Hot Topic | December 2023

Insight

Latest: Impact of EU ESG reporting on US companies

The Corporate Sustainability Reporting Directive is now in force, but its application to US companies continues to raise questions.

Bryce Ehrhardt

Bryce Ehrhardt

Managing Director, Dept. of Professional Practice, KPMG US

Marissa Gerdes

Marissa Gerdes

Senior Manager, Dept. of Professional Practice, KPMG US

Updated to reflect the latest developments by the European Commission and European Financial Reporting Advisory Group (EFRAG), this Hot Topic explains which companies within a group are subject to the CSRD and includes a series of examples that illustrate the CSRD scoping and reporting considerations for common US group structures.

Applicability

  • Most companies with listed securities in the EU, non-EU parents (including US companies) with substantial activity and a presence in the EU, and non-EU subsidiaries of companies that meet the scoping requirements

CSRD development

So far:

  • Apr 21, 2021 – Initial EU Directive proposals issued
  • Nov 10, 2022 – EU Parliament adopted the CSRD
  • Nov 28, 2022 – Council of the EU adopted the CSRD
  • Jan 5, 2023 – The CSRD entered into force  
  • Oct 2023 – The European Commission approved increases to the general scoping size criteria

Forthcoming:

  • Jan 1, 2024 – The earliest effective date for the CSRD
  • July 2024 – Deadline for Member States to transpose the CSRD into local law (i.e. 18 months from the date the CSRD became law)
  • 2024 and beyond – Anticipated release by EFRAG of European Sustainability Reporting Standards clarifications and guidance on double materiality, value chain, and possibly other topics
  • June 30, 2026 – New deadline for the European Commission to adopt sector and non-EU parent standards

Effective dates

Company type

Effective date

Year of initial application

Large PIEs (> 500 employees) and large companies listed on an EU-regulated market (> 500 employees)

Jan 1, 2024

2025 (i.e. companies would have to issue their 2024 sustainability report in 2025)

Other large companies (including large companies listed on an EU-regulated market)

Jan 1, 2025

2026

Small and medium-sized companies (including non-EU based SMEs), except micro-companies, listed on an EU-regulated market

Jan 1, 2026

2027

Includes an option to opt out of CSRD reporting until 2029 (i.e. effective date of 2028)

Small and non-complex credit institutions and captive insurance entities

Jan 1, 2026

2027

Ultimate non-EU parent companies with substantial activity and presence in the EU

Jan 1, 2028

2029


Key impacts

Despite being an EU directive, US and other non-EU based companies will be impacted by the CSRD if they meet certain scoping criteria, which are discussed in our Hot Topic. The nature of these impacts will vary depending on the specific circumstances of the company.

US and other non-EU based companies that do business in the EU need to consider whether they will be subject to the CSRD. The complexity in applying the CSRD to those that meet the scoping criteria will vary based on a variety of factors, including their group structure and existing consolidated reporting processes.

Our Hot Topic can help US and other non-EU based companies understand the CSRD scoping requirements and consequential reporting obligations. It includes a series of examples that walk through the applicability of the CSRD to common group structures for US and other non-EU based companies.

The CSRD requires certain companies to prepare sustainability reporting in accordance with the European Sustainability Reporting Standards (ESRSs). The EU adopted the first set of ESRSs in July 2023 and they will become effective for companies starting from January 2024. For more information about the ESRSs, see our ESRS Resource Center.

Report contents

  • Fast facts, impacts and actions
  • Background
  • Scoping requirements
  • Effective dates
  • Reporting and assurance requirements
  • Reporting exemptions
  • Non-EU company impact
  • Next steps: for the European Commission; for EFRAG; for companies
  • Examples
  • Resources

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