Introduction
The Corporate Sustainability Reporting Directive (CSRD) is a landmark regulation from the European Union that extends its reach to non-EU companies with significant operations within EU borders. This regulation applies to a broader range of companies subject to sustainability reporting, including non-EU companies with significant operations in the EU.
For non-EU companies, aligning with CSRD means adhering to stringent standards that enhance transparency and accountability.
Mairead McGuinness, European Commissioner for Financial Services, states,
“This legislation strikes the right balance between limiting the burden on reporting companies while at the same time enabling companies to show the efforts they are making to meet the Green Deal Agenda, and accordingly have access to sustainable finance.”
In this guide, we explore what CSRD means for non-EU companies and how our innovative solutions can support your compliance efforts.
Applicability to Non-EU Companies
The CSRD has a range of possible impacts for non-EU companies with significant operations within the EU. This includes subsidiaries, branches, or significant market activities in the region.
- Non-EU companies listed on an EU-regulated market must meet specific thresholds to be in scope of the CSRD.
- Non-EU companies must comply with detailed sustainability reporting obligations, which include standardised disclosures to ensure accountability across varying jurisdictions.
- Different criteria apply for CSRD disclosure: branches must have revenue exceeding EUR 40 million, while subsidiaries must be large or public-interest entities.
- The disclosure requirement applies if the group, or the individual company in the absence of a group, has generated a net turnover exceeding EUR 150 million in the EU over the last two consecutive years.
- Detailed criteria are outlined in Chapter 9a of the legislation.
Staying updated with regulatory changes is essential for compliance and maintaining market access. Future reporting requirements may evolve if the EU recognises standards from other jurisdictions as equivalent. In this case, the EU may potentially accept those disclosures instead of those using the EU data standards.
Double Materiality
Double materiality is a core concept in the Corporate Sustainability Reporting Directive (CSRD), requiring companies to assess and report both the financial impact of sustainability issues on the business and the business’s impact on society and the environment. This dual perspective ensures a comprehensive understanding of sustainability risks and opportunities.
The European Sustainability Reporting Standards (ESRS) provide the specific guidelines and criteria for material disclosures. Developed by the European Financial Reporting Advisory Group (EFRAG), the ESRS ensure that the sustainability information reported is consistent, comparable, and reliable. These standards cover a wide range of ESG topics and are essential for companies to meet the CSRD requirements effectively.
Timeline for CSRD Reporting
Non-EU companies with substantial operations in the EU must adhere to the phased implementation timeline set by the Corporate Sustainability Reporting Directive (CSRD). This directive mandates detailed sustainability reporting to enhance transparency and consistency in ESG disclosures.
The CSRD also impacts in-scope EU subsidiaries, requiring both EU-based companies and non-EU parent companies with such subsidiaries to comply with specific reporting requirements. Compliance is based on the size and listing status of these subsidiaries, with large listed subsidiaries needing to comply starting in 2024.
Due to an agreement to delay the final data standards for non-EU companies by two years, the deadlines for reporting were also delayed by two years. Nonetheless, by 2029, all companies subject to the CSRD will be submitting their reports.
Key Dates and Deadlines
1. 2024 / 2025: Companies already subject to NFRD reporting must report according to CSRD.
2. 2028 / 2029: Non-EU companies generating a net turnover of more than €150 million in the EU must begin data collection. These companies are required to submit their first CSRD-compliant sustainability reports in 2029 (for financial year 2028). This includes large branches with revenue exceeding €40 million and subsidiaries classified as large or public-interest entities.
3. Ongoing Updates: The EU may adjust reporting requirements if standards from other jurisdictions are deemed equivalent. Non-EU companies must stay informed about potential changes to ensure ongoing compliance.
Future Trends
The CSRD framework is dynamic, with anticipated updates and expansions in reporting criteria. Non-EU companies must regularly review regulatory changes and leverage advanced data management solutions, such as CoreFiling’s True North Data Platform, to streamline compliance processes.
Integrating suppliers and stakeholders throughout the value chain is crucial to meet requirements and enhance transparency in reporting practices.
Reporting Requirements and Accommodations
These accommodations are designed to ensure that non-EU businesses can meet the stringent standards without undue burden.
- Phased Implementation: Non-EU companies are given a separate timeline to adapt to the new reporting standards. Companies first reports are due in 2029 with data colleciton covering the 2028 financial year. This phased approach allows for a smoother transition to CSRD compliance. Some EU companies are required to report on sustainability as early as 2025.
- Equivalency Provisions: The EU may accept sustainability disclosures from non-EU companies if their home country’s standards are deemed equivalent. This can reduce the reporting burden by avoiding duplicate reporting requirements. It is essential to stay informed about any developments regarding equivalency recognitions.
- Exemption for EU Multilateral Trading Facilities: The CSRD does not apply to securities listed on EU multilateral trading facilities, indicating a regulatory distinction crucial for compliance and reporting requirements.
- Guidance and Support: The European Financial Reporting Advisory Group (EFRAG) provides implementation guidance to help companies understand and implement the ESRS. Utilising these resources can enhance reporting accuracy and efficiency.
How to Prepare for CSRD Compliance
Non-EU companies with significant operations in the EU must proactively prepare for the Corporate Sustainability Reporting Directive (CSRD) compliance. Here are the key steps to ensure readiness:
1. Understand the Requirements: Familiarise yourself with the specific criteria and reporting standards outlined in the CSRD, European Sustainability Reporting Standards (ESRS) and the EU Taxonomy. This includes understanding the double materiality concept and the detailed ESG disclosures required.
2. Monitor National Law Incorporation: Closely monitor how each EU Member State incorporates the CSRD into its national law. This ensures consistent application across Member States and helps establish reliable sustainability reporting that aligns with financial reporting standards.
3. Assess Current Reporting Practices: Conduct a thorough review of your existing sustainability reporting processes. Identify gaps and areas needing improvement to align with CSRD requirements.
4. Develop a Compliance Strategy: Create a comprehensive strategy that outlines how your company will meet the CSRD requirements. This should include timelines, responsible teams, and necessary resources.
5. Use Advanced Tools: Utilise advanced data management and reporting solutions, such as Seahorse SaaS, to streamline data collection, reporting, and compliance processes. These tools ensure accuracy and efficiency in handling large volumes of ESG data. Contact us to learn more about them!
6. Engage with Experts: Consult with sustainability and regulatory compliance experts to gain insights and guidance on navigating the complexities of CSRD compliance. This can include external audits to ensure your reporting meets the required standards.
7. Stay Informed: Keep up-to-date with any regulatory changes or updates to the CSRD. Regularly review communications from the European Commission and EFRAG to ensure your compliance strategy remains current.
Ready to ensure your company meets CSRD compliance?
Contact CoreFiling today to explore our advanced data management solutions and expert guidance, ensuring your sustainability reporting is accurate, efficient, and meeting requirements.
Frequently Asked Questions
Here are some frequently asked questions about what the CSRD means for Non-EU companies. Answers to more questions can be found in the FAQ published by the European Commission.
Who Falls Under The CSRD?
The Corporate Sustainability Reporting Directive (CSRD) applies to around 50,000 companies within the EU, encompassing all large companies, both public and private, as well as small and medium-sized enterprises (SMEs) listed on regulated exchanges. Parent companies of large groups are also included. Non-EU companies must comply if they derive significant revenue from EU-based branches or subsidiaries. A company is classified as large if it exceeds two out of three size criteria: a balance sheet total of €20 million, net turnover of €40 million, and 250 employees for two or more consecutive years.
Which Non-EU Companies Need To Report Under The CSRD?
Non-EU companies must report under the CSRD if they are listed on EU exchanges or have significant operations within the EU. Significant operations extends the legislation to include companies generating a net turnover of more than €150 million in the EU. Additionally, non-EU companies with large branches (revenue exceeding €40 million) or subsidiaries classified as large or public-interest entities in the EU are also required to comply.
What Are The Key Deadlines For CSRD Compliance?
From 1st January 2024, all large public-interest entities with over 500 employees, previously under the Non-Financial Reporting Directive (NFRD), must comply with the CSRD’s new ESG reporting standards. These companies will report from the 2024 financial year, with submissions due in 2025.
On 1st January 2025, the scope broadens to include all large companies with over 250 employees and a turnover exceeding €40 million. These companies must report from the 2025 financial year, with reports due in 2026.
Starting 1st January 2026, listed small and medium-sized enterprises (SMEs) are required to comply, enhancing transparency across more businesses. Reports will be submitted in 2027, covering the 2026 financial year.
By 1st January 2028, all remaining companies within the CSRD’s scope, including those with an EU net turnover over €150 million and specific subsidiary or branch criteria, must comply. The first reports are due in 2029 for the 2028 financial year.
