The European Financial Reporting Advisory Group (EFRAG) has released the Exposure Draft (ESRS-40a ED), introducing proposed sustainability reporting standards specifically for non-EU companies that fall within the scope of the EU’s Corporate Sustainability Reporting Directive (CSRD). The draft establishes a dedicated reporting framework for third-country companies operating in the EU and is largely based on the existing European Sustainability Reporting Standards (ESRS) applicable to EU companies. However, unlike the ESRS for EU entities, the proposed non-EU standard narrows its focus exclusively to a company’s sustainability impacts on people and the environment, removing reporting requirements related to sustainability risks, opportunities, resilience, and dependencies. This streamlined approach is intended to reduce the reporting burden while ensuring that stakeholders continue to receive meaningful information on companies’ environmental and social impacts. 

One of the most notable and debated features of the proposal is the introduction of a “mixed approach” to sustainability reporting. Under this approach, non-EU companies can choose to report sustainability impacts either on a global basis or only on EU-related impacts, covering products, services, and business activities connected to the European Union. The draft also provides flexibility for companies to adopt a combination of both approaches, allowing some sustainability topics to be reported globally while limiting others to EU-specific impacts. Although this flexibility was included at the explicit request of the European Commission, several EFRAG members expressed concerns that it could reduce comparability between EU and non-EU companies, make sustainability reports more difficult to interpret, create practical challenges in separating EU-related impacts, and potentially increase the risk of greenwashing, particularly for environmental and human rights issues that often extend beyond geographical boundaries. 

The proposal also reflects the revised scope of the CSRD following the EU Omnibus simplification package. Under the updated thresholds, the reporting requirements would apply only to non-EU companies generating more than €450 million in net revenue within the EU for two consecutive years, along with an EU subsidiary or branch exceeding the prescribed revenue threshold. As a result, EFRAG estimates that the number of non-EU companies subject to the CSRD will decrease significantly—from approximately 10,000 companies to around 1,200, representing an 88% reduction in the reporting population. 

To gather stakeholder input, EFRAG has launched a 100-day public consultation, open until October 31, inviting feedback from businesses, investors, regulators, and other interested parties both within and outside the EU. The consultation seeks views on key aspects of the draft, including the removal of reporting on risks and opportunities, the practicality and effectiveness of the mixed reporting approach, and the interoperability of the proposed standard with sustainability reporting frameworks based on the IFRS Sustainability Disclosure Standards. Following the consultation, EFRAG aims to finalize the standard by January 2027, after which the European Commission will conduct its own consultation before formally adopting the non-EU sustainability reporting standard through a delegated act. This proposal marks an important step in shaping a more proportionate yet globally relevant sustainability reporting framework for non-EU companies operating in the European market. 

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