Amended ESRS rules for non-EU entities could lack comparability

EFRAG, the European Financial Reporting Advisory Group, has expressed reservations about the EU Commission’s request to simplify sustainability rules even as it launches a public consultation on changes to those same rules.

Last week, EFRAG launched a 100-day public consultation on its amended European sustainability reporting standards (ESRS) for non-EU undertakings.

The ESRS forms the basis of the bloc’s corporate sustainability reporting directive (CSRD), a cornerstone of EU sustainability law, which was scaled back at the end of last year following the Commission’s omnibus revisions.

The omnibus revisions raised concerns that banks could receive less sustainability data from some corporate clients that are no longer required to report under CSRD, with some industry groups claiming it would make it more difficult for banks to assess transition risks.

Previously, non-EU entities with a net turnover in the EU of more than €150m and an EU branch generating over €40m were obliged to report their ESRS. The omnibus revisions reduced the number of companies in scope from roughly 10,000 to 1200, with the ESRS now only applying to non-EU entities with a net turnover in the EU of over €450m and with an EU branch or subsidiary exceeding €200m in turnover.

In its consultation announcement, EFRAG encourages EU and non-EU companies to provide feedback “on the practical implementation challenges and the relevance of the resulting disclosures”. The consultation closes on 31 October and will inform EFRAG’s final recommendations to the Commission, which are expected by January 2027.

EFRAG critical of simplification request 

However, the EFRAG board expressed several reservations on the Commission’s requested simplifications.

In a letter made public on the EFRAG website, the chair of the EFRAG sustainability reporting board, Kerstin Lopatta, said “members expressed clear and broadly shared reservations regarding the mixed approach, under which EU-related reporting would be the default and global reporting an option”. 

She added: “I would like to be transparent with you that the board is proceeding to consult on the mixed approach because, and only because, this reflects the Commission’s request and the mandate EFRAG has received. Without such a mandate, the board would not have proposed the mixed approach on its own initiative.”

The criticism refers to the inclusion of a hybrid reporting model in the ESRS for non-EU companies, which requires companies to primarily focus on their EU-related activities rather than their global operations, except for climate change disclosures. In instances where discretion is given, companies must themselves determine whether a disclosure is EU-related or globally relevant.

By maintaining an EU focus, the revisions are set to significantly reduce the amount of reporting for non-EU entities. Meanwhile, EU companies will continue to report ESRS on a global level, which raises questions around comparability.

In its public letter, EFRAG claims that the lack of uniform reporting does not support a level playing field between EU companies and their international peers. 

ESRS now at odds with other reporting rules

In addition, unlike EU companies, non-EU companies do not have to report based on double materiality, but only disclose the impacts their operations in the EU have on people and the environment. 

The suggested framework also puts it at odds with the International Sustainability Standards Board rules, which only consider the financial impact of sustainability risks on companies’ operations.

In its public letter, EFRAG also claims relevant information may be lost with a “consequential risk of greenwashing”, in particular for human rights and environmental impacts that cannot be confined to a specific geography. The letter also questions the feasibility of separating EU-related impacts and said the mixed approach “entails significant limitations for external assurance”. Moreover, EFRAG notes there is a risk the newly designed ESRS are not compatible with the bloc’s corporate sustainability due diligence directive, which foresees only a global reporting framework.

In mid-August 2026, EFRAG is set to release a cost-benefit analysis of the proposed standards for non-EU entities. A full list of data points included in the new standards will also be published in due course, EFRAG said.

The first sustainability reports on behalf of non-EU entities are expected to be published in 2029. The revised ESRS rules for EU companies, as well as new voluntary standards, were adopted by the EU Commission in early July. 

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