Across the Pond: CSRD. A ripple, or a tidal wave? — Part 3

What non-EU headquartered companies will be impacted, and when?

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The CSRD mandates global consolidated reporting from fiscal year 2028 (with reports due in 2029) for non-EU headquartered companies in two scenarios

1. If any entity within the consolidated group falls under the CSRD scope or if any EU branch generates significant turnover,
2. a consolidated EU turnover exceeding specific thresholds (see diagram for more details)

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Buried in paperwork?

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It’s important to note that the EU does plan to release specific "Non-EU dedicated standards" - which we hope will clarify in more detail exactly what non-EU companies will need to disclose. The problem here is that, as with all evolving regulation, it takes time - and quite often decisions or guidelines come in rather last minute, and leave companies rushing around to try and figure out compliance.

Also, the EU have hinted that non-EU companies may have some flexibility in their approach to sustainability disclosures, allowing them to incorporate CSRD-related information within their broader consolidated sustainability reporting. For example, most reporting requirements may be included in other regulatory filings (e.g., SEC Forms 10-K, 8-K, or 6-K or others).

Again, the specifics are elusive - so for the moment, we suggest the need for careful legal consultation! Read ‘Baby steps’ below to find out what you could look to do now to stay ahead of the curve.

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Implications for U.S. Investors

The consequences of non-compliance with the CSRD, range from financial penalties to stakeholder backlash, so companies are advised to consult legal counsel regarding any compliance uncertainties.

The ramifications of non-compliance could extend to breaches in contractual obligations, including debt agreements, and might affect collaborations with government entities. Moreover, non-compliance could lead to qualified or adverse opinions on sustainability reports and possibly impact the financial statements audit opinion, reducing valuations.

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Baby steps:

Ok, so what can you do? As non-EU companies navigate the CSRD landscape, starting with the European Sustainability Reporting Standards (ESRS) is a fantastic first step. While awaiting the non-EU dedicated standards, engaging with ESRS provides a robust foundation given that the CSRD is largely based upon it.

The ESRS offer a structured approach to disclosing sustainability strategies, risks, and opportunities, ensuring companies are well-prepared to meet future reporting requirements and align with global sustainability expectations. This proactive step ensures readiness and advantage when it comes to the final reporting deadline.

Addressing some of these points will require deep integration of ESG principles across business functions, including risk management, legal, procurement, and finance to name a few. This comprehensive approach is vital for tackling nuanced ESRS topics such as Biodiversity and Circularity.

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Conclusion

As companies navigate the evolving landscape of the CSRD it's imperative to begin preparations for reporting obligations. While the ESRS pose complexities, they offer a framework for meaningful sustainability disclosures, beyond compliance, aiming at behavioral change and value creation.

Engaging legal teams early and monitoring decisions by EU Member States will be key. This journey towards enhanced sustainability reporting represents a challenge, but also an opportunity for companies to redefine their business narrative within a sustainability context.

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