CSRD for non-EU companies

What is CSRD, and why does it matter for non-EU companies?

The Corporate Sustainability Reporting Directive (CSRD) is reshaping global sustainability reporting standards, with significant implications for businesses worldwide. For non-EU companies, understanding and preparing for the CSRD is critical. The directive outlines detailed reporting requirements, while the European Sustainability Reporting Standards (ESRS)provide the framework for implementing these requirements. Together, CSRD and ESRS are set to enhance corporate transparency and accountability regarding environmental, social, and governance (ESG) metrics.

For non-EU companies, compliance is no longer optional if they have substantial ties to the EU. This article provides a detailed overview of how the CSRD applies, the challenges it presents, and the steps non-EU companies must take to align with these groundbreaking regulations.

So which non-EU companies are currently affected by the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) applies to non-EU companies with significant ties to the European Union. Specifically, the directive impacts businesses that meet one or more of the following criteria:

Companies with securities listed on an EU-regulated market.
Non-EU companies operating in public interest sectors, such as financial institutions, employing more than 500 people.
Non-EU companies with substantial EU operations, including:

Generating annual revenue exceeding €150 million within the EU.
Having an EU branch with net revenue exceeding €40 million.‍
Having an EU subsidiary classified as a “large company” (i.e., meeting at least two of these criteria: >250 employees, >€50 million turnover, or a balance sheet total >€25 million).

Compliance timeline for non-EU Companies

The CSRD introduces a phased timeline to allow businesses time to prepare for compliance:

January 1, 2024: Large non-EU companies with securities listed on an EU-regulated market and more than 500 employees must start reporting for the 2025 financial year.
January 1, 2025: Large non-EU companies listed on an EU-regulated market are required to report for the 2026 financial year.
January 1, 2026: Certain non-EU small and medium-sized enterprises (SMEs) listed on an EU-regulated market must report for the 2027 financial year.
January 1, 2028: Non-EU companies meeting the EU Turnover Test must report for the 2029 financial year.

This timeline gives non-EU companies an additional year to align their operations with CSRD standards. However, preparing for such comprehensive reporting-especially for value chain disclosures and double materiality assessments - requires businesses to act promptly.

Non-EU companies must carefully review their eligibility and start building processes to collect, analyse, and disclose sustainability data in alignment with ESRS requirements. Delaying these steps could result in rushed reporting, increased operational pressure, or non-compliance risks. The scope of the CSRD goes beyond financial disclosures, introducing a comprehensive focus on sustainability transparency and accountability.

How can non-EU Companies successfully prepare themselves?

As already mentioned, to align with CSRD requirements, non-EU companies must adhere to the European Sustainability Reporting Standards (ESRS) framework. These standards provide detailed guidance on sustainability disclosures, emphasizing double materiality and comprehensive value chain reporting. By following actionable steps, companies can navigate these complexities effectively while building transparency and leadership in sustainability. The core ESRS standards are:

ESRS 1: Establishes general principles for sustainability reporting, requiring companies to evaluate the impact of their operations on the environment (outward impact) and the risks posed by environmental factors to their business (inward impact). This double materiality assessment is fundamental to the CSRD.
ESRS 2: Focuses on governance, strategy, and materiality assessments, requiring companies to outline their sustainability strategies, identify ESG risks, and demonstrate resilience.

Key preparation steps for non-EU Companies include:

Stay informed

EU regulations, including CSRD and ESRS updates, are continuously evolving. Monitoring these changes allows businesses to anticipate adjustments and align with compliance timelines effectively. Resources like the Zuno Carbon blog on ESG goals provide valuable insights for staying up to date.

Conduct double materiality assessments

Assess the environmental and social impact of operations and the risks posed by climate change to the business.
Ensure this assessment incorporates all material ESG factors, providing stakeholders with a transparent view of your sustainability practices.

Build robust value chain reporting

CSRD compliance demands emissions data across Scope 1, 2, and 3, requiring companies to collect detailed information from suppliers and third-party partners. For more detailed guidance on measuring emissions, have a look at our blog article on Scope 1, 2, and 3 emissions.

Engage Suppliers

Set data collection protocols: collaborate with suppliers to collect accurate ESG data.
Provide training: educate suppliers about CSRD requirements to ensure alignment.
Integrate technology: use ESG platforms to streamline reporting and improve data reliability.

Align with timelines

With compliance set to begin for non-EU companies, it’s crucial to act now. Delaying preparation increases the risk of non-compliance, which can result in financial penalties and reputational harm.

Collaborate with experts and invest in ESG reporting tools

ESG consultants provide customised guidance tailored to industry needs, particularly in navigating double materiality assessments and aligning with ESRS standards. Experts help streamline the process, making compliance less resource-intensive and more effective.
Using digital (ESG) tools ensures data accuracy and transparency, enabling businesses to identify emission hotspots, track progress and maintain stakeholder trust. Platforms like Zuno Carbon offer non-EU companies a streamlined way to navigate CSRD compliance for instance by aligning sustainability reports with CSRD mandates.

Why do these steps matter?

The CSRD for non-EU companies requires a proactive approach. It challenges businesses to move beyond compliance, embracing transparency as a core aspect of their corporate strategy. By integrating these measures, businesses can not only meet stringent EU regulations but also position themselves as sustainability leaders. Compliance extends beyond reporting - it offers an opportunity to strengthen corporate transparency, enhance stakeholder trust, and drive meaningful environmental and social impact.

Potential challenges of CSRD compliance for non-EU companies

The CSRD for non-EU companies represents a pivotal shift toward corporate accountability. However, it brings unique challenges that require strategic solutions:

The double materiality framework requires businesses to assess both their environmental and social impacts, alongside the risks posed by climate change to their operations. For non-EU companies accustomed to simpler single-materiality reporting, this can be daunting. Implementing these assessments requires:

Specialized tools for evaluating ESG risks and opportunities.
Expertise in integrating materiality into broader corporate strategies.

Without such preparation, companies risk failing to meet the CSRD’s stringent requirements.

Scope 3 emissions reporting, encompassing indirect emissions across supply chains, presents a particularly complex challenge:

Many suppliers lack the tools or knowledge to provide accurate emissions data.
The absence of standardized reporting across global supply chains makes aligning with CSRD standards difficult.
Scalable ESG tools can mitigate this challenge by automating data collection and improving accuracy.

Operating across multiple jurisdictions, non-EU companies must align their sustainability efforts with varying local regulations and the EU’s stringent CSRD standards. This misalignment might lead to:

Confusion over differing requirements may result in missed deadlines.
Companies may face higher compliance costs due to inefficiencies and duplication of efforts. Addressing these issues demands proactive engagement with ESG consultants and thorough regulatory analysis.

A few lessons for global businesses‍

The Corporate Sustainability Reporting Directive (CSRD), while primarily aimed at EU and non-EU companies operating in the EU market, offers critical takeaways for businesses worldwide. These lessons go beyond compliance, providing a roadmap for enhancing corporate responsibility and sustainability practices.

Transparency is no longer optional in today’s regulatory and market environment; it’s a strategic imperative for long-term success.

Transparent ESG reporting fosters trust among stakeholders, including investors, customers, and regulators. Clear and verifiable disclosures ensure accountability and reduce the risk of reputational damage due to greenwashing or non-compliance.
Aligning with CSRD and similar frameworks ensures compliance with international standards, minimizing the risk of financial penalties and legal challenges.
Companies demonstrating genuine transparency are better positioned to attract ESG-conscious investors, gaining a competitive edge in a sustainability-driven economy.

Advanced digital tools are transforming how businesses approach ESG reporting, offering solutions to the complexities of compliance.

Digital platforms eliminate manual errors and streamline data collection across Scope 1, 2, and 3 emissions. This ensures accurate, reliable reports that meet stringent CSRD requirements.
Tools with real-time capabilities allow companies to identify emission hotspots, track progress, and adjust strategies proactively. These features align with the directive’s emphasis on comprehensive and timely reporting.
Automating ESG reporting processes reduces the time and resources required for compliance, allowing businesses to focus on strategic sustainability goals.

Early preparation is key to turning CSRD compliance into a strategic advantage rather than a burdensome obligation.

Companies that begin adapting to CSRD standards ahead of deadlines position themselves as leaders in sustainability.
Early adopters are more likely to gain investor confidence, attract talent, and improve customer loyalty in a market increasingly influenced by sustainability considerations.
Preparing for CSRD encourages businesses to innovate, from improving supply chain transparency to adopting sustainable technologies. These innovations often result in long-term operational efficiencies and cost savings.

Turning CSRD challenges into opportunities

The CSRD for non-EU companies may appear daunting, with its rigorous requirements for double materiality assessments and value chain data collection. However, these challenges offer a transformative opportunity for businesses willing to adapt and innovate. By tackling these hurdles head-on, companies can strengthen sustainability strategies, mitigate environmental and social risks, gain leadership in global sustainability, build stakeholder trust and ensure long-term credibility.

For non-EU companies, the impact of CSRD compliance goes beyond regulation-it serves as a catalyst for adopting cutting-edge reporting standards and elevating their sustainability strategies. By proactively leveraging advanced ESG tools, collaborating with sustainability experts, and aligning with international frameworks, businesses can turn compliance into a competitive advantage.

Acting now is crucial. Companies that embrace the challenges preparing for CSRD for non-EU companies will position themselves at the forefront of the global sustainability landscape. In doing so, they not only meet regulatory demands but also contribute meaningfully to a low-carbon economy.

Are you ready to simplify your CSRD compliance? Contact Zuno Carbon today to book a demo and explore how our end-to-end solution can help your organisation achieve regulatory compliance and environmental impact goals.

Frequently Asked Questions (FAQs)

Does the CSRD apply to non-EU companies?

Yes, the CSRD (Corporate Sustainability Reporting Directive) applies to non-EU companies under specific conditions:

If the company has listed securities on an EU-regulated market.
If it generates more than €150 million in annual revenue within the EU.
If it has an EU branch generating over €50 million in net revenue or an EU subsidiary meeting the criteria for large companies (e.g., >250 employees or >€50 million turnover).

What does CSRD mean for companies?

CSRD establishes rigorous sustainability reporting obligations that require companies to:

Disclose their environmental, social, and governance (ESG) impacts using the European Sustainability Reporting Standards (ESRS).
Conduct double materiality assessments, which evaluate the company’s impact on the environment and how environmental factors affect the business.
Report emissions and ESG data across their entire value chain, including suppliers and partners.

For non-EU companies, this means adapting to stricter reporting frameworks and ensuring compliance with EU regulations, even if headquartered outside the EU.

What happens if you don’t comply with CSRD?

Failure to comply with CSRD can result in significant repercussions:

Financial penalties: Non-compliance may lead to fines or sanctions imposed by EU regulators, which could negatively affect operations and profitability.
Reputational damage: Non-compliance signals a lack of commitment to sustainability, eroding trust among stakeholders and damaging brand reputation.
Restricted market access: Companies that fail to comply may find it difficult to maintain relationships with EU-based partners or investors who prioritize ESG compliance.

Adopting proactive measures to meet CSRD requirements is essential to mitigate these risks and demonstrate authentic corporate responsibility.

CSRD for non-EU companies: Facing new sustainability standards