Sustainability Reporting: Guide for Companies

What is sustainability reporting?

A sustainability report, or ESG report, is a document through which an organization reports on its environmental, social, and governance impacts. The term “sustainability reporting” is also very commonly used.

Thanks to sustainability reports, companies can communicate transparently about ESG issues with stakeholders such as clients, banks, investors, and employees.

Today, more and more companies are preparing sustainability reports, even though they are not required to do so by law. In fact, market demand for structured ESG data is growing rapidly, particularly from banks, large clients, and consumers.

Volontary and mandatory sustainability reporting

The terms sustainability report, ESG report and sustainability reporting are often used interchangeably, although they do not mean exactly the same thing.

Sustainability reporting refers to the overall process of collecting, analysing and disclosing sustainability information.

A sustainability report is the document through which this information is communicated.

For companies subject to the Corporate Sustainability Reporting Directive (CSRD), sustainability information must be reported in accordance with the European Sustainability Reporting Standards (ESRS).

Companies outside the scope of the CSRD can instead choose voluntary reporting frameworks such as VSME or GRI.

In practice, voluntary reporting is also increasingly structured around recognised standards, making sustainability information more consistent and comparable.

From Non-Financial Reporting to the CSRD

The requirement to report on ESG performance is not a new development in 2023. In Italy , it has existed since 2017, when the Non-Financial Statement (DNF), introduced by the NFRD Directive, made reporting mandatory for large public-interest companies with more than 500 employees. However, this was primarily a narrative document, with flexible standards and limited comparability among companies.

With the CSRD Directive, the landscape has changed radically: reporting has become much more technical and structured, based on the European ESRS standards, with a requirement for a double materiality analysis and verification by an external auditor.

With the Omnibus Reform (Directive (EU) 2026/470), the EU has backtracked, and the scope has been drastically reduced: from approximately 50,000 European companies covered by the original CSRD, it now applies only to companies with more than 1,000 employees and 450 million in revenue. For all others, reporting remains possible on a voluntary basis, and the standard recommended by the EU is, in fact, the VSME.

Which companies are required to report on sustainability?

The sustainability report is mandatory for all companies subject to the European Sustainability Reporting Directive, commonly known as the CSRD.

Following the simplifications introduced by the Omnibus Reform, the requirement to prepare a sustainability report has been significantly narrowed compared to the 2023 regulations. Beginning with the 2027 fiscal year—with the report to be published in 2028—the requirement to prepare a sustainability report applies to:

• EU companies that exceed both of the new thresholds: more than 1,000 employees and annual net revenue of more than 450 million euros
• parent companies of EU groups that exceed these thresholds on a consolidated basis
• Certain third-country companies with net revenues in the EU exceeding 450 million euros, when their European subsidiary or branch generates revenue exceeding 200 million euros.

It is possible that the Italian transposition decree will modify certain implementation details, but the substance of the European directive remains clear: the mandatory sustainability report no longer applies to most of the companies initially covered, including many large companies and publicly traded SMEs.

When does sustainability reporting become mandatory?

The requirement to disclose sustainability information is not a recent development. In Italy, it has been in effect since fiscal years beginning on January 1, 2017, when the Non-Financial Statement became mandatory for certain large public-interest companies.

In 2026, the most important deadline to keep in mind is January 1, 2027, the date on which the reporting requirement will take effect—but only for companies subject to the new CSRD thresholds (more than 1,000 employees and 450 million in revenue).

Mandatory ESG reporting: when will it take effect? In short:

Is sustainability reportin still mandatory in 2026?

In 2026 , the requirement to publish a sustainability report applies only to large companies that have been subject to this obligation since the 2024 fiscal year— those in the so-called “first wave”—which never benefited from the “stop-the-clock” extension and have continued to report without interruption.

For all other companies,the requirement takes effect in 2027, but only for those that exceed the new thresholds (1,000 employees and 450 million in net revenue).

A special case involves the first-wave companies that no longer fall within the new scope: Directive (EU) 2026/470 provides for a transitional exemption for them for the 2025 and 2026 fiscal years as well, but this must be transposed into national law. In Italy, the deadline for transposition is March 19, 2027: until then, these companies remain formally subject to the requirements.

Extension of the sustainability report requirement

When we talk about an extension, we are referring to the “stop-the-clock” provision: the temporary mechanism that postponed the obligations for companies that were supposed to begin reporting in 2026 and 2027, pending the Omnibus Act’s definition of the new scope.

As of 2026, that phase will be over. The extension served its purpose: to prevent companies from incurring reporting costs only to fall outside the scope a few months later. Now the guiding framework is the new CSRD, which has definitively established the new thresholds for mandatory ESG reporting.

Which companies will be subject to mandatory ESG Reporting from 2027?

Starting in 2027, the requirement to prepare a sustainability report will apply to companies that meet the new thresholds set by EU regulations on sustainability reporting. As we saw above, these are companies with more than 1,000 employees and annual net revenue exceeding 450 million.

In practice, a subset of the large companies that were exempt in 2025 under the “stop the clock” extension will once again be subject to the requirement if they exceed those thresholds.

These companies will be required to collect data for the 2027 fiscal year and structure their reporting in accordance with the new simplified ESRS standards.

Is sustainability reporting mandatory for SMEs?

No. Following the Omnibus Reform, SMEs are no longer subject to this requirement— not even listed SMEs, which were initially included in the third wave of the CSRD.

This does not mean that requests for ESG data will disappear. Banks, major supply chain clients, and investors will continue to request this information. In these cases, the recommended tool is the VSME, the voluntary EU standard designed for companies not subject to mandatory reporting requirements.

How to Prepare a Sustainability Report

The preparation of a sustainability report is a structured process that begins, first and foremost, with the selection of a standard, because the subsequent steps depend on this choice: the type of materiality analysis, the data to be collected, and the level of detail required.

1. Choosing a reporting standard: First and foremost, the company must determine which standard to adopt: ESRS, VSME, or GRI. For companies subject to the CSRD, the choice is mandatory: ESRS is the only accepted standard. For others, the choice depends on the context: VSME for those seeking a proportionate and recognized framework in Europe, and GRI for those operating in international contexts.
2. Materiality analysis: The approach varies significantly depending on the standard chosen. Those who adopt the ESRS must conduct what is known as a “double materiality” analysis: identifying both the ESG issues that have an impact on the company (financial materiality) and those where the company has an impact on the environment and society (impact materiality). This process is more complex than the traditionalmateriality analysis. Those who choose VSME or GRI, on the other hand, follow a simpler and more flexible approach.
3. Data collection: This is the most time-consuming phase. It involves collecting environmental data—such as energy consumption, greenhouse gas emissions, waste, and water usage—as well as social data—such as compensation, training, workplace accidents, and employee turnover—and data related to corporate governance. In our experience working with companies we’ve supported in preparing sustainability reports in accordance with ESRS, GRI, and VSME, this is the phase where the most significant challenges arise: missing data, non-integrated systems, and undefined responsibilities among business functions.
4. Drafting and formatting: The final document must be structured and consistent with the chosen standard. For companies subject to CSRD, it must be incorporated into the management report and comply with XBRL digital tagging requirements.
5. Assurance: For companies subject to the CSRD, an audit by a qualified external auditor is mandatory. For others, it is voluntary but increasingly valued by banks and clients.
   See also: The best examples of sustainability reports

Sustainability Report Assurance

Assurance is the process by which an accredited third party independently verifies a sustainability report (often incorrectly referred to as “sustainability report certification”). It serves to ensure that the information reported is accurate, complete, and compliant with the stated standard. It takes place in two scenarios:

• Mandatory assurance (CSRD). For companies subject to the CSRD, assurance is mandatory and must be performed by a statutory auditor or an authorized audit firm. The required level is limited assurance: a more streamlined review compared to reasonable assurance, which had initially been envisaged as a future objective by the original CSRD but was eliminated with the Omnibus reform.
• Voluntary assurance. Companies not subject to CSRD requirements may still choose to have their reports verified by a third party to enhance their credibility with banks, customers, and investors. This is an increasingly common choice, especially for companies operating in supply chains with major clients who are attentive to ESG data.

What standards are used for sustainability reports?

Not all sustainability reports are the same: their structure, level of detail, and required indicators depend on the standard chosen. There are three main standards.

There are also other standards, such as the ISSB (IFRS S1 and S2), which are primarily geared toward investors and financial materiality. To learn more about each standard, read the dedicated guides:

Which standard is best to adopt?

It depends on the company’s situation. If you are subject to the CSRD, the ESRS is the only accepted standard. If you’re not required to comply but want to develop a credible reporting framework, the VSME is currently the recommended choice at the European level: it’s much more manageable than the ESRS and offers a “shield” against excessive demands from large clients in the value chain (value chain cap). If you operate in international contexts or want a flexible, globally recognized standard, the GRI remains an excellent option.

With the simplification of ESRSs provided for in the Omnibus Directive—the EFRAG proposal reduces the number of mandatory data points by approximately 70 percent—companies subject to the CSRD will also find the reporting process more manageable starting in fiscal year 2027.

The Benefits of Sustainability Reporting

A sustainability report is not just a matter of regulatory compliance. For many of the companies we work with, it has become a practical tool for better organizing internal data, responding to market demands, and strengthening their competitive position. The main benefits of a sustainability report are:

1. Transparency and stakeholder trust. Communicating your ESG performance in a clear and structured manner builds trust among investors, banks, clients, and employees. More and more banks are incorporating ESG data into their lending criteria: having a well-structured financial statement can make all the difference when it comes to accessing capital.
2. Better risk management. The reporting process requires companies to map their environmental and social impacts, identifying critical issues that often do not come to light through day-to-day operations—the so-called ESG risks. For companies subject to the CSRD, this translates into a dual materiality analysis; for others, even a simpler process yields concrete results.
3. Cost reduction and increased efficiency. Careful management of sustainability often leads to reductions in waste, energy consumption, and operational inefficiencies, with direct effects on costs.
4. Reputation and Competitiveness. ESG reporting helps strengthen the brand and set the company apart in a market where clients and investors are paying increasing attention to sustainability data.

I’m no longer required to prepare a sustainability report—what now?

With the Omnibus reform, a large number of companies are no longer subject to reporting requirements. It is understandable that many of them see the Omnibus reform as an opportunity to reduce administrative costs.

However, the demand for ESG information is not going away—far from it . Banks, clients, supply chain partners, and investors will continue to request data on emissions, energy consumption, supplier management, employee welfare, safety, governance, and climate risks.

The European Central Bank also emphasized this point; while expressing support for a proportionate simplification of requirements, it voiced concern about the excessive narrowing of the CSRD’s scope and its impact on the availability of data for credit risk assessment.

For this reason, many companies that are no longer subject to the reporting requirement still choose to implement a voluntary reporting system. In this case, the recommended standard is the VSME: much simpler than the ESRS, it allows companies to address the market’s ESG demands with a proportionate tool. It also offers concrete protection: large companies in the supply chain cannot request ESG data beyond what is required by the VSME (the so-called “value chain cap”).

How can we support you?

Ollum’s reporting division has assisted companies in preparing their sustainability reports in accordance with GRI, ESRS, and VSME. We are already working with our first clients on the new simplified ESRS standards, which are scheduled to be adopted starting in fiscal year 2027.

We support companies at every stage of the process: from selecting the most appropriate standard to data collection, from materiality analysis to the preparation of the sustainability report, through to assurance and the development of a sustainability plan for future improvement. For teams looking to build in-house expertise, we also offer an ESG training course focused on sustainability reporting.

Sources

EU Directive 2026/470 (“Omnibus Package”)