CSRD for Non-EU Companies: Does it Apply?

The Corporate Sustainability Reporting Directive (CSRD) is a significant regulatory development in the European Union aimed at enhancing and standardizing sustainability reporting which we explain in depth in our CSRD article. It impacts a wide range of companies, including non-EU companies with European subsidiaries or significant operations in the EU. Here’s an overview of what this means for such companies:

Overview of CSRD

  1. Objective: The Corporate Sustainability Reporting Directive (CSRD) aims to enhance transparency and standardization in sustainability reporting by mandating detailed disclosures on environmental, social, and governance (ESG) performance.
  2. Scope: The directive applies broadly to large companies and listed SMEs within the EU, but also extends to non-EU companies with significant operations in the EU. 
  3. Reporting Standards: Companies must adhere to the European Sustainability Reporting Standards (ESRS), censuring consistent and comparable sustainability reporting.

Implications for Non-EU Companies

  1. Significant EU Operations: Non-EU companies with substantial operations in the EU (meeting the below thresholds) must also comply with the CSRD. This includes aligning their reporting practices with ESRS.
    1. More than €40 million in net turnover within the EU.
    2. More than €20 million in total assets or more than 250 employees within the EU.
  2. EU Subsidiaries: Companies with subsidiaries in the EU that meet applicable thresholds will follow the same timelines as EU companies as detailed below:

Timelines for Compliance

  1. Large Public Interest Entities: Beginning in 2024, large public interest entities with more than 500 employees must start reporting under the CSRD for the 2025 financial year.
  2. Large Companies: From 2025, all large companies (meeting two of the following: €40 million in turnover, €20 million in assets, 250 employees) must report for the 2026 financial year.
  3. Listed SMEs and Other Entities: Starting in 2026, listed SMEs and other specified entities must report for the 2027 financial year.

Key Requirements

  1. Data Collection and Management: Companies need robust systems for data collection and management to meet the comprehensive reporting requirements, including information on climate impact, diversity, and human rights.
  2. Integration with Financial Reporting: Sustainability information must be integrated with financial reporting, requiring collaboration between sustainability and financial teams.
  3. Audit and Assurance: Limited assurance of sustainability information is mandatory, necessitating external verification of ESG data.

Challenges and Opportunities

  • Challenges:
    • Complexity and Cost: Implementing the necessary systems and processes for compliance can be complex and costly.
    • Regulatory, Cultural and Operational Differences: Aligning practices with European standards may pose challenges due to differences in regulatory environments, business culture, and operational procedures.
  • Opportunities:
    • Improved Risk Management: Enhanced ESG reporting can lead to better risk management and decision-making.
    • Market Access and Reputation: Compliance can improve market access and enhance corporate reputation in the EU.

Steps for Compliance

  1. Assessment and Gap Analysis: Conduct a thorough assessment of current sustainability practices and identify gaps relative to CSRD requirements.
  2. Develop Reporting Capabilities: Invest in systems and processes to collect, analyze, and report ESG data in line with ESRS.
  3. Engage Stakeholders: Work with internal and external stakeholders, including auditors, to ensure comprehensive and accurate reporting.
  4. Training and Awareness: Educate staff on CSRD requirements and the importance of sustainability reporting.
  5. Continuous Improvement: Use the reporting process to identify areas for improvement in sustainability performance and strategy.

By addressing CSRD requirements proactively, non-EU companies can ensure compliance and strengthen their sustainability initiatives and market position in the EU. 

Contact us today to see how our solutions can help your business prepare for CSRD and ESRS compliance.