ESG criteria and transition of Italian and European companies

According to CRIF's ESG Outlook, Italian companies are moving towards a sustainable path but there is still much work to be done. Some 8% of companies have not yet embarked on a sustainable transition path or have done so only to a limited extent with respect to ESG criteria. About 60 per cent of the companies demonstrate a medium or low level of adequacy, while just over 30 per cent are at an advanced stage. Those making the most progress are companies with a turnover of more than EUR 10 million and 39 per cent of them are in an advanced state of ESG transition compared to 33 per cent of companies with a lower turnover. The survey highlights how SMEs (small and medium-sized enterprises) find it more difficult to adhere to a corporate sustainability path

The Italian government has made a clear commitment to the SDSGs targets of the 2030 Agenda. To help small and medium-sized enterprises, it can take various measures starting with promoting awareness-raising programmes and providing resources to raise SMEs' awareness of the importance and benefits of adopting sustainable practices. These practices may include the organisation of workshops, seminars and information campaigns, as well as the creation of online tools for accessing relevant information and resources. In addition, the government can introduce financial incentives to encourage SMEs to adopt sustainable initiatives, such as: tax breaks, subsidies for investment in sustainable technologies, tax relief or simplified access to financing on favourable terms for ESG projects.

The government can support research and development of innovative solutions and sustainable technologies that are accessible to SMEs. This may include funding for research projects, collaborations with research institutes and incentives for the adoption of green technologies.Importantly, government support should be targeted to the specific needs of SMEs and take into account their resources and capabilities. Furthermore, close cooperation between government institutions, trade associations and private sector stakeholders can foster a holistic and effective approach in promoting the sustainability of small and medium-sized enterprises.

Morgan Stanley's Institute for Sustainable Investing, conducted a survey interviewing business owners and managers in North America, Europe and Asia to understand what can be done to accelerate the adoption of environmental, social and governance solutions. The research shows that growth in the sustainable investment market can be accelerated through better alignment between investor expectations and the ESG (Environmental, Social, and Governance) practices, products and reporting of asset managers. Institutional investors also show a growing demand for specific sustainable investment strategies that focus on areas such as water solutions, climate change and education.

According to the CRIF report, among the main ESG factors contributing to the sustainability assessment of SMEs is the environmental 'E' factor. Crif assessed, through the Score E, the level of adequacy of environmental risk management. The study showed that the most virtuous regions are Lombardy and Piedmont, with over 60% of companies demonstrating a high degree of adherence to environmental criteria. At sector level, it emerges that the real estate and leisure sectors are the most environmentally aware. Turning to the governance factor (G), which concerns diversity & inclusion policies, it emerges that the pharmaceutical sector stands out with the highest number of companies that have reached an advanced state of adaptation. The electronics, mechanical engineering and transport equipment sectors also perform well. On the other hand, agricultural, tourism, construction and real estate companies present the lowest levels of adaptation.

The criteria used by CRIF to assess the environmental score of companies may vary depending on the specific methodology adopted by the organisation. However, in general, the environmental indicators considered by CRIF could include the following aspects: greenhouse gas emissions (greenhouse gas emissions produced by companies, such as carbon dioxide - CO2, methane - CH4 and nitrogen oxide - NOx); waste management; consumption of natural resources; impact on the surrounding environment (e.g. air and water pollution, deforestation or destruction of natural habitats). This is the context for XNatura, the innovative terrestrial biodiversity monitoring protocol developed by 3Bee: an innovative methodology, in line with the CSRD Directive and the Nature Restoration Law, that will enable companies to improve their impact on biodiversity and offset it.

CRIF's ESG Outlook analysed the impact from physical risk, which measures the financial-economic impact due to environmental degradation and climate change. This impact is divided into two macro-categories: chronic risks, related to climate change that occur gradually, and acute risks, such as sudden natural disasters.5.9 per cent of SMEs are considered to have a high or very high acute physical risk. Regarding chronic physical risks, 16% of companies are classified as highly or very exposed. In addition, the mining sector has the highest transition impact.

According to the CRIF ESG Outlook report, the costs resulting from the transition, expressed as a percentage of turnover, are subject to continuous fluctuations.Energy-intensive sectors (mining, transport, chemicals and metal products processing) show a percentage of costs varying between 3% and 8% of annual turnover. Moderate, but still significant, impacts are observed, with around 2-3% of costs as a percentage of annual turnover in the non-metallic product processing and electricity and gas production and distribution sectors. Whereas in the sectors related to services, real estate and trade, there is a marginal impact of less than 0.5% per year. The report denotes a strong correlation between the impact of the transaction towards ESG criteria and the current level of emissions intensity.

The path to sustainable development is crucial for every company, regardless of its size and sector. In addition to efforts to comply with ESG criteria, it is crucial to assess the sustainability impact of the entire supply chain. Recognising the interconnectedness and mutual influence between the various actors in the supply chain becomes essential to ensure responsible and effective management of environmental, social and governance impacts. This involves a careful examination of the sustainable practices of suppliers, the sourcing of raw materials, production processes, transport and distribution of products, through to final consumption. Only by assessing the entire supply chain can vulnerabilities, risks and opportunities be identified and mitigated to improve the overall sustainability of business operations.

A holistic approach to supply chain sustainability can foster collaboration between companies, encouraging the sharing of best practices, transparency and innovation, and promoting sustainable development at a systemic level.In conclusion, the sustainable impact assessment of the entire supply chain is a crucial element for companies wishing to adopt effective ESG practices and pursue a sustainable development path. With this in mind, 3Bee operates in the ESG field - mainly in the environmental field - realising, alongside corporate partners, biodiversity protection and monitoring projects based on the use of proprietary technologies that deliver clear and quantifiable KPIs. These KPIs are translated into a report that 3Bee provides annually to partners: a useful tool for communicating the actions taken within the corporate sustainability report.

Article by Angelina Tortora