ESRS-40a: CSRD reporting standards for certain non-EU companies

The CSRD Corporate Sustainability Reporting Directive is a directive from the European Union that expands sustainability reporting standards and requirements. In addition to EU companies, the CSRD also mandates certain third-country undertakings that have significant operations in the EU to prepare these non-financial reports from 2029. This regulation aims to promote transparency regarding the impacts of these non-EU companies on people and the environment in the EU, thereby creating a level playing field for both EU companies and companies that have a significant level of activity in the EU.

Which non-EU companies will be affected by the CSRD?

Non-EU companies fall under the CSRD for FY2028 reporting (due 2029) if they meet both of the following criteria:

• Generated consolidated turnover (revenue) in the EU exceeding €450 million in each of the last two consecutive financial years;
• Have an EU subsidiary or branch with turnover exceeding €200 million in the preceding financial year.

These thresholds replace the previous Article 40a thresholds of more than €150 million in EU turnover and, for an EU branch, more than €40 million in turnover. The previous subsidiary test based on the subsidiary being a large undertaking or listed SME has also been replaced by the €200 million subsidiary turnover threshold. 

The non-EU parent company must prepare a group-level non-financial report and obtain the related limited assurance opinion. The EU subsidiary or branch is responsible for publishing and making the report accessible in accordance with the applicable legal requirements. 

ESRS-40a and how they compare to the ESRS

ESRS-40a relate to the articles 40a - 40d of the Accounting Directive, whilst the ESRS relate to articles 19a and 29a (large EU entities and large EU groups). There are practical and substantive differences in the reporting requirements between these directives for EU and non-EU companies:

Global approach and mixed approach

Under the draft ESRS-40a, entities are permitted to report impacts for the entire non-EU group globally, or to apply a 'mixed approach'. Under this option, E1 climate disclosures must always be reported for the entire global group, but the entity may limit reporting on other topics to 'EU-related impacts' only, if certain conditions are met. The approach can be applied at different levels of granularity: by topic, sub-topic, or a specific group of impacts within a topic or sub-topic.

EU-related impacts are defined in draft ESRS-40a 1, paragraph 28 as arising from one or both of:

• Products and services that were, or can reasonably be assumed to be, sold or provided in the EU market, including indirectly through downstream value chain actors such as distributors and traders;
• The entity's own EU activities.

The mixed approach remains provisional and under development. It is one of the core topics on which EFRAG is explicitly seeking feedback through its call for input, and its final design could change based on consultation responses before ESRS-40a is finalised.

Exemption under the CSRD

EU subsidiaries or subgroups can be exempted from their own CSRD reporting if they are included in the parent company's consolidated management report, if the non-EU sustainability report is prepared in accordance with ESRS (2026) or an ‘equivalent’ standard (if the subsidiary exemption is permitted by the national transposition of the relevant EU member state). This exemption cannot be applied if the non-EU sustainability report is instead prepared in accordance with ESRS-40a.

In-scope groups with obligations at both the parent level (Art. 40a) and the EU subsidiary level (Art. 19a/29a) therefore face a choice: report separately at each level (an ESRS-40a report for the non-EU group, plus full-ESRS reports for each in-scope EU subsidiary/group), or prepare a single full-ESRS report at the non-EU parent level, which allows in-scope EU subsidiaries to rely on the exemption above (pending national transposition).

To date, the European Commission has not made any equivalency determinations regarding third-country/non-EU standards. 

Current status and next steps

• EFRAG published the ESRS-40a Exposure Draft on 23 July 2026 for a 100-day public consultation which is open until 31 October 2026.
• EFRAG expects to deliver its final technical advice on ESRS-40a to the European Commission in January 2027.
• The European Commission is expected to conduct its own public consultation and adopt ESRS-40a as a delegated act by mid-2027.
• Non-EU companies in scope are required to comply with CSRD Article 40a and report in line with ESRS-40a (or ESRS (2026)/an equivalent standard) for periods starting on/after 1 January 2028 (reporting in 2029).

Assurance

• All reported sustainability information is subject to a mandatory limited assurance requirement, which is a negative form of assurance, whereby the auditor states that no matter has come to their attention indicating that the subject matter is materially misstated.
• The assurance opinion may be expressed by a person or firm authorised to provide sustainability reporting assurance under the national law of either the third-country undertaking or a Member State.

Implications of not complying

Sanctions for non-compliance against companies and directors will vary across the EU, as this is heavily dependent on the national transposition process. These could lead to: 

• Fines
• Criminal sanction and prosecution
• Audit failure
• Public censure
• Reputational risk and exposure to litigation

 Recommended actions 

• Review your group structure, particularly taking stock of EU subsidiaries and EU branches to ascertain if a non-EU company will come into the CSRD scope.  This exercise can surface broader insights into your group structure, creating value beyond the immediate compliance exercise with ESRS-40a.
• Determine your reporting approach, taking into account group consolidation and individual entity reporting. Choosing the right structure early can materially reduce ongoing reporting and assurance costs.  
• Keep track of ESRS-40a development and transpositions. This allows companies to stay ahead of upcoming changes and timely adjust your reporting approach. 
• Consider the legal structure to manage the reporting scope and ensure compliance within the required time frames.  This review is also an opportunity to simplify governance and reduce duplication across entities.
• Ensure that your business operating model and legal structure are fully aligned.  Alignment here supports better data quality and clearer internal and external reporting more broadly.

PwC can help you to answer your questions

Our team can assist by providing support that integrates our extensive legal, tax and reporting and assurance capabilities from across our global network.

• Am I (or are my subsidiaries) required to report non-financial information? What does this mean for me and my subsidiaries? 
• When do I or my EU subsidiaries need to (prepare to) report non-financial information?  
• Can I (or my subsidiaries) be exempted from the sustainability reporting requirement? If so, what conditions must be taken into account? 
• Any other questions (e.g., regarding the takeaways and actions above).