Understanding the Impact of ESRS/CSRD on Global Businesses

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In recent weeks, the European Financial Reporting Advisory Group (EFRAG) published a comprehensive guide, the “CSRD Essentials,” which focuses on helping companies navigate the new European Corporate Sustainability Reporting Directive (CSRD). The CSRD aims to enhance transparency in sustainability reporting, ensuring that organizations across Europe and beyond provide detailed, reliable information about their environmental, social, and governance (ESG) impacts. With the introduction of European Sustainability Reporting Standards (ESRS), this legislation significantly raises the bar for corporate accountability.

Key Facts from the CSRD Essentials

The CSRD will now apply to a broader range of companies, including those outside the EU, with more than EUR 150 million in turnover generated within the EU. Companies must report sustainability information starting in 2028, with a report due in 2029. This means non-EU companies operating in Europe or with European partners will need to align with ESRS standards, or equivalent frameworks, to remain compliant. Additionally, these non-EU firms must provide a sustainability report covering areas such as climate impact, governance, and social responsibility, which will be subject to mandatory assurance opinions. Large non-EU groups may be exempted if they are part of a consolidated EU report, offering flexibility during the transition phase.

 

Key Legal Provisions in CSRD and Timelines

The Corporate Sustainability Reporting Directive (CSRD) introduces more stringent legal provisions to ensure comprehensive sustainability reporting across Europe. One of the key legal mandates is that all large companies listed in the EU, including non-EU companies with significant activities in the region, must comply with the European Sustainability Reporting Standards (ESRS).

Specifically, non-EU companies have the following timelines

  • January 2025: tentative timeline for the public consultation of non-EU ESRS.
  • 30 June 2026: deadline for adoption of non-EU ESRS by the Commission following the technical advice from EFRAG.
  • 2028: first reporting period for non-EU companies in scope of CSRD (reports to be published in 2029).

Moreover, subsidiaries or branches of non-EU parent companies with more than EUR 40 million in annual turnover within the EU must submit sustainability reports. For these non-EU entities, the reporting obligation includes submitting an assurance opinion that aligns with local assurance regulations.

The CSRD also introduces a phased implementation timeline. For large companies already subject to the Non-Financial Reporting Directive (NFRD), the new CSRD standards will apply starting in 2025, based on data from the 2024 financial year. This timeline ensures that businesses have adequate time to prepare, but it also emphasizes the urgency of beginning compliance activities early, especially for non-EU companies that must integrate new reporting frameworks into their existing operations.

 

Required Content for Non-EU ESRS Companies

Non-EU companies operating in Europe will be required to submit sustainability reports that adhere to specific content guidelines set out by the ESRS. These guidelines , based on art 40a and art 40b, of CSRD include disclosing information on key sustainability areas, such as environmental performance (e.g., carbon emissions and climate change mitigation), social impacts (e.g., labor practices and human rights), and governance practices (e.g., executive accountability and anti-corruption measures).

Importantly, companies must report on “double materiality,” addressing both the financial impact of sustainability risks on the company and the company’s impact on people and the environment.
A good starting point is the Set 1 ESRS datapoints (https://xbrl.efrag.org/e-esrs/esrs-set1-2023.html), which will give companies a good starting point .

Additionally, the sustainability reports for non-EU companies must include an assurance opinion to verify the accuracy of the data provided. The responsibility for ensuring the report is published, and the assurance is conducted, typically falls on the largest subsidiary or branch in the EU. If the non-EU parent company fails to provide the necessary information, the EU subsidiary will still be required to disclose as much information as possible and explain any omissions. This comprehensive content requirement ensures that non-EU companies are held to the same transparency and accountability standards as EU-based businesses.

How CSRD/ESRS Affects Non-EU Companies

For non-EU companies that operate within Europe or work with European partners, the CSRD represents a critical shift in compliance expectations. As outlined in the EFRAG paper, non-EU companies will be required to disclose their sustainability data to the same standard as their European counterparts, ensuring a level playing field. This will involve additional resources, as these organizations must adopt rigorous ESG reporting frameworks, engage auditors for sustainability assurance, and make sustainability information available publicly. This increased scrutiny will influence business operations, supply chain transparency, and overall corporate governance for many companies outside the EU.

Simplifying Compliance with The Sustainability Network

As compliance with the CSRD becomes essential for non-EU companies, collecting, validating, and reporting data can be a daunting task. The Sustainability Network platform streamlines this process by automating data collection and facilitating seamless communication with stakeholders. This platform helps businesses track their ESG data in real-time, ensures compliance with the latest regulations, and simplifies stakeholder engagement. To learn more about how The Sustainability Network can support your business, schedule a demo

The CSRD is poised to be a major influence on the future of corporate sustainability reporting, and for companies starting their ESG journey or expanding compliance into Europe, leveraging the right tools will be key to staying ahead of the regulatory curve.
Simplifying, is doing the right thing to protect the future generations to come .