EU-based sustainability reporting mandate stands to affect thousands of companies, including many based in the U.S.

In 2014, the European Union introduced the Non-Financial Reporting Directive (NFRD) requiring large, public-interest companies with greater than 500 employees to disclose information on a number of corporate social responsibility topics including environmental matters and social and employee issues. In November 2022, the European Commission adopted a new directive known as the Corporate Sustainability Reporting Directive (CSRD) that will replace the NFRD and is broader and farther reaching.

Corporate Sustainability Reporting Directive (CSRD)

The new CSRD requires all large companies to publish annual reports on environmental and social impact activities. The CSRD not only expands the sustainability reporting standards, but also the scope of companies required to report. EU-based, public interest companies with 250+ employees will now be required to comply with the CSRD. The directive takes a double materiality approach that includes reporting on the sustainability risks that impact the companies’ performance and also the company’s impact on society and the environment. The intent of the directive is for businesses to adopt a more sustainable and environmentally friendly business model.

Potential impact on U.S.-based companies

An element of required disclosure within the CSRD is information about a company’s supply chain, and this is one area where the European directive stands to have impact on U.S.-based companies. In addition, non-EU companies that generate more than €150 million in revenue within the EU, or with an EU branch generating more than €40 million, will also be required to comply by 2029.

Timeline for reporting

CSRD reporting requirements will roll out over the course of five years. Deadlines by which companies must begin annual reporting are as follows:

  • January 2025: Entities already reporting in compliance with the NFRD directive - must report on 2024 data, and
    annually thereafter
  • January 2026: All large entities not currently subject to NFRD reporting, including large EU subsidiaries of U.S.
    companies or U.S. companies listed on a regulated market in the European Union must report on 2025 data, and
    annually thereafter
  • January 2027: Listed small and medium enterprises (SMEs), SME subsidiaries of U.S. companies listed on a
    regulated market in the EU, small and non-complex credit institutions, and captive insurance entities must report on
    2026 data, and annually thereafter
  • January 2029: U.S. companies with €150M of operations in Europe and at least one large subsidiary branch must
    report on 2028 data, and annually thereafter