The implementation of directive 2014/95/eu: can mandatory nonfinancial disclosure affect sustainability reporting? a preliminary analysis on italian companies

Disclosure of nonfinancial information is attracting attention from academics and practitioners leading companies to implement significant changes in several key areas of corporate reporting. Recently, an important milestone has been achieved by the approval of the Directive EU/95/2014 issued on October 22, 2014 and focused on Disclosure of non-financial and diversity information by large companies and groups. All EU member states have to implement these requirements within their domestic laws calling for large companies (exceeding 500 employees) to disclose nonfinancial information on environmental, social, employee related, diversity, human rights, bribery and anti-corruption matters, by the fiscal year 2017. Although there is an increasing number of companies that have chosen “stand-alone” reports for providing nonfinancial information on sustainability issues, there is no a common standard or framework to regulate disclosure of nonfinancial information (EU, 2017). Hence, the introduction of the Directive can lead to a radical change on this topic and bring an urgent recognition of the current state of sustainability reporting and its main criticalities claiming for new skills and competencies on this issue. In Italy, the transposition of the European Directive has been made possible by the issuance of the Legislative Decree n. 254/2016, 30th December 2016 (www.gazzettaufficiale.it), and it will be effective by the fiscal year 2017 for large companies (exceeding 500 employees). As it is confirmed by the Public Consultation carried out by the Department of Treasury Ministry of Economy and Finance (MEF) that has been closed in September 2016, the most critical issues are: 1) the choice of reporting standard/guidelines and 2) the placement of nonfinancial information within corporate reporting. The choices about the “best” framework and the “best” type of report may create relevant operational problems for preparers (GRI, 2015) and assurers (KPMG, 2013), although Italian companies (ASSONIME, 2017) tend to refer to the standards drawn up from the International Integrated Reporting Council (IIRC, 2013) and those set out by the Global Reporting Initiative (GRI G4; GRI standards). In such a scenario some academic studies highlighted the sharp need to increase and improve the quantity and quality of nonfinancial disclosure (Unerman and Chapman, 2014; Unerman et al., 2014) which is able to influence the managerial and organizational sustainability approach (Eccles et al., 2011; Comyns et al., 2013) with implications in terms of the drawing-up and assurance of sustainability report (Michelon et al., 2015), the materiality of nonfinancial information (Eccles et al., 2012; 2015), or the choice to adopt stand alone or integrated report (Eccles and Krzus, 2010; Eccles et al., 2015). The introduction of the European Directive is stimulating research on its impact in Europe (Dumitru et al., 2017; Haller et al., 2017) but the novelty of this regulation is urgently claiming for an in-deep analysis on this field. Given these premises, the main objective of this paper is to assess whether the radical shift from voluntary to mandatory disclosure on non-financial information can influence sustainability (ESG) reporting practices adopted by a selected sample of the obliged Italian companies, i.e. “Entities of Public Interest” (Legislative Decree No. 254/2016).