Assessing the impact of the Corporate Sustainability Reporting Directive (CSRD) on non-EU groups and their EU subsidiaries

The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) includes an extra-territoriality principle that widens the population of companies subject to sustainability reporting to non-EU groups and their EU subsidiaries. The objective is to maintain a level playing field for all economic players operating in the European market.

The directive paves the way towards Europe’s ambition to build a more sustainable and inclusive economic system. With the CSRD, the EU intends to meet the need for reliable, relevant and comparable sustainability-related information through a standardised common language that puts sustainability reporting on an equal footing with financial reporting. EU Member States have until 6 July 2024 to adopt the CSRD into their national law.

Who will be impacted?

There are three ways in which non-EU groups or companies will be affected by the CSRD: if they have securities listed in the EU, have significant activity in the EU, or are parent companies of in-scope EU subsidiaries. Indeed, the CSRD will first and foremost apply to all EU-based companies that meet the directive’s scoping requirements, regardless of where the parent company is domiciled. These companies may, however, benefit from the CSRD exemption principle in specific cases and under certain conditions.

What is the timing?

For non-EU companies or groups whose securities are admitted to trading on an EU-regulated market, application of the CSRD will occur progressively, starting from the 2024 financial year for those with (i) more than 500 employees and (ii) with more than €20m balance sheet total or more than €40m net turnover, with a report published in 2025.

Non-EU groups with significant activity in the EU will also be required to provide sustainability information from the 2028 financial year, with a report published in 2029 but within a less burdensome regulatory framework.

For in-scope EU subsidiaries, application of the CSRD will apply progressively depending on size and whether the subsidiary is listed or unlisted. For large listed subsidiaries with more than 500 employees, the CSRD will apply from the 2024 financial year with a report published in 2025.

What standards will apply?

Depending on the situation, the related sustainability report will have to be prepared using either the general European Sustainability Reporting Standards (ESRS), or equivalent standards as determined by the European Commission. Non-EU groups having significant activity in the EU will be able to apply specific ESRS yet to be developed. In addition, the report will be established at the consolidated level of the ultimate non-EU parent entity covering all EU and non-EU subsidiaries, and will be accompanied by a mandatory assurance opinion.

What is the impact at Member State level?

As each Member State will have to adopt measures to incorporate the CSRD into its national law, these measures should be closely monitored to determine any potential differences in the application of the CSRD.

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Guide to the EU Corporate Sustainability Reporting Directive for non-EU groups and their EU subsidiaries
Guide to the EU Corporate Sustainability Reporting Directive for non-EU groups and their EU subsidiaries