ESRS-40a; shaping the future of CSRD reporting for Non-EU Groups
ESRS-40a; shaping the future of CSRD reporting for Non-EU Groups
The European Financial Reporting Advisory Group (EFRAG) has released for consultation an Exposure Draft of ESRS-40a (the Consultation), a dedicated sustainability reporting standard for non-EU groups with significant operations in the European Union. Previously referred to as the Non-EU ESRS (N-ESRS) or ESRS for Third Countries Undertakings (ESRS-TC), this implements the reporting requirements introduced by Article 40a of the Accounting Directive under the CSRD.
Who Will Be in Scope of ESRS-40a and when?
Under the current proposal, ESRS-40a would apply to non-EU groups that generate more than €450 million of net turnover in the EU and have either:
- An EU branch generating more than €200 million net turnover or
- EU subsidiaries exceeding the same threshold.
The EU Accounting Directive defines net turnover as the amounts derived from the sale of products and the provision of services after deducting sales rebates and value added tax and other taxes directly linked to turnover.
The first reporting period is expected to be financial year 2028, with reports published in 2029.
What are the key differences from the Standard ESRS?
ESRS-40a is based on the revised ESRS including cross-cutting and topical standards. There are, however, some significant differences for non-EU groups:
Impact-only materiality approach
While the revised ESRS for EU companies continue to be based on double materiality, ESRS-40a removes the reporting of sustainability-related financial risks and opportunities, resilience, dependencies and the financial impacts. The proposed framework narrows reporting to the organisation's impacts on society and the environment, rather than financial impacts on the organisation itself.
This might be taken to imply that impact reporting is separate from that based on financial risks and opportunities, resilience, dependencies and financial effects. There are, in fact, very substantial overlaps which create the potential for duplicate reporting requirements as discussed in the ‘Alignment and Interoperability’ section of this article.
‘Mixed approach’ for reporting on impacts
For most sustainability topics, companies may be able to limit reporting to EU-related impacts rather than global impacts, provided certain conditions are met. Climate change disclosures remain subject to broader reporting expectations. The Consultation specifically seeks stakeholders’ views as to whether disclosures on human rights should also be required on a broader Group level.
Other areas of the Consultation
References to EU laws and regulations
The current ESRS-40a exposure draft approach relies on references to terms and concepts in EU laws and regulations. EFRAG is seeking feedback on whether non-EU groups can practically apply these EU-specific concepts when assessing impacts across operations that may be located entirely outside the EU and are not directly subject to those legal requirements. The consultation explores whether additional guidance or flexibility may be needed to ensure consistent, decision-useful reporting by multinational groups.
Alignment and Interoperability
EFRAG has intentionally based ESRS-40a on the revised ESRS adopted in July 2026 to maximise consistency and reduce implementation costs. At the same time, the consultation seeks feedback on interoperability with ISSB-based frameworks and other international reporting standards, reflecting concerns from multinational preparers about duplication of reporting requirements.
Reporting Options for Non-EU Groups
Non-EU groups potentially affected by Article 40a may have multiple compliance pathways, including:
- Reporting under full ESRS at group level
- Reporting under ESRS-40a
The first option will allow non-EU Groups to benefit from exempting CSRD in-scope EU subsidiaries from providing their individual ESRS reporting. Reporting under ESRS-40a at the group level will not be sufficient to obtain such exemption for the in-scope EU subsidiaries.
Choice between these options could have significant implications for materiality assessment methodologies, governance processes, data collection requirements and reporting responsibilities across the group.
Next steps
The Consultation on the Exposure draft is open until the 31 October 2026. Following the analysis of feedback received, technical advice is expected to be provided by EFRAG to European Commission early in 2027, with the tentative timeline for adoption of the new ESRS-40a standards through a Delegated Act by the European Commission in mid-2027.
For further guidance or to discuss how these changes may affect your organisation, contact Fiona Davis.