EU Sustainable Finance Groups Warn ESRS 40a Could Create Two-Tier ESG Reporting

The EU Platform on Sustainable Finance and the European sustainable investment organization Eurosif have warned that proposed sustainability reporting requirements for non-EU companies could weaken corporate transparency and create unequal disclosure standards across the European market. In separate statements published on 26 and 27 October 2026, both organizations expressed concerns about the European Financial Reporting Advisory Group's (EFRAG) draft European Sustainability Reporting Standards for certain non-EU companies, known as ESRS 40a.

The proposals are being developed under the EU Corporate Sustainability Reporting Directive (CSRD) to establish sustainability disclosure requirements for large international companies with significant European operations. While the two organizations support efforts to align the new standards with existing European Sustainability Reporting Standards (ESRS), they argue that certain provisions could undermine comparability, reduce access to environmental and social data, and complicate investment decisions.

 

Proposed Reporting Boundaries Raise Global Transparency Concerns

 

A central issue is EFRAG's proposed "mixed approach", which would allow non-EU companies to limit disclosures on certain sustainability topics to impacts connected with the European Union. Climate-related impacts would continue to be assessed globally, while reporting boundaries for other environmental and social topics could be narrower. The EU Platform and Eurosif argue that this distinction could prevent investors from obtaining a complete picture of companies' global operations and supply chains.

The organizations warn that environmental impacts such as deforestation, biodiversity loss and pollution, alongside labor and human rights concerns, often occur outside Europe but remain relevant to companies operating in EU markets. Mariana Ferreira, Sustainable Finance Policy Officer at WWF EU, said, "The 'mixed approach' risks obscuring major environmental and human rights impacts occurring elsewhere in global operations and value chains." Eurosif also highlighted the practical difficulty of separating impacts from products sold in Europe from those linked to other markets, particularly when global manufacturing and sourcing networks are interconnected.

 

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EU Taxonomy Exclusions Could Create Investor Data Gaps

 

Both organizations have also raised concerns about the proposed exclusion of EU Taxonomy-related information from ESRS 40a disclosures. The EU Taxonomy provides a classification framework for environmentally sustainable economic activities, helping investors and financial institutions evaluate sustainability characteristics and meet regulatory disclosure requirements.

The EU Platform warns that excluding relevant Taxonomy information could create a two-tier reporting system, with European companies providing more comprehensive sustainability information than non-EU businesses operating in the same market. Eurosif similarly argues that financial institutions rely on Taxonomy-alignment disclosures to assess investments and meet obligations under frameworks including the Sustainable Finance Disclosure Regulation (SFDR). Both organizations support allowing non-EU companies to voluntarily disclose consolidated Taxonomy information where their European subsidiaries are already required to report it.

 

ESRS 40a Targets Large Non-EU Companies Operating in Europe

 

Under the revised CSRD framework, ESRS 40a will apply to certain non-EU companies generating more than €450 million in annual net turnover within the European Union during each of the previous two consecutive financial years. Companies must also meet additional criteria involving an EU branch or subsidiary generating more than €200 million in turnover. The reporting framework aims to improve transparency on the environmental and social impacts of major international businesses operating in the European market.

The first sustainability statements are expected to cover financial year 2028 and be published in 2029. EFRAG's draft provides a separate reporting framework for qualifying non-EU companies, reflecting their different legal position while seeking alignment with the standards applicable to European businesses. Eurosif welcomes several elements of the draft, including the fair presentation principle, the identification of information users and the inclusion of environmental, social and governance topics beyond climate change. It nevertheless argues that the proposed reporting flexibility could make comparisons between companies more difficult and increase the costs of preparing and analyzing sustainability disclosures.

 

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Investor Groups Call for Consistent Global Reporting

 

The EU Platform on Sustainable Finance recommends maintaining a high degree of alignment between ESRS 40a and the reporting standards applicable to European companies. It also calls for consistent global reporting boundaries for sustainability impacts and the inclusion of appropriate EU Taxonomy-related information. The Platform acknowledges the need for proportionate requirements but warns that inconsistent disclosures could undermine the effectiveness of Europe's sustainable finance framework.

Eurosif has separately recommended removing the mixed reporting approach from EFRAG's final technical advice. It argues that non-EU companies should instead report sustainability impacts on a global basis under ESRS 40a or use the full ESRS framework. The organization highlights the importance of comparable information for investors assessing corporate supply chains, biodiversity impacts, human rights risks and other sustainability considerations.

The responses highlight growing concern about maintaining consistent sustainability reporting requirements as the EU adjusts its corporate disclosure framework. A reporting system that allows different geographic boundaries for similar business activities could complicate sustainability assessments and create additional costs for investors seeking comparable information.

EFRAG's public consultation on ESRS 40a remains open until 31 October 2026. The final technical advice will inform the European Commission's development of the reporting standards. The recommendations from Eurosif and the EU Platform remain consultation positions rather than adopted regulatory requirements, and the Platform's statement does not represent an official European Commission policy decision.

 

Source: Platform on Sustainable Finance, Eurosif, WWF EU