Disclosing sustainability: methodological note

SUSTAINABILITY PERFORMANCE: LEGISLATIVE DECREE NO. 254/2016, REGULATION 2020/852 AND GRI STANDARD

Acea has published a report on the Group’s social and environ- mental performance since 1999 (for FY 1998), the year when the Parent Company was listed on the stock exchange. Since then, the sustainability report complies with the annual publication frequency, is prepared according to international Guidelines¹ and is subject to third-party verification. Since the 2017 edition, the Sustainability Report has also complied with Legislative Decree no. 254/2016², which transposed EU Directive 95/2014 into Italian law. Under the Decree, companies that meet the conditions set out in article 2 are required to publish their sustainability performance in a non-financial statement – individual or consolidated – which contains in- formation: “(...) to an extent necessary for ensuring an understanding of the company’s activity, its performance, results and the impact it produces, relating to environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, which are relevant given the activities and characteristics of the enterprise (...)”³.

It is also worth noting the entry into force of Regulation 2020/852⁴, which "establishes the criteria for determining whether an economic activity can be considered environmentally sustainable"⁵. The Regulation - also known as “EU Taxonomy” - states, for the second year of application⁶, that companies subject to the requirement to publish information of a non-financial nature include in the Non-Financial Statement – individual or consolidated – information on the activities “eligible” and “aligned” with the taxonomy and on quantitative performance indicators economic (KPI) - in particular, the turnover, CapEx and OpEx shares - attributable to them⁷.

This Sustainability Report, for the financial year 2022 has been prepared in accordance with the GRI Standards⁸: and is therefore called Acea Group’s 2022 Sustainability Report (Consolidated Non-Financial Statement pursuant to Legislative Decree no. 254/2016, prepared in accordance with the GRI Standards), taking the form of an autonomous document, as permitted by the aforementioned Legislative Decree⁹ (later in the document, “NFS” or “Sustainability Report” or "Consolidated Non-Financial Statement").
The Consolidated Non-Financial Statement also includes the disclosure required by Regulation 2020/852 and by Delegated Regulations 2021/2178 and 2021/2139 (the latter supplemented by Dele- gated Regulation 2022/1214). The disclosure will therefore concern the same set of companies included in the NFS scope, considered significant and adequately representative of the Group pursuant to Legislative Decree no. 254/2016 (see the paragraph on Materiality, GRI Standards and scope of the report below). The findings that emerged are reported in the chapter Information required by the European Taxonomy.

The Sustainability Report, enclosing a Summary Note, following its approval by the Board of Directors, is available to the supervisory body and submitted for limited assurance by the independent auditor, with which Acea has no joint interests or other connections and appointed in order to assess the compliance thereof with Legislative Decree no. 254/2016 and its consistency with the implemented reporting standards¹⁰; the limited assurance does not concern the information and data relating to the EU Taxonomy or the requests of art. 8 of EU Regulation 2020/852 (see Opinion Letter of the independent auditor).
The document is disseminated through publication on the institutional website at the same time as the Consolidated Financial Statements and distributed during the Shareholders’ Meeting.

MATERIALITY, GRI STANDARDS AND REPORT SCOPE

In 2022, Acea conducted a new materiality analysis cycle intended to consult with stakeholders and managers to identify the main economic, governance, social and environmental topics (so-called “material” topics) linked to the Group’s businesses and prioritise them, considering the effects associated with them (on businesses, natural environment, society and stakeholders themselves).

The new cycle was carried out using an updated method, including in light of the changes made to the reporting standards:

• to better investigate the double materiality perspective, the direct engagement of (internal and external) stakeholders was upgraded, increasing the number of people who took part in the analysis, in particular, corporate and territorial stakeholders, and expanding the methods of engagement by introducing an online survey to assess the topics and associated effects which supplemented the traditional focus groups and one-on-one interviews held;
• to identify which ESG aspects have the greatest impact on the Company (performance, results, development, etc.), in addition to the perspective of managers, information from the financial community was considered by identifying the most recurring ESG topics in analyst evaluations and further synergy was developed with the Enterprise Risk Management Unit in analysing critical issues and opportunities presented by the managers on ESG topics;
• the consideration of the impacts associated with the material topics was also emphasised, and the new criteria for evaluating their relevance were applied (significance, extent of the impacts, remediability/probability, etc.).

The 2022 materiality analysis involved the following stages:

• a document analysis, conducted on around 30 documents (related to the scenario, representative of stakeholder requests, strategic and internal management, etc.), led to the identification of 15 potentially relevant topics and their main areas of impact. These topics were shared with top management and subsequently submitted for evaluation by the Group’s stakeholders and managers;
• identification of the (external and internal) stakeholders to be involved in the analysis using the Group Stakeholder Register, carried out in collaboration with a large number of structures at the holding and operating companies, which led to a focus on the following stakeholder categories: institutions, peers and competitors, business partners, associations, scientific community, suppliers, customers and consumer associations, employees, trade unions, the media, new generations;
• the direct engagement of (external and internal) stakeholders, carried out using an online survey to evaluate the topics (accompanied by a glossary giving their broadest meaning) and the associated areas of impact found in the document analysis (141 respondents), the creation and development of two multistakeholder focus groups (69 people involved) – one at business level (stakeholders identified by the operating companies) and one at corporate level (stakeholders of the holding company) – during which the impacts associated with the topics evaluated in the survey were discussed and explored, and 17 one-on-one interviews, mainly held with institutional stakeholders;
• the direct engagement of Group managers through the survey to evaluate the topics and associated effects and a special meeting attended by 36 company managers. During the meeting, the managers, who were presented with the main results of the multistakeholder consultation, evaluated, also on the basis of several suggestions put forward by the Enterprise Risk Management Unit, the relevance of the topics proposed and the critical issues and opportunities created for the Group.

Following the focus groups, conducted by qualified facilitators, the results were analysed considering the opinions and contributions of stakeholders and managers in light of the impact measurement criteria defined by the GRI Standards (significance, extent, remediability, etc.) and the output was processed, creating the 2022 materiality matrix and preparing the list of material topics and associated impacts, as perceived by the stakeholders¹¹.
The materiality analysis process and its results are returned with reports dedicated to stakeholders and managers involved and are shared with the Ethics and Sustainability and Control and Risk Committees and the Board of Statutory Auditors.

The 2022 materiality matrix represents the topics according to the double materiality perspective of stakeholders and managers¹². The matrix distributes the 15 economic, governance, social and environmental topics¹³ into low, medium and high relevance (prioritised on a scale from 0-4). In particular, 14 topics are located in the high significance area (score 2.8-4) and 1 in the medium significance area (score 1.5-2.7) (see Chart no. 1).
The positioning of the topics was determined by considering the significance evaluations expressed by stakeholders and managers on the effects associated with each material topic as a whole, the extent of the effects, defined, from the inside out perspective, by considering the number of stakeholders involved in the effects generated and, from the outside in perspective, by associating effects and related topics with business indicators (EBITDA and investments), and the level of remediability/probability of the effects (negative, positive, etc.) evaluated based on the managerial/operational oversight of Acea.

Chart no. 1 – Relevant topics for the company and its stakeholders: Acea materiality matrix – 2022

Compared to the previous reporting cycle, the material topics decreased from 19 to 15. Nevertheless, in their broadest sense submitted to the stakeholders, the topics Governance for sustainable success, Protection of ecosystems and biodiversity, and Technological innovation and digital transformation now incorporate the aspects covered, in the previous analysis cycle, by the topics Performance management systems for sustainability in the medium and long term, Integrated risk management (threats and opportunities), Protection of air quality, Innovation of smart utility processes, infrastructure and services, and Business evolution through open innovation.

Table no. 1 contains the list of the 2022 material topics, in order of significance, defined on the basis of the joint consideration of the multistakeholder and managerial perspective and their correspondence with the reporting disclosures.
Besides being a strategic reference, the Acea Materiality Matrix is necessary to identify which aspects to include in greater or lesser detail, depending on the results of prioritisation, and to select the “specific disclosures” required by the adopted standards.
Taking into account the changes to the framework¹⁴, in force from 2023 for financial year 2022, this Acea Group 2022 Sustainability Report has been prepared in accordance with the GRI Standards¹⁵. This involves the breakdown of the performance according to:

• the new set of Universal Standards, which include the requirements and reporting principles (in GRI 1: Foundation 2021), the 30 disclosures of the General Standards¹⁶ (in GRI 2: General Disclosures 2021), and the methods for identifying and managing material topics (disclosures envisaged by GRI 3: Material Topics 2021);
• the individual disclosures of the Specific Standards¹⁷ (referring to economic and governance, social and environmental issues) related to the material topics of high significance for Acea, selected from 85 total disclosures, included in the 31 Specific Standards.

The latter is a new development introduced by the 2021 review of the GRI Universal Standards. The obligation to report a minimum number of disclosures in the Specific Standards no longer exists, while the relationship between individual specific disclosures and material topics is emphasised¹⁸, to best represent the main impacts of the organisation.
In this sense, an analysis was carried out to select the specific GRI “material” disclosures, considering their correlation with the Acea material topics of high significance as well as the meaning attributed to them by the International Standards, in certain cases adapting them to the corporate reality and in others ruling out their materiality¹⁹. The analysis led to the identification of 71 specific “material” disclosures, contained in 23 Specific Standards, which are related to all Acea material topics of high significance. The only material topic found to be of “medium significance” – Responsible Finance – is also discussed in the report, but to a lesser extent²⁰ (see Table no. 1).

Table no. 1 – List of the Acea “material topics” in order of significance and GRI “specific disclosures” related to topics of high significance

The principle of materiality or significance is also applied to the definition of the “report scope”, as envisaged both by the GRI Standards and by Legislative Decree no. 254/2016. The latter, indeed, under art. 4, states: “To an extent necessary for ensuring an understanding of the group’s business, its performance, results and the impact it produces, the consolidated declaration includes data about the parent company, its fully consolidated subsidiary companies and covers the topics pursuant to article 3, paragraph 1”.
The qualitative and quantitative criteria necessary to identify the companies that ensure an understanding of the Group’s business, performance, results and the impact it produces, have again been measured in 2022, confirming their adequacy. Qualitative criteria highlight the significance of the role carried out by the companies for the Group’s qualifying business (namely, companies carrying out a relevant and current role in the main businesses, or due to the services they provide, and in implementation of the industrial and sustainability plans) and territoriality (namely, the operations in the geographic area in which almost all of the turnover is generated, the majority of the stakeholders are located and a large part of the managed assets are located). Quantitative criteria concern, for all companies included according to the qualitative criteria, correspondence to a minimum value over 90% of the entire scope of consolidation with reference to specific economic data (turnover, CapEx and OpEx) and social and environmental data (customers and CO2 emissions). In-depth analyses were also carried out on the Water Business, given its strategic importance, verifying, for the companies included, a minimum sector coverage of 90% on relevant data (drinking water dispensed, waste water treated), as well as on the Environment Business, detecting a coverage of around 80% of waste treated.
As regards the companies included in the scope of line-by-line consolidation of the Parent Company 2022 (see Table no. 2), the analysis led to a scope proposal, presented to the competent board committees and to the Board of Statutory Auditors. As a result, the scope was completed and, after consulting with the CFO, shared with top management and finally presented to the Ethics and Sustainability and Control and Risks Committees and to the corporate control body.
In light of the above factors, the scope for the 2022 Acea Consolidated Non-Financial Statement (NFS), using the scope of the 2021 NFS, for which all companies were reconfirmed net of those that left the scope of line-by-line consolidation²¹, provides for the entry of Deco SpA, a new company in the Environment Segment, in line with the ongoing expansion of the business, and SF ISLAND Srl in the Generation business unit (photovoltaic energy), albeit not yet operational²² (see Table no. 3)²³.

Table no. 2 – Companies included in the Parent Company’s full consolidation area (2022)

Table no. 3 – Scope of the Acea Group Consolidated Non-Financial Statement for 2022 (pursuant to Legislative Decree no. 254/2016 and the GRI Standards)

The scope of the Acea Group’s 2022 Sustainability Report, albeit wider, guarantees continuity and comparability with the year before, as well as coverage of the companies that ensure full understanding of the Group’s activities and most significant sustainability performance.
Lastly, in compliance with the principle of completeness required under GRI Standards, the 2022 Sustainability Report includes qualitative and quantitative information regarding corporate and/ or environmental matters of certain companies that are not included within the scope of the Consolidated Non-Financial Statement. In particular, this data relates to the production of electricity from photovoltaic plants attributable to AE Sun Capital, a subsidiary not consolidated on a line-by-line basis, and environmental and social data and information for overseas activities and for the following companies operating in the Water Business: Acque, Publiacqua and Umbra Acque, which were included in some Group data and described in a dedicated chapter (Water companies data sheets and overseas activities), giving clear evidence of their individual contribution.

DOCUMENT STRUCTURE AND DISSEMINATION

The 2022 Sustainability Report, in line with previous years, is divided into three main sections: Corporate identity – which also integrates the information required by Regulation 2020/852 –, Relations with the stakeholders and Relations with the environment, supplemented by the Environmental Account.
The latter comprises about 500 items and parameters monitored which quantify the physical flows generated by the activities: the products, factors used (resources), outbound outputs (rejects and emissions) and some performance indicators.
References to the main economic-financial data and corporate governance are consistent with those given in the Consolidated Report and the Corporate Governance Report and which may derive from the latter.
The published data and information are provided by the Industrial Areas, Companies and responsible Functions (data owner); they are processed – and possibly reclassified in compliance with the reference Standards – by the internal workgroup which draws up the document and then submitted it once again to the Areas/ Companies/Functions responsible for final validation, formalized by the issuing of a specific certificate.
Downstream of the audit activities by the appointed independent auditor, the report is distributed by means of storage on SDIR 1Info, publication on the institutional website – www.gruppo.acea.it – and the company intranet, as well as the other formats provided under Legislative Decree no. 254/2016 and the implementing Consob Regulation (implemented by Resolution no. 20267 of 19 January 2018). It is also distributed together with the consolidated financial statements to the shareholders during the annual Shareholders’ Meeting upon closure of the financial year.

For further information about the Sustainability Report and its contents, it is possible to write to the following email address: RSI@aceaspa.it.

Irene Mercadante

SUSTAINABILITY PLANNING & REPORTING UNIT

Stefano Raffaello Songini

INVESTOR RELATIONS & SUSTAINABILITY DEPARTMENT

1 After also following other guidance, Acea opted for compliance with the guidelines issued by the Global Reporting Initiative (GRI), applying them starting with the 2002 Sustainability Report with the highest level of “compliance” possible and following its progressive development. In this regard, the most recent version (2021) of the set of GRI Universal Standards, in force since 1 January 2023, for reporting year 2022, provides for exceeding the accordance levels, as explained below.
2 Article 1, paragraph 1073 of the 2019 Budget Law introduced an amendment to Legislative Decree no. 254/2016, art. 3, paragraph 1, letter c, also prescribing the illustration of the methods for managing the main risks.
3 Legislative Decree no. 254/2016 as amended, in particular articles 2, 3, paragraphs 1, 4.
4 As part of the Action Plan on Sustainable Finance adopted in March 2018 by the European Commission to steer the capital market towards a more sustainable development model, in June 2020, Regulation 852/2020 was approved “relating to the establishment of a framework that favours sustainable investments", which entered into force on 12 July 2020.
5 Article 1 of the Regulation - Object and scope of application - states: "This regulation establishes the criteria for determining whether an economic activity can be considered environmentally sustainable, in order to identify the degree of environmental sustainability of an investment". The economic activities that the Regulation identifies are considered for their substantial contribution to achieving 6 environmental objectives: climate change mitigation; adaptation to climate change; sustainable use and protection of water and marine resources; transition to the circular economy, also with reference to waste reduction and recycling; pollution prevention and control; protection of biodiversity and the health of ecosystems. The Regulation has currently governed the first 2 objectives, on climate change, through the Climate Delegated Act (2021/2139), which was supplemented, in 2022, by the Complementary Delegated Act (2022/1214) on activities related to the use of fossil gas and nuclear in the energy sector.
6 Article 10 of the Disclosure Delegated Act (2021/2178), adopted by the European Commission in July 2021, also governed the gradual entry into force of the Regulation: “From 1 January 2022 until 31 December 2022, non-financial companies should only report the share of economic activities eligible for the taxonomy and not eligible for the taxonomy within their turnover, their capital grants and their total operating expenditure and the qualitative information referred to in section 1.2. of Annex I relevant to the information in question". Reporting regarding “taxonomy-aligned” activities, again in relation to the first 2 environmental objectives currently governed, instead applies from 1 January 2023 for financial year 2022 (“The key performance indicators of non-financial undertakings, including any accompanying information to be disclosed pursuant to Annexes I and II to this Regulation, shall be disclosed from 1 January 2023”).
7 Regulation 2020/852, art. 8, paragraphs 1 and 2, reads: “Any company subject to the requirement to publish information of a non-financial nature (...) includes (...) in the consolidated statement of a non-financial nature, information on how and to what extent the company's activities are associated with economic activities considered environmentally sustainable pursuant to articles 3 and 9 of this regulation ". (...) “In particular, non-financial companies communicate the following: a) the share of their turnover deriving from products or services associated with economic activities considered environmentally sustainable pursuant to articles 3 and 9; and b) the share of their capital grants and the share of operating expenditure relating to assets or processes associated with economic activities considered environmentally sustainable pursuant to articles 3 and 9". The Disclosure Delegated Act (2021/2178), adopted in July 2021, was “intended to specify the content, methodology and presentation of information that must be communicated by companies”.
8 In 2016, when the previous version of the Guidelines (GRI-G4) were superseded and further developed, the Global Reporting Initiative (GRI) published the GRI Standards - Consolidated set of GRI Sustainability reporting standards 2016. Since then, GRI has also issued updates to individual standards, without having to re-edit the entire set, of which it indicates the mandatory adoption deadlines for reporting. In 2021, the new edition of the Universal Standards (GRI 1, GRI 2, and GRI 3) was published, with mandatory application from 2023 (for reporting year 2022). GRI 1 indicates the requirements to be followed for reporting “in accordance with the GRI Standards”. For more information, go to www.globalreporting.org.
9 Legislative Decree no. 254/2016, art. 4 and art. 5, paragraph 3b.
10 Legislative Decree no.254/2016, under art.3, paragraph 10, provides that:“The subject entitled to perform the statutory audit of the Sustainability Report(...)or another subject entitled to carry out the statutory audit as specifically designated” issues “a certification concerning the compliance of the provided information with the requirements under this legislative decree and the principles, methods and procedures provided under paragraph 3”. Namely principles and methodologies: “provided by the reporting standard used as reference (...)”.
11 The detailed list of material topics and related effects is in the Report in "Stakeholders and Their Involvement" section.
12 In addition to providing the list of material topics, Acea also decided to continue to represent them in a matrix (no longer required by the GRI Standards), specifically due to the greater efficacy in showing the double materiality perspective.
13 Each topic, mentioned briefly here, has a broader meaning, given in a glossary provided to all stakeholders involved in the analysis process.
14 In particular, the review of the Universal Standards – GRI 1: Foundation 2021, GRI 2: General Disclosures 2021 and GRI 3: Material Topics 2021, which were issued to revise and succeed the previous GRI 101: Foundation, GRI 102: General Disclosures and GRI 103: Management approach.
15 Until 2021, Acea had prepared the Sustainability Report according to the Comprehensive option, the highest level of compliance envisaged by the GRI Standards. Today, this option has been replaced by the change in the framework which provides for the possibility to prepare a sustainability report in accordance with the GRI Standards by meeting 9 “compliance requirements”, defined in GRI 1: Foundation 2021, or to prepare a report with reference to the GRI Standards and therefore one that is not fully compliant.
16 In the previous edition of the Universal Standards, there were 56 general disclosures.
17 The Specific Standards and their disclosures also underwent certain changes with the evolution of the framework. For example, they are no longer grouped into three “series” (200: economic, 300: environmental and 400: social), though they have maintained the same numbering and related year of publication. In the current version, there are also 31 Specific Standards (there were 34 in the past), since several have been incorporated into the general disclosures, such as GRI 307: Environmental Compliance 2016 and GRI 419: Socioeconomic Compliance 2016, which merged with the new general disclosure GRI 2-27: Compliance with laws and regulations 2021. Lastly, no change has been made to the specific disclosure 306-3: Significant spills 2016, despite there being a more recent disclosure with the same numbering (306-3: Waste generated 2020).
18 It is important to consider that the GRI Specific Standards – each of which includes a description of the management method and a certain number of disclosures – and Acea material topics both refer to contents that are far more complex and detailed than their brief name may suggest, which, given their level of detail, cannot be presented at this time. See the GRI Standards on the website www.globalreporting.org.
19 By way of example and not limited to, this has led to the exclusion of specific disclosures which, according to the meaning given to them by the GRI, are more pertinent to multinational enterprises and not suited to the reality of the Group’s most significant operations.
20 The topic Responsible Finance is nevertheless paired with specific disclosures (201-1, 201-4, 203-1) already related to topics of high significance and, therefore, reported.
21 In particular, these are companies operating in the photovoltaic field, for which Acea signed an agreement in December 2021 with UK infrastructure fund investor Equitix, to sell a majority stake in the newco to which Acea’s photovoltaic assets already in operation or being connected to the grid in Italy have been transferred. In particular, in January 2022, AE Sun Capital Srl was established, held for 40% by Acea Produzione and 60% by the investment fund Equitix Investment Management. Since the agreement was finalised in the first quarter of 2022, several economic items are still connected to the companies that left the scope of line-by-line consolidation. In addition, the data related to the production of electricity from photovoltaic systems, connected to the subsidiary and not consolidated on a line-by-line basis, will be presented in the non-financial report in a different manner.
22 The hypothetical inclusion in the NFS 2022 of a PV company, albeit not yet operational, is essential to highlight the importance of the business and to measure its investments for taxonomy purposes. On the other hand, since they entered the scope of line-by-line consolidation in the final quarter of the year, Fergas Solar 2 and Acea Renewable 2 were excluded. The European Taxonomy Regulation also makes it possible to measure the economic items relating to the PV subsidiaries before leaving the scope of line-by-line consolidation.
23 In light of the applied criteria, the following companies are outside of the scope of the 2022 Consolidated Non-Financial Statement: Iseco, A.S.Recycling, EcologicaSangro, S.E.R. Plast, Consorzio Servizi Ecologici del Frentano “Ecofrentano”, Meg, Ferrocart, Cavallari, Italmacero, Tecnoservizi, Cesap Vendita Gas, Umbria Energy, Acea Energy Management, Acea Dominicana, Aguas de San Pedro, Acea International, Acea Perù, Consorcio Acea-Acea Dominicana, Consorcio Servicios Sur, Consorcio Agua Azul, Consorcio Acea, Consorcio Acea Lima Sur, Consorcio Acea Lima Norte, Acque Blu Arno Basso, Acque Blu Fiorentine, Acea Molise, Ombrone, Sarnese Vesuviano, Umbriadue Servizi Idrici, Adistribuzionegas, Servizi Idrici Integrati, Agile Academy, Notaresco Gas, ASM Terni, Acea Liquidation and Litigation, Fergas Solar 2, Acea Renewable 2, SIMAM, Technologies for Water Services.