EFRAG Proposes Impacts-Only CSRD Standard for Non-EU Companies

The European Financial Reporting Advisory Group has released an Exposure Draft proposing new sustainability reporting standards for non-EU companies caught within the scope of the EU's Corporate Sustainability Reporting Directive, opening a 100-day public consultation running through 31 October. The draft standard, known as ESRS-40a, narrows reporting requirements to focus exclusively on companies' sustainability-related impacts on people and the environment, removing the broader EU standard's requirements to report on risks, opportunities, resilience and dependencies. The proposal also includes a "mixed approach" allowing companies to report impacts either globally or limited to EU-related activities, a provision EFRAG's own technical experts raised concerns about internally.

 

Why the Scope Has Shrunk Dramatically

 

The population of companies this standard will actually apply to has already been reshaped substantially before this draft's release. Under the CSRD's original provisions, non-EU companies came into scope if they had revenues above €150 million alongside an EU-based subsidiary or branch with revenues of €40 million. The European Commission's Omnibus simplification process revised those thresholds considerably, raising them to net EU revenue above €450 million for two consecutive years and an EU subsidiary or branch with revenues above €200 million.

EFRAG has estimated that revision will cut the number of non-EU companies within CSRD's scope by around 88 percent, from approximately 10,000 companies down to roughly 1,200. That scale of reduction means this new standard, whatever its final form, will apply to a far smaller and more concentrated group of large international companies with substantial EU operations than originally intended when the directive was first designed, a context that matters for understanding both the political pressure behind simplification and the practical stakes of getting the remaining standard right.

 

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Why Impacts-Only Reporting Is a Meaningful Narrowing

 

The core structural difference between this draft and the existing ESRS for EU companies is the removal of risks, opportunities, resilience and dependencies from the reporting requirement, leaving only sustainability-related impacts on people and the environment. That is a substantive narrowing rather than a technical adjustment: the EU standard's broader framework asks companies to report not just what harm or benefit their activities cause, but how sustainability-related risks could affect their own financial position and business resilience, information investors specifically rely on to assess a company's exposure to climate and social risk.

Stripping that risk-and-opportunity dimension out for non-EU companies means investors analysing these companies' EU-facing disclosures will have visibility into impacts but not into the financial materiality lens the EU standard otherwise provides, a distinction likely to matter considerably to analysts trying to compare disclosure quality between EU companies and the international groups now falling under this separate, narrower standard.

 

What the Mixed Approach Actually Allows, and Why EFRAG's Experts Objected

 

The most contested element of the draft is the mixed approach, which lets non-EU companies choose to report certain impacts, excluding climate, either globally or limited strictly to their EU-related activities, meaning the impacts of products or services sold in the EU or of the company's own EU operations. Within that framework, companies can even split their approach topic by topic; EFRAG's own example describes a company reporting on microplastics globally while confining its air pollution reporting to the EU only.

EFRAG's "Basis for Conclusions" document, published alongside the exposure draft, lists several concerns its members raised about this provision directly: that it would fail to support a level playing field between EU companies and their international peers, that switching scopes across different topics would undermine the understandability of the resulting disclosures, and uncertainty over whether EU-related impacts can even be feasibly separated from a company's global operations in practice. Most pointedly, the document states that relevant information may be lost under the mixed approach, creating "a consequential risk of greenwashing," particularly regarding human rights impacts and environmental impacts that cannot be meaningfully confined to a specific geography, since pollution and human rights harms in a global supply chain rarely respect national borders.

Despite those internal objections, the document notes that approval of the draft by EFRAG's technical experts required an explicit acknowledgment that the mixed approach was included specifically at the European Commission's request, rather than being a provision EFRAG's own technical body proposed independently. That detail signals a degree of institutional tension between EFRAG's technical assessment and the political direction it received from the Commission, a dynamic the public consultation is now expected to test directly.

 

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What Comes Next

 

EFRAG has flagged the mixed approach's workability, the removal of risks and opportunities reporting, and interoperability with IFRS-based sustainability reporting standards as key areas it wants feedback on during the consultation, which is open to stakeholders both inside and outside the EU. Chiara Del Prete, chair of EFRAG's Sustainability Reporting Technical Expert Group, described the draft as the last piece of the CSRD framework to come into effect, framing it as supporting a level playing field for EU companies while acknowledging the particular challenges non-EU groups face on topics, aside from climate, that remain subject to mandatory reporting in only a small number of jurisdictions globally.

EFRAG aims to finalise the standard by January 2027, after which the European Commission will launch its own separate consultation before formally adopting the non-EU ESRS through a delegated act, a multi-stage process that gives both the mixed approach's critics and the Commission's original request for it further opportunities to shape the final outcome. Whether the consultation period surfaces enough evidence of the greenwashing risk EFRAG's own experts flagged to prompt a revision of the mixed approach, or whether the Commission's original request prevails largely intact, will determine how much transparency this new standard ultimately delivers for the roughly 1,200 non-EU companies it is set to govern.