ESG 2025 Comparisons

2025 saw significant developments in ESG and sustainability laws and regulations, driven both by European legislative initiatives and by the actions of Italy’s supervisory authorities. Among the most notable developments was the introduction of new due diligence and public disclosure requirements for companies and financial operators, relating to the following:

• The first was the application of Regulation 2023/1115 (EU) – the Deforestation Regulation (EUDR), which will take effect from 30 December 2025. The EUDR introduces due diligence obligations requiring companies to implement governance and supply chain risk management measures when marketing products derived from certain commodities, namely cattle, wood, soya, cocoa, coffee, oil palm, and rubber. Companies subject to the regulation will be required to publish an annual report describing the EUDR due diligence system adopted in order to comply with such law.
• Secondly, Directive (EU) 2025/794 (“Stop the Clock”) was adopted and transposed into Italian law through Article 10, paragraph 1-bis of Decree Law 95/2025. This directive postpones by two years the obligation to publish sustainability reports under Directive 2022/2464 – the Corporate Sustainability Reporting Directive (CSRD) – for the majority of companies subject to its requirements. The Stop the Clock Directive is part of a wider set of amendment proposals, known as the “Omnibus Package”, which aims to simplify the current CSRD and Directive (EU) 2024/1760 – the Corporate Sustainability Due Diligence Directive (CS3D).
• Another key development was the consolidation of greenwashing enforcement. The Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, or AGCM) intensified its scrutiny of corporate marketing communications concerning environmental, social, and governance claims. In this area too, Italian authorities anticipated regulatory obligations that, specifically on this matter, will only enter into force under Directive 2024/825, the “Empowering Consumers” directive, on 27 September 2026.
• Finally, Italian judicial authorities, particularly the Milan Public Prosecutor’s Office, continued their action against labour exploitation and human rights violations. Investigations initiated in 2024 in fashion and logistics supply chains had already revealed systemic deficiencies in labour, health, and safety oversight. Based on these findings, in May 2025, the Prefecture and the Milan Prosecutor’s Office introduced the Protocol for the Legality of Procurement Contracts in the Fashion Supply Chain (“Fashion Protocol”), expanding upon the framework established the previous year for logistics and providing concrete recommendations on the legal safeguards to be implemented.

Environmental law in Italy has seen significant advancements in 2025, through both new national regulations and implementation of legislative innovations at the European Union level.

On 20 June 2025, the Council of Ministers approved the National Action Plan for the Improvement of Air Quality (the “Plan”) by resolution. This resolution requires administrations to identify the activities to be implemented for carrying out short- and medium-term measures to combat air pollution, as outlined in the Plan. The Plan is structured into specific areas of intervention, with operational measures defined for each. It recognises that multiple factors influence air quality and adopts a cross-sectoral approach aimed at understanding these challenges and identifying effective solutions, ultimately ensuring cleaner air through the reduction of pollutant emissions.

Decree Law No 116 of 8 August 2025 (currently being converted into law) introduced a range of urgent measures to combat illegal waste-related activities. On the one hand, the decree increases penalties for certain environmental offences, particularly those concerning waste crimes; on the other, it establishes new categories of waste-related offences.

Furthermore, Legislative Decree No 102 of 19 June 2025 amended Legislative Decree No 18 of 23 February 2023 on the quality of water intended for human consumption, with the goal of enhancing the protection of water resources and public health. The most important innovations include (i) stricter requirements for materials that come into contact with drinking water in order to prevent contamination; (ii) the introduction of stricter limit values for perfluoroalkyl substances (PFAS), recognised for their environmental persistence and potential harmful effects on health; (iii) mandatory monitoring of trifluoroacetic acid (TFA) from 31 January 2027; and (iv) reinforcement of controls through the updating of Water Safety Plans.

By virtue of Law No 91 of 13 June 2025, the government has been delegated to adopt several European directives on environmental matters, the most important of which are listed below:

• Directive (EU) 2024/884 of the European Parliament and of the Council of 13 March 2024 Amending Directive 2012/19/EU on Waste Electrical and Electronic Equipment (WEEE): Member states must bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 9 October 2025. Among its key provisions is the reorganisation of national rules on end-of-life photovoltaic panels from household and non-household users, aligning Italian law with EU legislation under which producers bear the disposal costs only for panels placed on the market after 13 August 2012.
• Directive (EU) 2024/1203 of the European Parliament and of the Council of 11 April 2024 on the Protection of the Environment Through Criminal Law and Replacing Directives 2008/99/EC and 2009/123/EC: Member states must bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 21 May 2026. This Directive (i) expands the range of environmental offences; (ii) reinforces criminal penalties for actions that cause significant damage to nature (including air, soil, water, ecosystems, fauna and flora); and (iii) increases corporate liability thresholds to ensure greater deterrence.
• Directive (EU) 2024/1785 of the European Parliament and of the Council of 24 April 2024 Amending Directive 2010/75/EU of the European Parliament and of the Council on Industrial Emissions (Integrated Pollution Prevention and Control) and Council Directive 1999/31/EC on the Landfill of Waste: Member states must bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 1 July 2026. Among the most relevant updates, the European Union has revised measures to combat pollution from large industrial plants, extending their scope to include additional activities, such as mining, pig and poultry farming, above certain thresholds. In addition, the BAT (best available techniques) conclusions will also identify the environmental performance levels associated with specific BATs, and operators will be required to establish and implement an environmental management system in accordance with the Directive and the BAT conclusions.
• Directive (EU) 2024/2881 of the European Parliament and of the Council of 23 October 2024 on Ambient Air Quality and Cleaner Air for Europe: Under this directive (i) detailed short- and long-term air quality plans must be developed, setting out measures to address any breaches of limit values; (ii) air quality roadmaps must be prepared by 2030; and (iii) all citizens will have the right to seek and obtain compensation when their health has been damaged as a result of a breach of the air quality standards set out in the directive.

From a case law standpoint, in 2024, the Court of Rome ruled on Italy’s first climate litigation against the government. The case was filed in 2021 by an environmental NGO alleging that the Italian government’s failure to properly address climate change violated Italy’s obligations under international law, such as those stemming from the Paris Agreement, also in view of the human rights of current and future generations. The claimants requested a court order for the government to cut Italy’s emissions by 92% by 2030, using 1990 levels as a baseline. However, the court dismissed the case, ruling that decisions on national climate policy fall within the purview of political and legislative bodies, and thus cannot be evaluated by any ordinary court.

Regarding the matter under consideration by the Court of Rome, however, it is worth noting the recent decision of the Supreme Court (No 20381/2025). In a case brought by prominent environmental associations and individuals living in regions particularly vulnerable to climate change, the Court ruled against a company for failing to meet internationally recognised climate targets, thereby establishing its liability for financial and non-financial losses resulting from climate change.

The Supreme Court ruled that civil action can generally be brought against polluters for compensation for damage caused by emissions of gases that change the climate, and that Italian courts have jurisdiction over such legal actions. This is consistent with the provisions on non-contractual liability under Italian law. The Court also clarified that the court in the area where the harmful event occurred or may occur has jurisdiction.

According to the Supreme Court, the damage consists of the ultimate effect of the causal sequence triggered by climate change and occurs in the place where the injured parties reside (in this case, Italy).

Furthermore, in July 2024, the Italian Constitutional Court addressed the legitimacy of an Italian regulation that required the judicial authority to authorise the operational continuity of petrochemical companies. The court declared the challenged provision unconstitutional solely in the part where it failed to set a clear time limit for the temporary measures to ensure continuity of production for installations declared of national strategic importance. The court emphasised that safeguarding the environment requires the state to adopt every necessary act to avoid any damage to the environment, considering not only the rights of current generations but also those of future generations.

Based on the above, it is clear that the Italian legal framework, along with the related case law, is becoming increasingly stringent concerning ESG matters, and especially environmental issues. This trend is likely to intensify in light of the upcoming European ESG regulations, as well as the growing public and stakeholder focus on environmental matters. 

Regulatory and jurisprudential developments in the social sphere in 2025 were not as numerous as those in the environmental sphere but were nonetheless significant. With respect to the ESG regulations mentioned in 1.2 Environmental Trends:

• The EUDR mandates that companies subject to its requirements develop a dedicated due diligence system. Among the envisaged due diligence obligations, companies are required to verify that the products subject to the regulation are derived from commodities sourced legally. This “legality requirement” encompasses, among other things, compliance with human rights standards, thereby obliging companies to adopt legal safeguards to prevent, for instance, forced labour practices in the production process leading to the final product.
• The already mentioned Fashion Protocol aims at setting out both general commitments and specific guidance to strengthen human rights protection across supply chains. Fashion brands, namely those acting as lead companies within the supply chain, are encouraged to adopt codes of conduct that uphold ethical principles, including explicit provisions on human rights for suppliers and subcontractors. These must be complemented by ethical auditing schemes and training programmes for those responsible for monitoring compliance. Suppliers adhering to the Fashion Protocol must embed these commitments into their contracts, thereby extending responsibility throughout the production chain. In this context, audits play a central role: contracts must allow for periodic inspections, including unannounced checks, conducted by the brands, the commissioning company, or third-party agents, to verify compliance with health, safety, and labour standards. These measures closely align with the due diligence and transparency obligations under the CSRD, CS3D and EUDR, explicitly referenced in the Protocol, effectively anticipating their application. Such protocol shows that, despite uncertainties surrounding the ESG regulatory framework, corporate due diligence for human rights protection across supply chains has become an essential component of business operations.

Beyond regulatory developments, social issues have been a significant focus for Italian courts. In May 2025, the Milan Prosecutor’s Office imposed temporary sanctions on two fashion companies. The companies were charged with facilitating human rights violations by failing to (i) verify the operational capacity of suppliers and subcontractors entrusted with production, and (ii) conduct effective inspections or audits to confirm the functioning of the supply chain and actual working conditions. Even where formal and legal safeguards existed, substantive due diligence was lacking, highlighting the ineffectiveness of the organisational and management models adopted.

Finally, a growing number of companies are obtaining UNI/PdR 125:2022 certification for gender equality. This certification, introduced in 2022 as part of Italy’s National Recovery and Resilience Plan, prioritises businesses that adopt policies promoting diversity and equal opportunities in the labour market.

A significant development, falling under the scope of so-called good governance practices and, particularly, tax compliance, is the recent adoption of Legislative Decree 128/2024, which implements EU Directive 2021/2101. The Decree, enacted on 12 September 2024, introduces requirements for the public disclosure (via company websites) of corporate income tax information and related business data. These requirements provide valuable support for compliance, transparency, and the assessment of tax risks and tax planning strategies, particularly for ESG-focused professionals and rating agencies.

Additionally, in August 2025, the Bank of Italy published key findings and best practices regarding the action plans of banking and non-banking financial intermediaries concerning the integration of climate and environmental risks into corporate processes (“Bank of Italy ESG Best Practices”). Among the reported governance best practices are:

• the formalisation of roles and responsibilities related to climate and environmental risks, through the development of a multidisciplinary task force with the responsibility to integrate climate and environmental risks into the company’s strategy;
• the initiation of targeted training programmes for top management or the strengthening of boards’ ESG competencies with new members experienced in ESG;
• the development and continuous updating of sustainability policies, even regarding monitoring and controls over the company’s products and their supply chains; such best practices could be implemented through co-ordinating measures between Product Management and Sustainability teams; and
• the planning of ESG-related reporting lines to the board through specific briefings.

It is also worth highlighting the growing trend of companies updating their organisational and management model in accordance with Legislative Decree 231/2001 (MOG) by incorporating ESG procedures to mitigate the risk of committing criminal offences. The MOG allows companies to be exempt from administrative liability arising from crimes, and given that many offences are linked to ESG issues (eg, environmental crimes, violations of human rights, etc), ESG procedures, such as due diligence processes, play a crucial role in monitoring and preventing such criminal conduct.

Regulators and supervisory authorities play a crucial role in driving the ESG transition.

Regulators codify and enforce ESG practices, marking a shift from a voluntary approach based on guidelines and non-binding standards (soft law) to stricter regulations imposing ESG reporting and due diligence obligations (hard law). In Italy, the integration of sustainability into the regulatory framework is not only the result of EU legislation but also of national initiatives. These initiatives aim to recognise and promote companies that pursue both business and social-environmental objectives through specific legal statuses, such as benefit corporations, social enterprises, and innovative start-ups with a social vocation (see 2.4 Social Enterprise and 5.1 Key Requirements).

Similarly, national supervisory authorities ensure the proper enforcement of ESG regulations within their respective areas of competence, by adhering to the guidelines of the European Supervisory Authorities (ESAs). For instance:

• In August 2025, the Bank of Italy published its periodic report on key findings and best practices identified in the action plans of non-bank intermediaries regarding the integration of climate and environmental risks. The report highlighted best practices such as stricter supplier selection and more stringent monitoring of commercial and financial partners from an ESG perspective, in line with the judicial initiatives of the Italian prosecutors.
• Similarly, in early 2025, Consob (the “Commissione Nazionale per le Società e la Borsa”), the public authority responsible for regulating the Italian financial markets, issued Attention Notice No 1/25 on compliance with sustainable finance obligations, in order to guide the industry in applying existing provisions, offering examples of good and poor practices. Specifically, Consob emphasised:
1. clearly defining ESG characteristics or sustainability objectives, and avoiding generic statements that may constitute greenwashing;
2. identifying concrete indicators to assess each characteristic/objective;
3. establishing criteria for selecting investments consistent with the stated characteristics/objectives; and
4. ensuring clarity and accuracy of pre-contractual and periodic product disclosures regarding ESG profiles.

ESG laws and regulations impact various sectors and industries, as already evident. Current regulations apply to all market participants, with specific ESG reporting and due diligence obligations generally designed for financial operators and companies. Although, at first sight, such initiatives seem to target larger companies, their scope extends to SMEs as well, which are often contractually required to meet similar reporting and due diligence standards if they are part of the relevant supply chains.

Some “critical” sectors are already under increased regulatory scrutiny. The EUDR applies to companies of all sizes operating in industries with a significant contribution to deforestation. Indeed, the EUDR targets products derived from commodities such as cattle – impacting, for example, meat processors and fashion or luxury brands – and wood, affecting businesses such as paper manufacturers and producers of packaging, books, or magazines.

Furthermore, judicial authorities have begun thorough investigations on human rights violations, particularly in the logistics and fashion sectors.

In summary, ESG regulations are poised to impact all industries, but some are already experiencing more intensive oversight.

In recent years, not only global institutions such as the United Nations, but also NGOs, activists, and the general population, have recognised the need to do more to promote sustainability.

In particular, the younger generations are showing a growing awareness and consideration for environmental and social issues, giving momentum to global climate movements through activists engaging in issues related to sustainability, inclusion, diversity and, especially, human rights. These social movements represent increasing grassroots pressure on governments and companies to make more responsible choices, but progress is not always aligned at an institutional and political level.

From a political perspective, ESG and sustainability policies are strongly influenced by European-level strategies such as the European Green Deal. However, the implementation of these policies faces numerous challenges, especially regarding the distribution of funds and generating tangible value from both an environmental and social standpoint.

Italy, in particular, seems to follow more European directives rather than developing a coherent and long-term internal strategy. Political fragmentation in Italy reflects a diverse vision on sustainability: the left wing tends to focus on climate, education, and social assistance, while the right wing places greater emphasis on security, subsidies for renewable energy, energy efficiency, and economic development. However, the short-term nature of recent Italian governments hinders the development of a clear and strategic vision on sustainability and ESG.

In Italy, as in Europe, attention remains primarily on the environmental aspect of ESG (the “E” in ESG), although there is still a lack of systemic acceptance and sufficient incentives to foster an effective transition. Moreover, ESG has the political tendency to be considered a mere reporting task for disclosure, instead of a strategy to spur innovation and enhance governance and risk management. The public infrastructure that could support this transformation is lacking, and the transition process entails high costs, which, in a context of high taxation, presents a significant challenge for Italian companies. These companies show resistance to making radical changes toward sustainable innovation.

Even more concerning is the inadequate focus on governance (the “G” in ESG), while the social aspect (the “S” in ESG) is frequently only superficially mentioned and lacks a defined vision. The social aspect is currently gaining public prominence thanks to judicial actions, which have not yet been followed up by corresponding legislative measures. In this context, Italy needs to better develop a comprehensive and strategic ESG balance.

In Italy, the implementation of the CSRD through Decree 125/2024, the upcoming EUDR and CS3D and the recent actions of Milan’s prosecutor’s office will bring notable changes to corporate governance. Boards of directors will increasingly be responsible for overseeing ESG risks, impacts and opportunities (IRO), aligning corporate strategy with sustainability goals.

According to Delegated Regulation 2023/2772 setting the European Sustainability Reporting Standards (ESRS) – ie, the principles according to which companies subject to the CSRD’s requirements must draft their sustainability reports, companies are required to disclose detailed information on how the board is informed on ESG topics, its competencies on ESG issues, and how it ensures that sustainability risks and opportunities are identified and managed. It is clear that the increasing role played by sustainability in the successful development of companies requires the creation of dedicated ESG committees and/or functions, with specific expertise and competencies. Moreover, the sustainability statement under Decree 125/2024 must be approved by the board of directors, forming part of the management report attached to the financial statement, and the EUDR will require reporting on the related due diligence system.

Consequently, it is crucial for companies to establish solid governance procedures to oversee the sustainability reporting process, manage its underlying content, and address IRO management. As an example, ESG due diligence processes will be a key aspect for avoiding greenwashing and for implementing Decree 125/2024 correctly, as well as for structuring an efficient supply chain risk management process. While due diligence is the core element of the CS3D and the EUDR, which will introduce specific due diligence obligations as to how the process must be conducted, companies must already consider Decree 125/2024 and the guidance emerging from recent judicial actions. Indeed, ESG due diligence represents the basis of the materiality assessment required by the ESRS, which, in turn, informs the sustainability statement. As a result, it offers an opportunity to develop a coherent and harmonised system of sustainability governance and compliance.

In Italy, corporate governance requirements differ significantly between listed and unlisted companies due to regulatory frameworks and market expectations. Listed companies are subject to stricter governance rules imposed by both national legislation and European regulations. The primary legislation governing corporate governance in Italy is the Italian Civil Code, supplemented by the Consolidated Law on Finance (TUF) and regulations from Consob.

Listed companies must adhere to rigorous transparency, accountability, and reporting standards, including disclosing detailed information on their governance structures, board composition, and internal controls. These companies may also comply with the Corporate Governance Code developed by the Italian Stock Exchange (Borsa Italiana), which sets voluntary best practices for governance, including recommendations on board independence, diversity, and sustainable governance.

Listed companies may also adopt, on a voluntary basis, the Corporate Governance Code (the “Code”). While the Code is not legally binding, it operates under a “comply or explain” principle. This means that listed companies must either adopt the recommendations or explain why they have chosen not to. Many Italian listed companies voluntarily adhere to the Code because it offers a competitive advantage in attracting institutional investors, enhances stakeholder trust, and aligns with increasing expectations for sustainable governance and ESG performance.

On the other hand, Italian unlisted companies, particularly smaller or privately held ones, are generally subject to less stringent governance requirements. These companies must comply with the Italian Civil Code but are not bound by the additional layers of governance oversight required for listed companies. However, large unlisted companies or those with significant public interest, such as financial institutions, may still be subject to heightened governance and transparency standards under specific sectoral regulations, for instance, ESG laws such as the CSRD.

The growing importance of ESG requirements significantly influences the role and responsibilities of directors and officers. Under Italian law, directors have fiduciary duties to act in the best interests of the company, including the duty of care and diligence. With the introduction of Decree 125/2024, directors of large listed companies must now integrate sustainability considerations into their decision-making processes, aligning with the principle of informed decision-making. Moreover, the increasing scrutiny of supply chain management by judicial authorities demands that directors fully identify, assess, and manage ESG-related risks, as well as consider the long-term effects of corporate activities on stakeholders such as employees, suppliers, the environment, and society at large. Failure to take these factors into account may result in adverse externalities stemming from decisions that are not in the best interests of the company and could breach directors’ fiduciary duties.

Such fiduciary duties are now extended to ensuring accurate and transparent sustainability reporting in line with Decree 125/2024 and best practices to avoid greenwashing. Directors must ensure that sustainability disclosures, such as those related to carbon emissions, human rights, and supply chain impacts, are fully compliant with reporting standards and principles. Failure to provide accurate or complete ESG reports can expose the company to regulatory sanctions and reputational damage, and directors may be held personally liable for failing to oversee these risks. Sanctions for incorrect or misleading sustainability reporting could include administrative fines or legal actions. This elevates the stakes for directors, making it essential to adopt robust governance frameworks and internal controls to ensure compliance with ESG requirements.

Additionally, ESG due diligence under the CS3D, which will be implemented alongside the CSRD, further increases the responsibilities of directors. Directors will need to proactively assess, monitor, and mitigate ESG risks throughout the company’s value chain. Failure to conduct proper due diligence, particularly regarding environmental and human rights impacts, can lead to legal liabilities and sanctions. This expanded responsibility requires directors to take a long-term, sustainable approach to governance, ensuring that they not only protect shareholder value but also consider broader stakeholder interests. This shift means that directors and officers must be more engaged in corporate sustainability strategies, making ESG considerations a core part of their fiduciary duties.

In Italy, there are several specific legal forms and statuses for companies and/or not-for-profit entities, to be distinguished depending on their key characteristics and purpose. This range of legal forms and statuses, starting with the most social/public mission-driven, comprises traditional non-profit organisations, social enterprises, socially responsible businesses and corporations practicing social responsibility, also known as purpose-driven companies.

Non-profit organisations cannot generate income in order to share dividends; however, within strict limits (eg, not more than 50% of the profits) this is allowed for social enterprises (Imprese Sociali) according to Legislative Decree 112/2017. Italian social enterprises are not-for-profit companies carrying out their business activity pursuing general interest purposes. They adopt responsible and transparent management practices, promoting the broadest possible involvement of workers, users, and other stakeholders in their activities.

As to socially responsible businesses and corporations practicing social responsibility, companies may adopt a specific legal status – benefit corporation (Società Benefit) status. According to Law 208/2015, benefit corporations are required, inter alia, to include in their articles of incorporation “benefit objectives”, which companies must pursue as a corporate purpose. These objectives must be related to positive impacts on people, communities, stakeholder engagement, the environment, and social and cultural activities.

Another socially responsible business legal status is the “innovative start-up with social vocation” (SIAVS), which is required to pursue social purposes.

These legal statuses include the obligation to publish specific annual reports to give evidence of the social purposes they have promoted (see 5.1 Key Requirements).

In addition to legal statuses, there is the B Corp Certification, a private certification scheme issued by the American non-profit organisation B Lab. This certification requires companies to undergo a specific evaluation process called the B Impact Assessment, which measures and verifies their positive social or environmental impact and the shared value they create. Certified B Corp companies are also required to publish the results of their evaluation process online.

In Italy, the newly introduced and upcoming ESG obligations and considerations are transforming the relationship between companies and their shareholders. Companies now need to provide transparent and comprehensive reporting on ESG matters, shifting corporate focus from purely financial performance to long-term sustainability. This affects shareholders by broadening their understanding of the company’s risk profile and performance beyond traditional financial metrics, giving them insights into how well the company manages sustainability impacts, risks, and opportunities (IROs).

For shareholders, this increased transparency promotes informed decision-making. Particularly, institutional investors are increasingly interested in how a company addresses ESG risks and opportunities, as these factors are seen as critical to long-term value creation. Furthermore, companies measuring and improving their ESG performance are more likely to attract ESG-conscious investors and maintain better relations with long-term stakeholders. On the other hand, non-compliance with ESG obligations or inadequate reporting may lead to reputational damage, potential regulatory sanctions, and diminished shareholder value, potentially leading to shareholder activism or demands for governance changes.

Moreover, ESG obligations also strengthen shareholder engagement. Shareholders are now more empowered to question management and the board on how they are addressing ESG risks and opportunities, setting long-term strategies, and complying with reporting requirements. Shareholders may push for more sustainable practices or hold the company accountable for failing to meet its ESG obligations, fostering a more responsible and engaged corporate culture.

From a legal perspective, no particular new developments are noted: the European regulatory framework on sustainable finance has been consolidating since the adoption of the SFDR in 2019, and of the other corollary EU regulations, and continues to be the benchmark.

From a supervisory perspective, authorities played, and are expected to play in future, a crucial role in promoting sustainable finance. Bank of Italy ESG Best Practices and Consob ESG Warning are two clear examples of how these authorities are actively supporting, and indeed requiring, the market’s transition towards sustainable finance.

Looking forward, the following developments are anticipated:

• an update to the existing regulatory framework based on the current review by the EU Commission and the ESAs of the SFDR and the related Commission Delegated Regulation (EU) 2022/1288, which supplements the SFDR with regard to regulatory technical standards specifying the details of the content and presentation of sustainable finance disclosures (RTS);
• new regulatory tools, complementing the current framework, such as the ESG rating regulation, whose publication in the EU official journal is pending; and
• an increase in supervisory activities by national authorities in co-ordination with ESAs, as planned in the Bank of Italy’s ESG Best Practices and Consob’s ESG Warning and following the surge of ESG practices and expectations (eg, the ESMA 2024 Guidelines on funds’ names using ESG or sustainability-related terms, as well as the ESMA 2024 Final Report on Greenwashing).

In addition to the already mentioned regulations and expectations, guidelines, etc, of the supervisory authorities, the implications arising from the following should be carefully considered:

• ESG provisions on investor protection under Directive (EU) 2014/65 (MiFID II);
• legal and technical criteria for environmentally sustainable activities provided by the Taxonomy Regulation;
• integration of clients’ “sustainability preferences” in the assessment of suitability of investment operations, under EU Delegated Regulation 2017/565;
• express integration of ESG assessments in the risk assessment processes of banking institutions, under the European Banking Authority (EBA) Guidelines on the management of environmental, social and governance (ESG) risks; such guidelines put into effect the amendments to Directive 2013/36/EU (Capital Requirements Directive, CRD) and Regulation (EU) No 575/2013 (Capital Requirements Regulation, CRR);
• consideration of sustainability-related objectives in financial product governance processes, under EU Delegated Directive 2017/593;
• increased access, comparison and verification of sustainability information of companies and their value chains, under the ESG corporate transparency (and governance) rules of Decree 125/2024; and
• new due diligence rules and standards on the environment and human rights, for companies and their value chain, under the CS3D.

While the supply of “sustainable” capital (and related transparency obligations) has grown, the requirements and terms under which such supply is conditioned have increased, precisely to avoid greenwashing, making access to this capital more burdensome.

To access such capital, companies shall, for example, comply with good governance practices (which are increasingly defined) and analyse and report on sustainability-related risks, impacts and opportunities (environmental, climate but also social). This requirement has implications for how companies present themselves, particularly in terms of their internal organisation, strategic direction, governance, and their relationships with suppliers, as well as with the broader value chain.

At the same time, the entry into force of transparency and due diligence obligations on companies, particularly large ones, with effects on SMEs through the supply chain, is fostering a progressive alignment between supply and demand for capital, in terms of ESG compliance.

There is major concern that these market players remain excluded from ESG capital, while one of the pivotal goals of the EU regulatory framework on ESG is precisely to foster an inclusive and just transition.

The most recent example of such concerns is the speech from the president of Confindustria (the main association representing manufacturing and service companies in Italy) who, during the assembly held in Rome on 18 September 2024, pointed out the need to review the European Green Deal and that decarbonisation pursued even at the price of deindustrialisation is a debacle.

Legislators and supervisory authorities, however, seem to have already taken note of these market signals, as evidenced, for example, by proposals toward an amendment to the sustainable finance regime, in particular the SFDR, to encourage investment in the just transition of stranded assets, etc.

The key challenges in sustainable finance in the coming years are:

• simplifying the regulatory framework without undermining the investments made so far by companies and financial operators, through further clarification by the relevant authorities, including national ones (eg, Q&A, interpretations, guidelines, best practices, etc);
• strengthening supervision and enforcement of the rules (including sanctions), to ensure a common playing field and preserve fair competition (by discouraging greenwashing phenomena that alter the proper capital allocation, misleading other investors and business partners); and
• clarifying, including through the establishment of a taxonomy (such as the existing green taxonomy), the scope of disclosure and due diligence obligations with respect to social issues (eg, human rights compliance).

Originally, ESG due diligence was governed by soft law instruments, such as the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (“OECD Guidelines”) and the UN Guiding Principles on Business and Human Rights (UNGPs). However, ESG due diligence is now fully embedded within hard law regulations. This occurs through two mechanisms:

• The first is the incorporation of the OECD Guidelines and the UNGPs into Directives and Regulations, making them part of mandatory due diligence requirements, as seen in frameworks such as the CSRD, CS3D, SFDR, Taxonomy Regulation or Regulation (EU) 2017/821 (Conflict Minerals). This also involves the activation of specific agencies established by governments, such as the National Contact Point for Responsible Business Conduct (NCP), to promote the OECD Guidelines, and related due diligence guidance, and to handle cases as a non-judicial grievance mechanism. Italy activated its own NCP.
• The second is the establishment of dedicated due diligence provisions, such as Regulation (EU) 995/2010 (Timber Regulation) and its successor, the EUDR. The shift from soft law to hard law is driven by the critical role the due diligence practice plays in the transition to more sustainable development models, aligned with the goals of both the EU and the United Nations. Indeed, due diligence can no longer rely on voluntary approaches, being a key activity to prevent ESG risks and negative impacts, and to protect companies and their directors from potential liabilities.

In Italy, due diligence requirements have significantly expanded since 2017, when the Non-Financial Disclosure (DNF) first mandated large public-interest entities to map the sustainability profiles of their supply chains to identify potential ESG risks and impacts.

The practice of ESG due diligence further spread in 2021 with the introduction of the SFDR, which requires specific assessments to determine whether an investment promotes social or environmental characteristics or contributes to sustainable investment objectives.

The adoption of the CSRD in 2022, which mandates reporting on a company’s due diligence practices to prevent, mitigate, or address actual or potential environmental and human rights impacts, extended ESG due diligence across supply chains. This expansion was further supported by the legislative process for enacting Decree 125/2024, implementing the CSRD, and adopting the CS3D, which aims to introduce mandatory due diligence obligations, shifting the focus from mere disclosure to proactive risk management.

In 2025, due diligence practices gained additional momentum with the Fashion Protocol and the EUDR. Cases involving human rights violations in subcontracting chains led to the prosecutors’ intervention, with Italian judicial authorities launching significant investigations into labour abuses within the logistics and fashion industries – sectors critical to the country’s economy.

In particular, cases of “caporalato” (illegal recruitment and labour exploitation) received notable attention. The Milan Court established a task force to combat exploitation in the fashion and logistics sector, urging companies to adopt robust due diligence measures to prevent human rights violations within their supply chains. These efforts led to the drafting of the Fashion Protocol, promoted by the Prefecture of Milan, that aims to enhance transparency and address labour exploitation and illegal labour intermediation.

Looking ahead, ESG due diligence practices are expected to become even more prevalent, as they help mitigate reputational and compliance risks, as well as potential sanctions and liabilities for companies and their directors.

ESG due diligence practices have a significant impact on supply chain partners. In fact, the CSRD, EUDR and CS3D for suppliers, and the SFDR for investment portfolios, mandate the verification and disclosure of a supply chain’s ESG performance and impacts.

As a result, market operators subject to these regulations are increasingly adopting binding tools such as ESG clauses in supply chain contracts (in line with the so-called European Contractual Model Clauses, available online) to enforce:

• adherence to ESG principles outlined in ethical codes or supplier codes of conduct;
• verification of compliance with these principles through mandatory assessments or ESG audits;
• measurement of the suppliers’ ESG performance and impacts; and
• verification of compliance with ESG principles throughout the supply chain.

These measures aim to mitigate legal and reputational risks, often providing companies with the option to terminate contracts in case of non-compliance with contractual obligations.

Consequently, ESG due diligence on supply chain partners and investee companies is increasingly becoming an exclusion criterion, in line with the growing trends of “sustainable procurement” and “responsible investment” adopted by companies and financial operators.

ESG is becoming increasingly important in the M&A landscape due to its relevance across three key areas: (i) regulatory compliance; (ii) risk management; and (iii) market opportunities.

Regarding point (i), the past five years have seen a significant increase in sustainability regulations at EU level, in both the corporate and finance sectors, imposing ESG reporting and due diligence obligations on a growing number of market participants. Along with these obligations, the regulations introduce specific penalties for companies and personal liability for directors and supervisory bodies, shifting sustainability from being a “marketing-related” issue to a core responsibility of legal and compliance functions and, above all, boards of directors.

As for point (ii), ESG risks are crucial because they could have actual or potential financial impacts affecting the company’s financial position (performance, cash flows, access to finance, or cost of capital) in the short, medium, or long term. For this reason, risk management systems should be improved with potential ESG events that could negatively affect the company.

Regarding point (iii), particularly in light of the ESG reporting requirements imposed on financial operators by the SFDR and on large companies by Decree 125/2024, having strong sustainability governance – including ESG data governance – along with positive ESG performance or a sustainable business model, is becoming a valuable asset. It serves as a potential competitive advantage in (i) public and private procurement processes; (ii) access to financing; and (iii) relationships with investors and/or clients who are required to report on the ESG performance of their investment portfolios or value chains.

These factors, when combined, highlight the strategic importance of ESG matters, which now extend far beyond marketing, as was the case in the past, and beyond mere regulatory compliance.

Under Italian law, sustainability reporting obligations may depend on (i) the size or (ii) the legal status of the company.

With respect to point (i), under Decree 125/2024, large listed companies must already report on the undertaking’s impacts on sustainability matters, while the “Stop the Clock” Directive interrupted the reporting process for unlisted large companies (defined as those exceeding at least two of the three following criteria: balance sheet total of EUR25 million; net turnover of EUR50 million; and an average number of employees during the financial year of 250) until 2027. Moreover, the Omnibus Package has introduced an element of uncertainty regarding the future application of sustainability reporting requirements, as even the size criteria themselves are currently under review. 

The reporting obligations include the disclosure of, among other things:

• the business model and strategy with regard to sustainability risks;
• the sustainability objectives set by the company and the progress made towards achieving them;
• the sustainability due diligence process put in place;
• the main actual or potential adverse impacts related to the company’s value chain; and
• the indicators related to sustainability information.

With respect to the second bullet point, according to the Italian legislation, companies with specific legal statuses promoting benefit or social objectives are required to report on their ESG performances or impacts. In particular:

• According to Law 208/2015, benefit corporations are required to draft an annual report, attached to the financial statement, concerning the pursuit of common benefit objectives. The report shall include (i) information regarding the attainment of the benefit objectives and assess how effective the actions taken by the company have been, and (ii) the measurement of the impacts related to governance, employees, stakeholders, and the environment areas, according to specific external evaluation standards.
• According to Legislative Decree 112/2017, social enterprises are required to draft a report on the impact they have generated. To provide guidance on the content of this report, the Ministry of Labour and Social Policy issued its own guidelines on 4 July 2019. On 23 July 2019, a second set of guidelines was released to further define the criteria and methods for voluntarily assessing social or environmental impact.
• According to Circular 3677/C of the Ministry of Economic Development, SIAVS are required to draft an annual social impact assessment, according to the criteria outlined in the Circular. The report also serves as a self-certification to the Chamber of Commerce, demonstrating a company’s continued compliance with the requirements of its particular legal status and confirming its eligibility for benefits and incentives.

Further, any company subject to the EUDR will be required to report on the dedicated due diligence system it has put in place to tackle deforestation risks.

According to the reporting obligations outlined in the regulations mentioned in 5.1 Key Requirements:

• Benefit corporations and social enterprises, which embed benefit and social objectives in their by-laws, are required to disclose the actions and results undertaken to achieve these objectives.
• Companies reporting under Decree 125/2024 are obliged to disclose whether they have, or do not have, transition plans or commitments to targets.
• SIAVS are only required to describe the social impacts generated by operating in specific social sectors.

The Italian Consumer Code contains general provisions regarding sustainability claims. The Code, which regulates misleading advertising and consumer protection, also applies to practices of greenwashing and social washing. This approach aligns with (i) the European Commission’s guidelines, which explicitly categorise greenwashing and social washing as forms of unfair commercial practices, and (ii) precedents set by the AGCM.

This stance has been reaffirmed by Directive 2024/825, “Empowering Consumers for the Green Transition through Better Protection Against Unfair Practices and Better Information” (ECD), which updates Directive 2005/29/EC (UCPD). The ECD formalises principles already laid out in the European Commission’s guidelines, explicitly introducing the concepts of greenwashing and social washing into the legal framework. Specifically, the ECD:

• identifies as unfair commercial practices:
1. misleading information regarding the environmental or social characteristics of a product, or aspects related to circularity (eg, durability, repairability, recyclability);
2. environmental claims about future performance which are not substantiated with information related to the programmes to achieve such performance; and
3. promoting irrelevant benefits to consumers that do not stem from the product’s or company’s actual characteristics; and
• updates Annex I of the UCPD, listing commercial practices which are in all circumstances considered unfair:
1. generic or exaggerated environmental claims;
2. claims related to positive environmental impacts that are based on carbon offsetting; and
3. claims related to legally mandated requirements.

It is important to note that the ECD defines environmental claims as any commercial communication conveyed in any form, including text, images, graphics, or symbols, such as labels. Therefore, in addition to the above, claims based on sustainability labels that are not supported by an authorised certification system or established by public authorities are included in the blacklist of commercial practices that are considered unfair in all circumstances.

The competent regulatory authorities in Italy responsible for verifying ESG disclosure compliance are:

• Consob for listed companies subject to the CSRD;
• Consob and Bank of Italy, for financial operators subject to the SFDR; and
• AGCM for all market operators subject to the Consumer Code.

With regard to non-compliance with the CSRD for false or misleading ESG disclosures, administrative monetary penalties are foreseen exclusively for publicly listed companies, in accordance with the provisions of TUF. Additionally, because the sustainability statement required by Decree 125/2024 is included in the management report, all companies may be subject to the general regime governing false statements in financial reports, which could involve criminal law provisions.

Similarly, non-compliance with the SFDR for false or misleading ESG disclosures also results in administrative monetary penalties, again in accordance with the TUF.

In cases of non-compliance related to unfair competition for false or misleading ESG disclosures, actions constituting unfair competition can be prohibited, and compensation for damages may be required, according to the Italian Civil Code provisions.

Regarding greenwashing – ie, non-compliance with misleading advertising regulations for false or misleading ESG disclosures, according to the provisions of the Consumer Code, the AGCM may (i) prohibit the advertisement and (ii) impose an administrative monetary fine ranging from EUR5,000 to EUR5 million, depending on the seriousness and duration of the violation.

With respect to EUDR obligations, the Ministry of Agriculture, Food Sovereignty and Forests, is the competent authority for carrying out inspections, verification of the annual reports regarding the due diligence system, as well as for imposing sanctions, through the executive action of the DIFOR (General Directorate of Mountain Economy and Forestry), which will deal with wood and its derivatives, and the ICQRF (Central Inspectorate for the Protection of Quality and the Repression of Fraud in Agri-food Products) which will be responsible for the other products and raw materials involved (coffee, cocoa, beef, soy, palm oil, rubber and various derivatives). Potential sanctions include confiscation and fines of up to 4% of revenues.

In the coming years, companies are expected to make significant strides in meeting their ESG reporting obligations, driven by increasing regulatory and supervisory pressure, investor demand, and rising public awareness.

With frameworks like the CSRD, SFDR and ECP becoming mandatory, companies will likely enhance their sustainable corporate governance models. This will enable better management of ESG-related impacts, risks and opportunities, incorporating robust policies, procedures, and internal organisational measures to strategically govern ESG. These efforts will help mitigate key risks – especially reputational and legal risks – while creating long-term value for both shareholders and stakeholders at large.

However, several challenges remain. First, companies will face the complexity of collecting accurate and comprehensive ESG data across various business operations and global supply chains. Second, the need to align with multiple regulatory frameworks and ensure consistency in ESG disclosures across jurisdictions will continue to be a significant challenge. Third, the risk of greenwashing – whether intentional or unintentional – will persist, as companies may feel pressured to overstate their sustainability initiatives. Finally, integrating ESG considerations into core business strategies, while also ensuring adequate internal resources and expertise, will require a substantial cultural and operational shift within many organisations.

In summary, while companies are likely to make substantial progress, navigating the evolving regulatory landscape, ensuring transparency and accuracy, and aligning with global standards will remain ongoing challenges. This is due to the inherent complexity of a new system that must be understood and adapted by individual market participants based on their unique characteristics and needs.

In Italy, the commencement of ESG-related legal actions depends on the type of claim and the parties involved. In recent years, there has been a notable rise in such cases, underscoring the practicality and effectiveness of existing legal mechanisms in addressing ESG issues. In particular, the main avenues for pursuing these actions include:

• civil court proceedings, which may involve (i) ordinary proceedings initiated either by private individuals under tort law, seeking compensation for damages or orders mandating specific actions due to companies’ violation of ESG-related regulations, or by competitors under the unfair commercial practices rules, aiming to obtain injunctive relief or other remedies; or (ii) class actions for injunctive or declaratory relief brought by consumer associations or individuals to obtain a court order against unlawful acts or omissions, such as cease-and-desist orders or orders mandating specific actions;
• administrative court proceedings before the AGCM to determine the existence of unfair business practices under the Consumer Code or misleading advertising under the Advertising Law, which may result in sanctions; and
• proceedings before the Advertising Self-Regulation Jury (Giurì di Autodisciplina, the “Jury”), based on the Self-Regulation Code: If a company has adhered to the Code, the Jury can order the company to stop disseminating any commercial communication found to be in violation. If the communication clearly violates the Code, the Chairman of the Control Committee can also issue a desist order. The decisions are publicly available and can be subject to further public announcements, naming the involved parties.

In understanding the Italian jurisdiction, it is useful to consider, again, the broader European context. The primary objectives of European Union ESG laws include providing ESG information to civil society actors, including NGOs and activists, enabling them to hold companies accountable for their impacts on people and the environment.

In addition, the CSRD requires companies to implement:

• stakeholder engagement activities, meaning an ongoing process of interaction and dialogue between the company and its stakeholders that allows the company to listen, understand, and respond to their interests and concerns; and
• grievance mechanisms, meaning processes through which stakeholders can raise concerns and seek remedies; these processes can be managed by the organisation either independently or in collaboration with other parties, and must be directly accessible to the organisation’s stakeholders, thus preventing both harm and grievances from escalating.

To conclude, the forthcoming CS3D will mandate companies to establish a fair, publicly available, accessible, predictable, and transparent procedure for handling complaints from individuals or entities concerning actual or potential adverse impacts related to the company’s operations, those of its subsidiaries, or its business partners throughout the chain of activities.

Complaints may be submitted by:

• natural or legal persons who are affected, or have reasonable grounds to believe they might be affected, by an adverse impact, as well as their legitimate representatives, such as civil society organisations and human rights defenders;
• trade unions and other worker representatives on behalf of individuals employed within the relevant value chain; and
• civil society organisations that are active and experienced in areas related to the environmental issues at the heart of the complaint.

With this in mind, in Italy, in addition to several mediation proceedings under the OECD Guidelines initiated before the NPC, some NGOs, including ReCommon and Greenpeace, have also initiated the first climate litigation cases against the state and against a company operating in the energy sector. In light of these developments, coupled with the rise of environmental activism, NGOs and activists play a significant role in shaping the ESG landscape in our jurisdiction.

On 16 July 2024, the AGCM launched an investigation into several fashion companies over potential unlawful practices in the promotion and sale of clothing and accessories, in violation of the Consumer Code.

According to the AGCM, in some cases, these companies sourced supplies from workshops employing workers:

• who received inadequate wages; and
• who worked hours beyond legal limits and in unsafe and unhealthy conditions, in contrast to the companies’ claims of excellence in production.

The alleged unfair commercial practices relate to corporate communication emphasising the craftsmanship and quality of the creations. On the contrary, the companies were apparently sourcing from workshops that employed exploited workers, thus misleading consumers. The AGCM clarified that the investigation was also prompted by actions taken by the Milan Prosecutor’s Office and the Milan Court.

Another investigation has been recently launched by the AGCM, targeting another fashion company that promoted an image of sustainable production and marketing for its clothing through generic, vague, confusing, and/or misleading environmental claims.

Furthermore, in April 2024, the Italian Council of State, the highest authority on administrative matters, ruled on the legitimacy of sanctions imposed by the AGCM against an Italian oil company for greenwashing and misleading advertising. The Council of State, taking into account the upcoming ECD, upheld the legitimacy of the green claims, provided the product had a demonstrably lower environmental impact compared to others in the same category and that the claim was supported by clear, sufficient, and contextual information enabling customers to accurately understand the product’s sustainability.

This trend in judicial decisions was confirmed in 2025 when, on 29 July 2025, the AGCM imposed another sanction for unfair commercial practice on a fashion brand. Specifically, two companies belonging to the group disseminated misleading ethical and social responsibility statements that were inconsistent with the actual working conditions found at suppliers and subcontractors. These statements were included in the companies’ code of ethics and in documents published on their websites.

The future of ESG-related litigation in Italy is set to grow considerably in the coming years. This growth is driven by several factors, including increasing regulatory focus on the enforcement of ESG standards and the rising awareness among both consumers and activists about companies’ environmental and social impacts.

We may expect to see a marked increase in enforcement actions, particularly related to greenwashing and violations of supply chain transparency. Both administrative authorities like the AGCM and private litigants are likely to pursue cases concerning misleading ESG claims, and Italian courts will face growing scrutiny on corporate compliance with new EU regulations such as the CSRD and the CS3D.

Moreover, with more companies required to disclose their ESG metrics and sustainability efforts, there will likely be more cases challenging the authenticity of those claims. As ESG policies continue to mature, coupled with increased activism and legal scrutiny, the number of ESG-related proceedings in Italy will undoubtedly rise. We will also likely witness a corresponding increase in contractual disputes over violations of ESG clauses, which are becoming more prevalent in a broad variety of commercial agreements.