Eurosif responds to EFRAG consultation on ESRS for non-EU companies (ESRS-40a)
Eurosif has submitted its response to EFRAG’s consultation on the proposed European Sustainability Reporting Standards (ESRS) for non-EU companies (“ESRS-40a”).
We welcome several elements of EFRAG’s proposals, notably the fair presentation principle, the definition of users of information and the coverage of environmental, social and governance topics beyond climate change.
However, Eurosif is concerned about the “mixed approach” to the reporting scope and the complete exclusion of EU Taxonomy-related disclosures from ESRS-40a. Both risk undermining the availability, consistency and comparability of sustainability information needed by investors.
Proposed “mixed approach” to the reporting scope:
The “mixed approach” would allow non-EU companies to limit disclosures to EU-related impacts for topics other than climate change. This approach would create significant operational challenges:
- Incomplete and potentially misleading information, creating additional costs for investors: limiting disclosures to EU-related impacts could obscure material sustainability information concerning companies’ global operations, making it more difficult and costly for investors to assess sustainability risks and impacts.
- Less consistent reporting, leading to usability challenges: different reporting scopes across sustainability topics would undermine the usability and comparability of ESRS-40a reports for investors and other users of sustainability information.
- Higher costs and an unlevel playing field for reporting companies: applying different reporting boundaries could increase complexity and costs for reporting companies and create inconsistencies between EU and non-EU companies.
Exclusion of EU Taxonomy-related disclosures from ESRS-40a:
The complete exclusion of EU Taxonomy-related disclosures from ESRS-40a risks creating significant information gaps for users of sustainability reporting.
Financial market participants rely on Taxonomy-alignment disclosures to assess environmentally sustainable investments and comply with their own EU disclosure obligations, including under the SFDR.
ESRS-40a should therefore enable non-EU companies to voluntarily report consolidated Taxonomy-alignment information where their subsidiaries are already required to disclose it.
Background information
The revised Corporate Sustainability Reporting Directive (CSRD) also applies to non-EU companies with significant activities in the EU if:
- the ultimate parent company established in a third country generates net turnover exceeding €450 million in the EU; and
- The company has an EU branch or subsidiary that generates net turnover exceeding €200 million.
These companies will have the option to use ESRS-40a to report on their environmental and societal impacts, or to comply with the full ESRS applicable to large EU companies.
