The European Financial Reporting Advisory Group (EFRAG) has opened a 100-day consultation between 23 July and 31 October 2026 on the draft ESRS that apply to certain non-EU companies reporting under CSRD. This is relevant if you are, for example a UK, US or Japanese company with a large presence in the EU, whatever sector you operate in.
This exposure draft sets out what type of sustainability information certain non-EU undertakings need to disclose in accordance with Article 40a of the Accounting Directive – to be known as ESRS-40a. The CSRD for these companies will be known as the ‘ESRS-40a Sustainability Report’.
Just to clarify, as we are in the realms of complex EU regulation, the ESRS 40a do not apply to EU companies, or their non-EU parents who decide to report on behalf of their EU entities. EU companies already have their brand new and simplified ESRS.
Companies in scope of ESRS-40a
These non-EU companies are those that report under Art 40a of the Accounting Directive, namely:
- Third-country companies not listed on EU-regulated markets that generate a net turnover in the EU exceeding €450 million in each of the last two consecutive financial years
- That either have EU branches with a net turnover exceeding €200 million in the preceding financial year, or are the ultimate parent of EU subsidiaries with a net turnover exceeding €200 million in the preceding financial year
- Have not already reported as a parent entity on behalf of their EU subsidiaries in scope of ESRS
- Have not already reported under recognised equivalent standards
What is different and what remains
The main difference is that the ESRS-40a require that these non-EU companies report on their impacts and how they manage these. For Art 40a non-EU companies, there is a proposed move from double materiality reporting (reporting on the impacts, risks and opportunities) to impact materiality.
Companies will need to reassess their reporting boundaries, namely what entities, assets and value chain information are to be included in their ESRS 40a sustainability report.
We still have the same drafting conventions and principles applying, and ESRS- 40a largely follows the structure of the ESRS’s – setting out standards for:
- ESRS-40a – General requirements (1) and general disclosures (2).
- ESRS-40a E – Climate change (E1), pollution (E2), water (E3), biodiversity and ecosystems (E4), and resource use and circular economy (E5).
- ESRS-40a S – Own workforce (S1), workers in the value chain (S2), affected communities (S3) and consumers and end-users (S4).
- ESRS-40a G1 – Business conduct.
Due diligence obligations are still included, and there is a statement that nothing in the ESRS 40a will impact the due diligence obligations under the Corporate Sustainability Due Diligence Directive (CS3D).
Global reporting or hybrid EU focused reporting
These non-EU entities can apply the ESRS-40a globally to their group following financial statements, or choose a hybrid model.
Apart from climate change, where reporting on the impact of the group is required, the hybrid model is focused on reporting the impact of products/activities of the group in the EU. This hybrid model is very complicated, and it is unclear if it will stay as reports state that EFRAG was not in favour of including it. It is very difficult to apply as it is and appears to muddy the waters further.
What to do if you are a non-EU company in scope and hesitating over which option to take
If you are one of the approximately 1,200 non-EU entities to which ESRS 40a will apply, we highly recommend that you investigate the potential impact on your sustainability reporting as set out in this exposure draft, and what option best suits your company. You may have an option to report under the usual ESRS, the ESRS 40a global or hybrid model or you may be reporting under equivalent standards.
This is your chance to put your views across, especially when your business is being obligated by legislation outside your own jurisdiction where you are likely to have less direct influence. You can submit your responses to this consultation via an online form. Do get in touch if you would like to discuss.
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