The Implications of CSRD for Non-EU Companies



The EU’s Corporate Sustainability Reporting Directive (CSRD) is now officially the law of the land in EU member states.  It was entered into force on 5 January 2023. This early stage of the rollout will impact a specific subset of EU companies and non-EU companies meeting the criteria provided below. However, as the rules come into effect for additional companies over the next couple of years, it follows that more and more non-EU companies will be drawn into the circle of compliance as well.


Smart companies will begin to prepare for eventual compliance now to stay ahead of any upcoming obligations. The EU’s CSRD is the first of its kind, but several large nations, including the US, have been working on finalising drafts for similar legislation that will impact companies in their home countries. Getting your records in order now will allow you to rest easy in the knowledge that you are prepared to comply with the new CSRD reporting requirements either now or in the very near future.


CSRD’s Impact on Non-EU Companies with EU-Listed Securities

The initial rollout of the CSRD is now in effect and select companies will need to submit their first sustainability report in 2025, for the business year of 2024. Non-EU companies with securities listed on the EU-regulated markets will be among those obligated to comply with the new, more stringent reporting requirements.  The timeline for the submission of the first sustainability report varies.


Initially, the CSRD reporting standards will impact large non-EU companies with more than 500 employees and securities listed on a regulated EU market. Non-EU companies that believe that they may meet these criteria should be prepared to submit their first reports in 2025.


From 1 January 2025, all large non-EU companies with securities listed on a regulated EU market will become obligated to submit sustainability reports in 2026 under the second phase of the CSRD rollout.


For the purposes of the CSRD, large companies are defined as companies that meet any two of the following criteria:


  • Total assets of more than €25 million
  • Revenue of more than €50 million
  • More than 250 employees


From 1 January 2026, select small and medium-sized enterprises (SMEs) with securities listed on the EU market will need to begin preparing reports for submission in 2027. Small, simple credit institutions and captive insurance undertakings may be required to report during this phase as well.


CSRD’s Impact on Non-EU Companies with Significant EU Activities

In 2028, the last phase of the rollout will create an obligation to report for non-EU companies that qualify under the criteria of the EU Turnover Test. Businesses are obligated under the EU Turnover Test when they have a consolidated or individual annual net turnover exceeding EUR 150 million for each of the last two consecutive fiscal years and a qualifying EU subsidiary or a branch in the EU that generated an annual net turnover in excess of EUR 40 million in the preceding financial year.


CSRD’s Impact on Non-EU Parent Companies of EU Subsidiaries

Non-EU parent companies with qualifying EU subsidiaries will also use the EU Turnover Test described above to determine their reporting obligation timeline. It is important to note that in some cases, the non-EU parent company may become obligated to submit a CSRD-compliant report before their EU subsidiary officially becomes in-scope.


This is likely to occur in cases where the non-EU parent company meets the criteria to be classified as a large business or when the non-EU parent has securities listed on an EU-regulated market.


Non-EU companies with business connections of any size operating within the EU should still keep a close eye on the CSRD reporting requirements, as it is very likely that their business will factor into the supply chain or value chain of an in-scope business, and they will be asked to submit a report in this capacity.


For example, a United States parent company with a subsidiary in Spain may come under the purview of the CSRD. If the Spanish subsidiary falls within the CSRD scope, it must gather its sustainability data and adhere to the European Sustainability Reporting Standards (ESRS) for disclosure by 2026, reporting on the financial year 2025. The United States parent company, depending on its preference for consolidated or individual reporting, is also obligated to disclose under the CSRD.


Current Exemptions to CSRD Reporting Requirements

There are several potential exemptions that could alleviate some or all the CSRD reporting requirements for non-EU companies. The Wholesale Debt exception under the EU Transparency Directive may still be applicable for non-EU companies with EU-regulated market holdings that are exclusively debt securities totaling more than EUR 100,000. Additionally, non-EU companies may be exempt from reporting in scenarios where an EU-based parent company has complied with CSRD via a consolidated group report.


Businesses should plan on reporting regardless of possible eligibility for an exemption, as the application process for these exemptions is complex and it is unclear which exemptions will continue to be honoured as the CSRD rollout progresses.


International Operability and Reporting Standards

The CSRD is not the only sustainability-based legislation being rolled out. Many advanced countries are in the midst of drafting their own sustainability standards that will require businesses to begin reporting on the impact their businesses have on the environment.


For example, the United Kingdom has introduced the UK Stewardship Code 2020, which is the responsible allocation, management, and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment, and society.


Businesses in these countries understandably have questions about the interoperability of these reporting standards and whether their filings in their country of residence can be used to satisfy their CSRD sustainability reporting requirements.


As of right now, CSRD reporting must use the general European Sustainability Reporting Standards (ESRS), or equivalent standards as determined by the European Commission. Those equivalent standards have yet to be defined. For now, it is unlikely that the reporting standards of other jurisdictions will fulfil a company’s CSRD reporting requirement. The majority of sustainability reporting regulations being drafted in other jurisdictions are limited to reporting on the potential environmental and climate impacts of business activities. The CSRD requires reporting on the environmental and climate impacts as well as the company’s social and governance practices. There are no international equivalent reporting standards being developed at this time.


Most notably, the CSRD requires that companies apply a double materiality consideration to reported impacts. This means that companies must report the anticipated impact of sustainability challenges on the company’s operations, and they must also report the estimated impact that their operations have on the environment, society, and individuals.


Companies will also need to submit verification of their reported data in the form of limited assurance from an independent third party. Later, this assurance standard will be increased to reasonable assurance.


What Comes Next?

Both EU and non-EU companies that are required to submit sustainability reports during this first phase should have already begun to prepare when the CSRD was signed into law in 2023. Those who haven’t made meaningful progress in this direction should make this a priority immediately.


Those companies that will be required to report in subsequent phases are strongly encouraged to start the process of gathering data and documentation now in preparation for their reporting requirement phase. The reporting requirements are complex, and these initial phases will provide the greatest leeway for errors and questions. Getting your reporting requirements squared away early is likely to save a lot of stress and uncertainty down the road.

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