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The EU Corporate Sustainability Reporting Directive and its impact on US companies

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New sustainability reporting requirements in the European Union, which will affect US-based companies with EU operations, are set to fundamentally change the reporting landscape.

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In November, the European Council and the European Parliament approved the  final text  of the Corporate Sustainability Reporting Directive, or CSRD. The CSRD will require sustainability reporting far beyond what most companies provide today. It will also apply to a substantial number of companies that previously weren’t subject to mandatory sustainability reporting. 

The CSRD won’t just affect companies based in the European Union. All companies with significant operations in EU jurisdictions will be subject to these European sustainability reporting requirements. That includes US-based companies with as little as one subsidiary or branch in the EU. What’s more, the CSRD’s implementation period could be more accelerated, and its reporting and assurance provisions more expansive, than what the SEC’s  proposed rule  on climate-related disclosures might require. Let’s break it down.  

Scope of the CSRD 

The adoption of the CSRD, paired with the supporting European Sustainability Reporting Standards (ESRS), introduces detailed sustainability reporting requirements for more than 50,000 companies. The scope of the CSRD is much wider than the existing Non-Financial Reporting Directive. It extends to EU large undertakings (listed or not) that meet at least two of the following criteria on their balance sheet dates: 

  • Greater than €20 million balance sheet total 
  • Greater than €40 million net turnover (revenue/sales) 
  • Greater than 250 employees 

The CSRD also applies to companies with listed securities in the EU, as well as large subsidiaries of non-EU parents (i.e., all EU companies are subject to these criteria regardless of the origins or domicile of their ownership). However, there is an exception for the latter group.  

Subsidiaries of a non-EU parent are exempt from disclosing information under the CSRD if both these conditions are true: 

  • The parent reports under ESRS or an equivalent standard.  
  • The assurance report or conclusion on the consolidated sustainability reporting is publicly available. 

But subsidiaries that qualify for exemption will still have to disclose certain information about the use of the exemption. The parent’s reporting at the consolidated level also has to provide certain information, as well.  

What about non-EU companies that aren’t listed on a regulated market in the EU? For financial years starting on January 1, 2028, EU large and listed subsidiaries (or branches) of a non-EU ultimate parent that have more than €40 million net turnover will need to produce a sustainability report of that parent at the consolidated level if that parent has generated a net turnover in the EU of more than €150 million in each of the last two financial years.  

For example, US companies with large operations in the EU will, in effect, be required to furnish the information to be included in a published sustainability report covering all of its operations, whether in the EU or not. 

The sustainability report that an EU subsidiary or branch provides must comply with the sustainability reporting standards for non-EU companies that the European Council is expected to adopt by June 30, 2024. These standards will be different from ESRS. There will also be the option to report in accordance with ESRS or standards that are deemed to be equivalent.  

Required disclosures 

Now for the required disclosures. Companies within the scope of the CSRD must provide information on sustainability matters. They’re also required to disclose information necessary to understand the company’s impacts on sustainability matters and how sustainability matters affect the company’s development, performance, and position.  

The CSRD emphasizes the concept of double materiality. That means a company must report from two perspectives. One is how sustainability risks and opportunities affect its financial performance, position, and development. The other is how the company’s performance, position, and development affect people and the environment.  

The CSRD specifies that companies should consider each materiality perspective in its own right and disclose information that’s material from the financial perspective, the impact perspective, or both. 

European Sustainability Reporting Standards 

To encourage companies to disclose comparable and reliable information on all material sustainability-related topics, the CSRD requires companies within its scope to use ESRS that specify the information to be reported and, when relevant, the structure in which that information should be reported. To support this requirement, the European Council is expected to adopt the following:


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The European Council has commissioned the European Financial Reporting Advisory Group (EFRAG) to develop the standards. Under this mandate, last April EFRAG launched a public consultation on the first set of draft standards developed by its Project Task Force on ESRS. The consultation period ended on August 8, 2022. 

On November 15, 2022, the EFRAG Sustainability Reporting Board approved the revised ESRS drafts and submitted them to the European Council for formal approval. The European Council will consult EU bodies and member states on the 12 approved ESRS drafts before final ESRS drafts are adopted as delegated acts by June 30, 2023.  

These are the approved ESRS drafts: 

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Source: Deloitte research and analysis

The European Council still needs to decide on the equivalence of sustainability reporting standards used by non-EU companies, such as US parent companies. If the council decides that the sustainability reporting standards of non-EU companies aren’t equivalent, it may nonetheless allow the issuers to continue using such standards during an appropriate transitional period.  

Where to go from here 

US-based companies with large operations in EU countries are looking at multiple new disclosure requirements. There’s no time like the present to get ready. Consider the following as a starting point: 

  • Evaluate how your organization may be affected by the CSRD and supporting ESRS requirements. 
  • Compare your company’s currently established material sustainability topics with the CSRD’s double-materiality requirements. 
  • Get data processes and controls in place to be able to report the required sustainability information. 

On that last step, keep in mind that the sustainability reporting requirements under the CSRD are much broader than those currently proposed in the United States. So while the CSRD implementation date for many US-based companies may be a few years out, the company may need to pull considerably more sustainability-related data into the financial reporting cycle. The CSRD will also subject this more comprehensive sustainability reporting subject matter to limited assurance upon implementation. 

To learn more about how to approach sustainability reporting, please visit us online.  

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