EFRAG Resumes Work on Non-EU Sustainability Reporting Standard

EFRAG reopens work on non-EU sustainability reporting standard

The European Financial Reporting Advisory Group has restarted development of a sustainability reporting standard for large non-EU companies operating in Europe. EFRAG is now inviting businesses to take part in a field test of the draft rules before opening a public consultation later this year.

The draft standard applies to third-country groups that generate more than EUR 150 million in annual EU turnover. These businesses must also have either an EU branch with turnover above EUR 40 million or an EU subsidiary that meets the relevant size thresholds under the Corporate Sustainability Reporting Directive.

This development matters because it extends the EU’s sustainability disclosure requirements beyond companies headquartered in member states. Many UK-based groups with significant European operations will fall within scope. The rules could affect how these businesses collect and report environmental, social, and governance data across their operations.

Legal basis and development timeline for the standard

The legal foundation for the non-EU standard sits in Article 40a of the Corporate Sustainability Reporting Directive. This article requires the European Commission to create separate sustainability reporting standards for qualifying third-country undertakings. Consequently, EFRAG was tasked with drafting the technical content.

EFRAG published initial working drafts in late 2024. Those documents described the proposed standard, known as N-ESRS, as distinct from the EU’s general European Sustainability Reporting Standards. The non-EU version focuses more narrowly on the sustainability impacts of the third-country group’s European activities. It was designed specifically for businesses headquartered outside the EU rather than adapted from the full ESRS framework.

The Commission’s adoption deadline is currently 30 June 2026. First application is expected from the 2028 financial year, with initial reports due in 2029. However, that timeline depends on the outcome of the field test and subsequent consultation. EFRAG has indicated the standard’s scope and proportionality remain under review.

The field test is intended to assess whether the reporting model works in practice. EFRAG is asking companies to test the draft disclosure requirements and provide feedback on feasibility, data availability, and compliance costs. This stage suggests the Commission and EFRAG are still refining the balance between disclosure ambition and practical implementation.

Which companies will need to comply

The standard targets non-EU groups with substantial European market presence. A business qualifies if it generates more than EUR 150 million in net turnover within the EU during the financial year. Additionally, the group must have either a significant EU branch or a large EU subsidiary.

A branch qualifies if its net turnover in the EU exceeds EUR 40 million. A subsidiary qualifies if it meets the size thresholds set out in the CSRD for large undertakings. Those thresholds are based on turnover, balance sheet total, and employee numbers.

These criteria capture multinational groups operating at scale in the single market. Many mid-sized and large UK businesses with European sales or manufacturing operations will be caught. The same applies to North American, Asian, and other third-country groups with European subsidiaries or branch networks.

Importantly, the disclosure obligation applies at group level. The parent company outside the EU will need to report on its sustainability impacts related to European activities. This means businesses headquartered in London, New York, or Tokyo will need to prepare consolidated sustainability reports under EU rules if their European footprint crosses the thresholds.

The turnover and size tests are relatively straightforward. Therefore, affected businesses should be able to determine whether they fall within scope using existing financial data. Nevertheless, the detail of what must be reported remains subject to consultation and final adoption.

Core disclosure requirements under the draft standard

The draft N-ESRS requires third-country groups to disclose material sustainability information related to their EU operations. This includes environmental impacts, social matters, and governance practices. However, the reporting focus is narrower than the full ESRS framework applied to EU companies.

EFRAG’s working drafts indicate the standard will prioritize impacts directly connected to the group’s European activities. For example, a US manufacturer with a production facility in Germany would report on emissions, waste, and labour conditions at that site. The same company would not necessarily report on impacts at its North American facilities unless those are material to understanding its EU footprint.

This approach reflects the EU’s interest in transparency about sustainability performance within its jurisdiction. It also acknowledges that requiring full global reporting from non-EU groups would be difficult to enforce and potentially disproportionate. Consequently, the standard attempts to balance disclosure ambition with jurisdictional realism.

The field test will likely reveal whether this approach works. Businesses operating integrated global supply chains may find it difficult to isolate European impacts. For instance, a technology company sourcing components globally and assembling products in Ireland faces complex allocation questions. The field test feedback should inform how EFRAG addresses these practical challenges.

Another key issue is whether the standard will require double materiality assessment. The EU’s ESRS framework asks companies to report on how sustainability matters affect the business and how the business affects people and the environment. Applying this fully to non-EU groups would be demanding. EFRAG’s drafts suggest a more focused materiality approach, but the final detail awaits consultation.

Summary of key details

• EFRAG has resumed work on a sustainability reporting standard for large non-EU companies with significant European operations and is inviting businesses to join a field test before public consultation.
• The standard applies to third-country groups generating over EUR 150 million in annual EU turnover and meeting branch or subsidiary size thresholds set out in the Corporate Sustainability Reporting Directive.
• The European Commission must adopt the standard by 30 June 2026, with first application expected from the 2028 financial year and initial reports due in 2029.
• The draft standard focuses on sustainability impacts related to the group’s EU activities rather than requiring full global disclosure, reflecting jurisdictional and proportionality considerations.
• EFRAG’s field test aims to assess whether the reporting model is workable in practice before opening a public consultation later in 2025.
• The legal basis sits in Article 40a of the Corporate Sustainability Reporting Directive, which requires separate sustainability reporting standards for qualifying non-EU undertakings.
• Many UK businesses with European operations will fall within scope if their EU turnover and presence meet the thresholds, requiring consolidated group-level sustainability reporting under EU rules.

Implications for UK businesses with European operations

UK companies with substantial European sales or operations should assess whether they meet the thresholds. Businesses generating more than EUR 150 million in EU turnover and operating significant branches or subsidiaries in member states are likely to be affected. This includes manufacturers, retailers, professional services firms, and technology companies with European customers or facilities.

The reporting obligation will require new data collection systems in many cases. Sustainability information that currently sits with local European teams will need to be consolidated at group level. Finance directors and compliance teams should start mapping what data is available and what gaps exist. For example, Scope 3 emissions data from European suppliers may not currently flow into group reporting systems.

Verification will also be important. The CSRD framework requires independent assurance of sustainability reports. Non-EU groups subject to the N-ESRS can expect similar requirements. Therefore, businesses should consider whether their current assurance arrangements cover sustainability data and whether auditors have the necessary expertise.

Tender and supply chain implications are another consideration. Public sector procurement in the EU increasingly requires suppliers to demonstrate sustainability credentials. A UK business bidding for a contract in France or Germany may find that compliance with the N-ESRS becomes a competitive advantage. Conversely, failure to report could exclude the business from certain opportunities.

The timeline gives businesses some breathing room. First reports are not expected until 2029, covering the 2028 financial year. However, setting up data systems, training staff, and embedding sustainability reporting into financial close processes takes time. Finance teams familiar with preparing statutory accounts will recognize that new reporting requirements need at least two years of preparation to implement smoothly.

Trade associations and legal advisers will likely offer guidance once the standard is finalized. Nevertheless, businesses should engage with the consultation process if they have concerns about feasibility or proportionality. EFRAG and the Commission have shown willingness to adjust standards based on implementation feedback. The field test is part of that process.

How this fits into the wider EU sustainability reporting framework

The N-ESRS is part of a broader effort to standardize sustainability disclosure across the European single market. The Corporate Sustainability Reporting Directive already requires large EU companies and listed SMEs to report under the European Sustainability Reporting Standards. Extending similar obligations to non-EU groups reflects the EU’s ambition to create a level playing field.

The policy logic is that sustainability impacts do not stop at borders. A multinational group headquartered outside the EU but operating factories, offices, or distribution networks inside member states has environmental and social impacts within EU jurisdiction. Therefore, the Commission argues those impacts should be disclosed using comparable standards.

This approach mirrors the EU’s extraterritorial application of other regulations. The General Data Protection Regulation applies to non-EU businesses processing data of EU residents. The Carbon Border Adjustment Mechanism applies tariffs to imports based on embedded emissions. The N-ESRS follows a similar pattern, applying EU disclosure standards to non-EU groups based on their market presence.

For businesses, this means sustainability reporting is becoming a condition of access to the European market. A UK company exporting to the EU already navigates customs, product standards, and VAT rules. Sustainability reporting may soon join that list of compliance obligations. The threshold-based approach means smaller exporters are excluded, but larger groups will need to integrate EU sustainability disclosure into their reporting cycles.

The field test and consultation process offer an opportunity to shape the final standard. Businesses should consider participating if they have evidence that certain disclosure requirements are impractical or disproportionate. EFRAG has adjusted standards in response to stakeholder feedback before. The Commission also has discretion to modify proposals during the adoption process.

Where to find further information and guidance

EFRAG has published details of the field test invitation on its website. Businesses interested in participating should contact EFRAG directly through the channels specified in the call for interest. The field test will likely close within a few months, so early engagement is advisable.

The European Commission’s website contains the full text of the Corporate Sustainability Reporting Directive, including Article 40a. Reading the directive provides useful context on the legal obligations and the policy rationale behind the non-EU standard.

The European Financial Reporting Advisory Group maintains a dedicated section on sustainability reporting standards. This includes the working drafts published in 2024 and updates on the standard-setting process. Businesses should monitor this page for consultation documents and final drafts.

UK businesses may also find it helpful to review guidance from the Financial Reporting Council and professional accounting bodies on sustainability reporting. While UK domestic requirements differ from the EU framework, the principles of materiality, assurance, and data governance are similar.

We support businesses preparing for ESG compliance and carbon reporting requirements under UK and EU frameworks. Our team can help assess whether your business falls within scope of the N-ESRS and what steps you need to take to prepare for compliance. Additionally, SBS Academy training on sustainability reporting covers the practical aspects of data collection, verification, and disclosure under emerging standards.