Department (email@example.com)
Giovanna Di Stefano - CONSOB, Research Department (firstname.lastname@example.org)
Lucia Pierantoni - CONSOB, Research Department (email@example.com)
Livia Piermattei - Senior Advisor Methodos; Board Advisor for a Sustainable Success; Nedcommunity (firstname.lastname@example.org)
The opinions expressed in the Report are the authors' personal views and are in no way binding on Consob.
ISSN 2784-8809 [online]