EU CSRD: EFRAG opens consultation on the sustainability reporting for non-EU companies

On 23 July 2026, EFRAG launched a public consultation on the Exposure Draft for the European Sustainability Reporting Standard applicable to certain non-EU companies reporting under Article 40a of the Accounting Directive (the “ESRS-40a ED”). The deadline for comments is 31 October 2026, and EFRAG is due to deliver its technical advice to the European Commission by January 2027. 

What is ESRS-40a?

ESRS-40a is a set of European Sustainability Reporting Standards (ESRS) that certain non-EU parent companies and groups with significant EU activity will have to use to draw up their EU sustainability report. The obligation sits in Articles 40a to 40d of the Accounting Directive, introduced by the Corporate Sustainability Reporting Directive (CSRD) and most recently amended by the Omnibus I Directive.

A note on naming. The workstream has been through several labels. It was originally referred to as the ESRS for non-EU companies (the "non-EU ESRS" or "N-ESRS"). Immediately before the consultation launch, EFRAG rebranded it as ESRS for Third-Country Groups ("ESRS-TC"). In the exposure draft released for public consultation, the standard has settled on the name ESRS-40a, tied directly to the enabling article of the Accounting Directive.

Who is reporting. The Omnibus I Directive materially tightened the reporting scope. Under the revised Article 40a(1), the reporting obligation applies to non-EU ultimate parent companies that have:

• more than EUR 450 million net turnover generated in the EU (individually or on a consolidated basis) for each of the last two consecutive financial years; and 

• an EU subsidiary or, where there is no such EU subsidiary, a branch in the EU with more than EUR 200 million net turnover in the preceding financial year.

The reporting obligations will fall on the relevant EU subsidiary or branch which pulls the non-EU ultimate parent company into scope. These companies will need to start reporting in 2029 (in respect of the financial year starting on or after 1 January 2028). EFRAG estimates that around 1,200 non-EU companies would be caught by this category.

Main differences from the main ESRS

The European Commission adopted the sustainability reporting standards for companies reporting under Articles 19a and 29a of the Accounting Directive (“main ESRS”) on 3 July 2026 (for more information, see our blog post). 

ESRS-40a starts from the revised ESRS and keeps their architecture: two cross-cutting standards (ESRS-40a 1 General Requirements and ESRS-40a 2 General Disclosures) plus ten topical standards covering environmental, social and business-conduct topics (E1–E5, S1–S4 and G1). The four reporting areas: governance; strategy; impact management through policies and actions; and metrics and targets, are also the same.

Around that shared architecture, ESRS-40a subtracts, adds and adjusts to reflect the provisions of Article 40a of the Accounting Directive. The main differences highlighted by EFRAG and the Commission at the consultation launch include the following:

• Impacts only. In-scope groups are not required to carry out a double materiality assessment – in accordance with CSRD, ESRS-40a is an impacts-only standard. Disclosures on risks, opportunities, resilience and dependencies (collectively "RORD") are removed. However, financial information is not stripped out completely; some is retained where it is needed to provide context for the impact disclosures.

• Incorporation by reference. ESRS-40a goes further than the full ESRS in allowing incorporation by reference: parts of the ESRS-40a report can point back to a mandatory IFRS-aligned sustainability report the group already publishes, subject to certain conditions, which include the same level of assurance.

• Digitalisation. Unlike companies in scope of the full ESRS, ESRS-40a reporters do not need to make their sustainability report machine-readable.

“Mixed approach”

ESRS-40a ED introduces one genuinely new feature: the so-called mixed approach. As a starting point, reporting remains global. But for topics other than climate, companies would be allowed to report only on “EU-related impacts”. 

Climate is carved out and stays global, reflecting both the nature of greenhouse gas emissions and the fact that many groups already report climate information on a global basis. The suggested mixed approach lets a company focus on impacts linked to products and services sold in the EU, and on activities carried out in the EU, together with certain related value chain impacts.

That option is controversial. EFRAG has been open that it included the mixed approach at the European Commission’s request, rather than on its own initiative. Supporters within EFRAG see it as a pragmatic way to make Article 40a more workable. Critics argue that it sits uneasily with the logic of double materiality, weakens comparability, and is especially hard to reconcile with inherently global issues such as human rights and environmental harm.

EFRAG has therefore sought to place clear limits and safeguards around the use of this option. A company could use the mixed approach only where it can meaningfully identify EU-related impacts and still provide a faithful picture overall. It would also need to explain clearly where and how it has applied that approach. Even so, this remains one of the most sensitive parts of the Exposure Draft. Whether it survives consultation in its current form will be one of the key issues to watch.

Reporting options

Companies and groups in scope of Article 40a have three ways to comply: 

1. report on a global basis under ESRS-40a; 

2. apply ESRS-40a with the “mixed approach”; or 

3. voluntarily apply the main ESRS.

Option (iii) also unlocks the subsidiary exemption for any EU subsidiaries of the group that are themselves in the scope of Articles 19a or 29a of the Accounting Directive.

What EFRAG is consulting on

The consultation questionnaire is structured around four principal topics, plus an "any other comment" section and paragraph-level feedback. The questions include the following: 

• Deletions and additions vs full ESRS. EFRAG is asking whether has implemented the CSRD's Article 40a mandate correctly by removing RORD-related disclosures and financial-effects datapoints while retaining financial information useful for understanding impacts.

• Mixed approach. This section contains the largest cluster of questions, including whether respondents support the option at all, and why; whether the definition of EU-related impacts is appropriately drafted etc. Users are asked whether they will be able to understand and compare reports produced under mixed scopes. 

• References to EU laws and regulations. EFRAG is asking whether requiring third-country groups to apply EU legal concepts (NACE codes, REACH thresholds, the EU Climate Law reference to 1.5°C etc) is workable. 

• Interoperability and incorporation by reference. The questions include whether the expanded incorporation-by-reference regime works in practice for groups already reporting under jurisdictional standards based on IFRS S1/S2 and whether single-report structures combining ESRS-40a with those standards are feasible.

EFRAG has also acknowledged that several practical questions are being investigated in parallel with the consultation, most importantly the definition of "net turnover generated in the EU" for scoping purposes, and the treatment of non-calendar financial years and mismatched parent/subsidiary reporting timetables. 

For more information on the CSRD and ESRS, see our Quick Guide and EU CSRD demystified materials.