2024 marked significant developments in ESG and sustainability laws and regulations, primarily driven by European initiatives also affecting the Italian regulatory framework. Among the most notable updates are new sustainability disclosure and due diligence standards for both companies and financial operators (including banks, insurance undertakings, asset managers, etc) related to the following:

• Enactment of Legislative Decree 125 of 6 September 2024 (“Decree 125/2024”) implementing EU Directive 2022/2464 on Corporate Sustainability Reporting (CSRD): In line with the CSRD, Decree 125/2024 introduces sustainability disclosure obligations (and, indirectly, sustainability due diligence standards) for large and listed companies into the Italian regulatory framework. These companies are now required to provide ESG information under a more comprehensive and standardised approach, codified through EU Delegated Regulation 2023/2772 introducing the European Sustainability Reporting Standards (ESRS).
• Approval of EU Directive 2024/1760 on Corporate Sustainability Due Diligence (CS3D): CS3D focuses on human rights and environmental due diligence across the entire chain of activities, including business relationships. Its goal is to hold companies accountable for identifying, preventing, and mitigating adverse human rights and environmental impacts within their operations and supply chains. De facto, CS3D complements CSRD by supplementing the ESG regulatory framework with specific due diligence standards. Although the CSRD and CS3D primarily apply to large companies, they indirectly affect SMEs, as these are often contractually obligated to comply with ESG reporting and due diligence requirements imposed by large-scale business partners (the so-called cascading effect).

• Application of EU Commission Delegated Regulation 2023/2486 starting from 1 January 2024: This regulation supplements EU Regulation 2020/852 (“Taxonomy Regulation”) by establishing the technical screening criteria for determining when an economic activity can be considered as substantially contributing to the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, or the protection and restoration of biodiversity and ecosystems.

Environmental law in Italy has seen significant advancements in 2024, mainly driven by legislative innovations at EU level.

On 10 June 2024, the Italian Council of Ministers approved the first draft of the Legislative Decree implementing EU Directive 2023/959, concerning the fourth phase of the EU Emission Trading System (ETS). Among the most relevant updates, the scope of the ETS will be broadened to cover, among others, emissions from the maritime sector starting in 2024 and emissions from the building and road transport sector from 2025. Furthermore, operators from the building and road transport sectors will be required to monitor and report their Scope 3 emissions and offset them by surrendering an equivalent number of emission allowances annually.

Additionally, through Law 115/2024, Italy has implemented EU Regulation 2024/1252 (“Critical Raw Materials Act”), concerning the secure and sustainable supply of critical raw materials, which came into force at the EU level on 11 April 2024. The Law will streamline the authorisation procedures for mining research projects involving critical raw materials and will require mining operators to contribute financially to the state and regional authorities based on the value of the materials extracted.

Also worth noting is EU Regulation 2023/1115 on Deforestation-free Products (“Regulation Deforestation-Free”), which will be applicable from 30 December 2024. Under this regulation, any operator or trader who places on the EU market or exports from it commodities like cattle, wood, cocoa, soy, palm oil, coffee, rubber, and some of their derived products, such as leather, chocolate, tyres, or furniture, must be able to prove, by conducting, for example, a specific due diligence procedure, that the products do not originate from recently deforested land or have contributed to forest degradation.

Lastly, Law 101/2024, concerning agrovoltaic plants, has entered into force. This law prohibits the installation of ground-mounted photovoltaic plants on areas classified as “agricultural areas” under local urban planning regulations. However, exemptions are provided for projects already approved under the previous regulatory regime, as well as ground-mounted photovoltaic projects aimed at developing energy communities or to be implemented in specific areas, such as abandoned mines and quarries. Notably, the law does not explicitly address agrovoltaic projects (ie, photovoltaic systems that allow the continuation of agricultural and pastoral farming activities on the installation site, while ensuring significant energy production from renewable sources), which, according to Italian case law, are considered a separate category from traditional ground-mounted photovoltaic plants.

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.

It is also relevant to mention that the first climate litigation was brought against a private large company in Italy. An environmental NGO alleged that the Italian company failed to adopt an appropriate climate transition plan and that this, as a consequence, violated international and domestic law, as well as other soft law instruments. Furthermore, the company was accused of significantly contributing to climate change and infringing human and environmental rights. However, due to uncertainties concerning the competence of ordinary courts over climate policy matters, the case is currently pending before the Italian Court of Cassation, which will decide on the competence of ordinary courts over such matters.

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 as well.

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 2024 were not as numerous as those in the environmental sphere but were nonetheless significant. With respect to the above-mentioned ESG law regulations:

• Decree 125/2024 obliges large and listed companies to report on specific social issues, including labour conditions, human rights, and employee engagement.
• CS3D places strong emphasis on human rights due diligence. It mandates companies to assess and address adverse impacts on human rights within their operations and supply chains, compelling businesses to prevent practices such as forced labour and poor working conditions.

Beyond regulatory developments, social issues have been a significant focus for Italian courts, particularly concerning corporate responsibility in two main areas:

• Human rights abuses in supply chains: Cases often involve multinational companies with operations or suppliers with poor labour practices. The courts have focused on enforcing transparency and due diligence obligations, particularly in the fashion and agriculture sectors, which are known for labour exploitation risks.
• Gig economy and worker classification: Courts have ruled on the status of gig workers, particularly in determining whether they should be classified as independent contractors or employees. Several rulings aimed to protect delivery riders and platform workers by ensuring they receive proper protections under labour laws, including minimum wage, social security, and health benefits.

To conclude, 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, on 28 December 2023, 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;
• the initiation of targeted training programmes for top management or the strengthening of boards’ ESG competencies with new members experienced in ESG;
• the development of sustainability policies; 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 example:

• the Italian securities market regulator (“Consob”) issued Warning No. 1/24 of 25 July 2024 (“Consob ESG Warning”) on compliance with sustainable finance obligations in the provision of investment services; and
• the Italian Competition Authority’s (AGCM) Annual Report of 31 March 2024 reaffirmed the authority’s commitment to monitor and discourage marketing strategies based on the improper use of green claims.

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 designed for financial operators and companies. Although such initiatives primarily target large or listed 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 supply chain of large and listed companies.

Some “critical” sectors are already under increased regulatory scrutiny. For example, Bank of Italy and Consob closely monitor the activities of financial operators and listed companies, issuing specific expectations and warnings (see 3.1 Progress in Green Financing). Furthermore, judicial authorities have begun investigating human rights violations, particularly in the logistics and fashion sectors. In this regard, the Milan Prefecture has introduced a Protocol for Legality in Contracting, aimed at increasing transparency in the logistics industry and combating illegal labour practices, worker exploitation, and tax evasion (see 4.2 Towards Vertical Responsibilities).

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 too, 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. Figures like Greta Thunberg have given momentum to global climate movements and inspired a generation of young activists to engage in issues related to sustainability, inclusion, diversity, and LGBTQ+ 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 taxation exceeding 50%, 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 often merely mentioned and lacks a clear vision. In this context, Italy struggles to develop a mature and strategic ESG balance.

In Italy, the implementation of the CSRD through Decree 125/2024, and the upcoming CS3D 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 mentioned ESRS for large and listed companies, there is a requirement to disclose detailed information on how the board is informed on ESG, its competencies on ESG issues, and how it ensures that sustainability risks and opportunities are identified and managed, particularly in relation to environmental and social impacts. 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.

Consequently, there are burdensome responsibilities and sanctions for companies and board members in case of non-compliance with Decree 125/2024. 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 implementing Decree 125/2024 correctly. While due diligence is the core element of CS3D, which will introduce specific due diligence obligations as to how the process must be conducted, companies must already consider Decree 125/2024 alongside CS3D. ESG due diligence forms the basis of the materiality assessment (requested by the ESRS) which, in turn, informs the sustainability statement.

Furthermore, the massive amount of data to be reported under Decree 125/2024 requires the implementation of ESG data governance, with specific procedures for the collection of data, involving subsidiaries and business partners.

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 CSRD.

In Italy, the growing importance of ESG requirements, particularly under Decree 125/2024, 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 must now integrate sustainability considerations into their decision-making processes, aligning with the principle of informed decision-making. This means they are required to fully understand and evaluate their company’s ESG risks, as well as the long-term impact of corporate activities on stakeholders, including employees, the environment, and society. Neglecting these factors may lead to decisions that are not in the best interests of the company and could breach their fiduciary duties.

Such fiduciary duties are now extended to ensuring accurate and transparent sustainability reporting, as mandated by Decree 125/2024. Directors must ensure that sustainability disclosures, such as those related to carbon emissions, human rights, and supply chain impacts, are fully compliant with the new reporting standards. 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, as outlined in Decree 125/2024, 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 CS3D, which will be implemented alongside 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 business and corporations practicing social responsibility, also known as purpose-driven companies.

Non-profit organisations cannot generate income in order to share dividends, while, within strict limits (eg not more than 50% of the profits) this is admitted 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 business and corporations practicing social responsibility, companies may adopt a specific legal status – the 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, ESG obligations under Decree 125/2024 and the upcoming CS3D are transforming the relationship between companies and their shareholders. These obligations require companies 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 IRO.

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 Bank of Italy ESG Best Practices and Consob ESG Warning and following the surge of ESG practices and expectations (eg, ESMA 2024 Guidelines on funds’ names using ESG or sustainability-related terms, as well as 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;
• 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 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 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 establishment of dedicated due diligence provisions, such as Regulation (EU) 995/2010 (Timber Regulation) and its repealing Regulation Deforestation-Free: 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 adopting the CS3D, which aimed to introduce mandatory due diligence obligations, shifting the focus from mere disclosure to proactive risk management.

In 2024, due diligence practices gained additional momentum with the already mentioned enactment of Decree 125/2024, implementing the CSRD, and the EU Commission approval of the CS3D. In parallel, cases involving human rights violations in subcontracting chains led to the prosecutor’s intervention. Italian judicial authorities launched significant investigations into labour abuses in both 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 Protocol for Legality in Contracting, 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, both the CSRD 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 gaining increasing importance 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, both in 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 companies must report on the undertaking’s impacts on sustainability matters where these companies exceed at least two of the three following criteria:

• balance sheet total of 25 million;
• net turnover of EUR50 million; and
• an average number of employees during the financial year of 250.

This obligation also applies to small and medium-sized listed companies, but not micro undertakings.

These reporting obligations include describing, 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 point (ii), 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 achieved. 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.

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 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.

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 (see 4.2 Towards Vertical Responsibilities).

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.

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.