Draft CSRD Reporting Standards for Non-EU Groups Published

EFRAG has published working papers of its sustainability reporting standards for non-EU parent entity reporting under the EU’s Corporate Sustainability Reporting Directive. These standards are designated as “NESRS,” in contrast to the European Sustainability Reporting Standards or “ESRS” applicable to EU-organized entities.

In connection with the CSRD, the European Commission is required to adopt reporting standards for non-EU parent entity (third-country undertaking) reporting by June 30, 2026. Non-EU parent reporting is under article 40a of the CSRD. That requirement takes effect beginning with the 2028 financial year. The working papers were drafted by the EFRAG Secretariat and published in connection with EFRAG’s Sustainability Reporting Technical Expert Group meeting held last week, on November 7.

An objective of the session was to obtain SR TEG feedback on the drafting of the NESRS exposure drafts. The focus at the meeting was the cross-cutting working paper standards, NESRS 1 (General Requirements) and NESRS 2 (General Disclosures). However, the entire package of draft NESRS was uploaded for SR TEG consideration. These include ten topical standards that parallel the “E”, “S” and “G” topical ESRS already adopted by the European Commission.

For the uninitiated, EFRAG (the European Financial Reporting Advisory Group) is the technical adviser to the European Commission which developed the draft ESRS. EFRAG’s mission is to serve the European public interest in both financial and sustainability reporting by developing and promoting European views in the field of corporate reporting.

EFRAG has until the end of 2025 to deliver the draft NESRS to the Commission, after which they would be considered for approval by the Commission and issued as proposals for public consultation. Regarding near-term steps, EFRAG’s proposed schedule is to approve drafts for issuance in mid- to late-December and then launch a public consultation on the NESRS in January 2025.

NESRS 1 and 2

The working paper cross-cutting NESRS largely track ESRS 1 and ESRS 2. The differences primarily are to take into account the reporting requirements specific to non-EU parent groups contemplated by article 40a. Under article 40a, parent group-level reporting would cover impact but not financial materiality (i.e., not risk and opportunity). As a result, resilience, opportunities, principal risks and dependencies, which are related to financial materiality, have been excluded from the NESRS. Otherwise, the NESRS are structured in the same manner as the ESRS. A materiality assessment for impact would still be required under NESRS 1 (for a discussion of the ESRS 1 materiality assessment requirement, see our post here).

Reporting boundary

Consistent with the CSRD, NESRS 1 indicates that the sustainability report under the NESRS would be at the group level of the non-EU parent. The reporting boundary generally would be the same as that of the group financial statements.

Optional exclusion of impacts of non-EU sales and services

As set out in the NESRS 1 working paper, a non-EU parent reporting entity generally would have the option to exclude from its sustainability report information about the impacts of sales of goods or the provision of services to natural and legal persons outside the European Union. This option would be available for disclosures under all of the topical standards other than climate change (NESRS E1). If an undertaking uses this option, it would be required to clearly state that it is doing so in its sustainability report. Feedback on the feasibility of this approach, as opposed to the alternative of all global impact being taken into account, will be requested in the public consultation.

Under the NESRS, if an undertaking exercises the foregoing option, its materiality assessment for topics other than climate change would be performed with the goal of identifying material impacts of sales of goods or the provision of services to consumers/end-users and businesses in the European Union. For climate change, the scope of the materiality assessment would cover the entire operations of the group. 

The sustainability report would be required to include information about the upstream and downstream value chain related to the products and services provided to consumers/end-users and businesses in the European Union, irrespective of the location of the upstream and downstream actors. This could include group activities outside the European Union.

The EFRAG Secretariat has suggested testing in the consultation an alternative approach to this option, allowing undertakings to further choose whether to report on the limited scope for all the topics or only for topics other than climate. The Secretariat notes in the NESRS 1 working paper that the advantage of reporting globally for topics in general is that this would be consistent with the scope of NESRS 2 reporting. It indicates that the advantage of reporting globally for climate would be synergy with the IFRS S2 climate standard that will be applied by many non-EU countries.

Alternative reporting under the ESRS

As proposed, NESRS 1 would allow a non-EU parent to instead apply the ESRS applicable to EU undertakings. In that case, the non-EU group would not have to prepare a sustainability report under the NESRS, so long as requirements relating to assurance and accessibility have been met. This is consistent with the ESRS FAQs issued in August, which are discussed in our post here.

If a non-EU parent elects to report only in accordance with article 40a, its in-scope EU subsidiaries would be required to produce their own standalone reports under the CSRD.  A non-EU parent also may elect to report under the standards applicable to EU entities, which would allow its in-scope EU subsidiaries to take advantage of the exemption from reporting for undertakings included in a parent company report.

Taxonomy reporting

Taxonomy reporting would not change. That still only would be required at the EU undertaking level, consistent with the CSRD and the August FAQs, as discussed in our post here.

Transitional provisions

ESRS 1 contains transitional provisions that apply to the first three reporting years. These are excluded from the NESRS 1 working paper. The EFRAG Secretariat excluded the transition provisions from NESRS 1 because that would provide NESRS reporters significantly more time to prepare for the disclosure requirements than ESRS reporters, which would result in there not being a level playing field.

The ESRS 1 transitional provisions are discussed further in our post here.

Additional Ropes & Gray posts on the CSRD and ESRS 

For numerous additional posts discussing the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards – including the topics discussed in this post – see Ropes and Gray’s Insights page. 

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