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28 June 202315 minute read

EU’s Corporate Sustainability Reporting Directive: What US companies need to know

The European Union’s Corporate Sustainability Reporting Directive (CSRD) is now in force, and its requirements take actual effect in a phased manner from 2024 onwards. According to global financial data provider Refinitiv’s study, the CSRD is expected to directly impact about 10,000 non-EU companies, and more than 30 percent of these are expected to be US companies.[1]

What is the CSRD?

The CSRD, which became effective on January 5, 2023, replaces the EU’s 2014 Non-Financial Reporting Directive (NFRD), expanding the NFRD’s reporting requirement in two major ways: (1) the scope of companies impacted by the regulation and (2) the breadth of the disclosure requirements for in-scope companies.

These broader disclosure obligations will require in-scope companies to publish annual sustainability reports that mandate reporting on:

  • a company’s business model and strategy (resilience, opportunities, plans to ensure the model is compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement and the objective of achieving climate neutrality by 2050)
  • sustainability targets and their progress
  • the role of administration/management of the company regarding sustainability
  • how the company’s business model and strategy integrate the interests of stakeholders
  • sustainability related practices, including the necessary due diligence process to identify actual/potential adverse impacts connected with the value chain and actions to prevent/mitigate actual or potential adverse impacts
  • risks related to sustainability matters and how the business is managing those risks (sustainability matters for these purposes mean environmental, social, and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters) and
  • information on intangibles including intellectual, human and social capital.

Potential impact on US businesses

Although reporting requirements have not yet taken effect, many US businesses, including those that may not have expected to be directly or indirectly subject to an EU regulation, may find themselves impacted by the CSRD in a variety of ways, including as a result of:

  1. The broad scope of application: The CSRD expanded the scope of regulation to capture a much wider range of companies irrespective of their being listed in the EU market, and even applies in certain circumstances to non-EU-based companies. As reported in the Wall Street Journal, it is expected that, initially, approximately 50,000 companies will be directly impacted by the CSRD’s widened scope, which would be four times the number of companies currently directly subject to the NFRD’s requirements. Out of the 50,000 companies, it is expected that about 10,000 will be foreign companies, of which 33 percent will be US companies, and another 13 percent will be Canadian companies.[2]

    US-based companies may assess whether they will be directly subject to the CSRD’s requirements by determining whether they fall into one of the major classifications listed in the table below, although note that the CSRD also covers, in certain circumstances, small and medium-sized enterprises (SMEs) and other companies, so this table does not present an exhaustive list of companies that may be impacted by the CSRD:

  2. *A “large undertaking” is an EU-established entity that meets two of the following three criteria:
    • A total balance sheet of more than €20 million
    • A net turnover of more than €40 million
    • More than 250 average number of employees during the financial year.

    **A “public-interest entity” means an EU-based listed company, certain regulated banks and insurers as well as entities that have been designated as public-interest entities by an EU member state.

    ***A “large group” is a group consisting of parent and subsidiary undertakings, which, on a consolidated basis, meets the criteria for a “large undertaking”

  3. The wide breadth of the disclosure requirements and the resulting need for information across a reporting company’s value chain

    A key requirement of the CSRD is for in-scope companies to report their sustainability information based on the high-level principles in the CSRD itself and on supplementary guidance in European Sustainability Reporting Standards (ESRSs). The European Financial Reporting Advisory Group (EFRAG) was established in 2001 to provide technical advice to the European Commission by developing sustainability reporting standards and was designated to develop the ESRS. On November 16, 2022, the EFRAG approved drafts of the ESRS and sent them to the EU Commission for review. As of June 9, 2023, the Commission is open to feedback on the drafts. The feedback period will close on July 7, 2023, after which the feedback will be taken into account before finalizing the drafts. The Commission had been expected to adopt the ESRS in June 2023, but this will now be delayed.

Direct impacts

Compared with the SEC’s ESG-related disclosures, which concentrate on financially material information related to human capital management, corporate governance-related information and proposed climate-related information, the CSRD has a much broader focus. For example, unlike the SEC’s proposed climate disclosure rules, under the CSRD in-scope companies need to report not only on GHG emissions, but also on an array of other factors, among them climate change adaptation, water and marine resources, resource use and circular economy, pollution, and biodiversity and ecosystems. The CSRD also requires in-scope companies to report on such “S” and “G” elements as the company’s respect for human rights, anti-corruption, and anti-bribery.

In addition, companies will also be required to disclose their plans to ensure that their business models and strategies are compatible with the goal of limiting global warming to 1.5°C, in line with the Paris Agreement and the EU’s climate neutrality goal by 2050. The CSRD also requires in-scope companies to adopt a “double-materiality” approach to disclosure, ie, report not only the impact of various ESG factors on the company itself, its financial statements and results of operations, but also report how the company impacts people and the environment. Reporting these data points also requires companies to undertake robust environmental and social due diligence of their value chains and where necessary impact assessments should be considered.

For value chain reporting, the CSRD and supporting ESRS follow a “report or explain” methodology, in which a reporting company that is unable to report in full shall explain the efforts made to obtain the necessary information throughout its value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain information in the future.

Indirect impacts

Because the CSRD requires companies to report ESG risk throughout their value chain, even companies that are not in-scope may see an increase in calls to submit ESG information from customers and other business partners reporting under the CSRD. Providing this ESG information may require companies to begin new data collection and analysis and establish ESG-related disclosure controls and procedures.


Non-compliance may expose EU-established group companies and, potentially, their individual directors and officers to regulatory scrutiny and potential sanctions. In addition to any regulatory penalties, it is expected that disclosures will also be closely monitored by members of the public, including advisory groups, shareholders, customers, activists, peers, and other stakeholders.

Next steps: How can US companies prepare?

  • Conduct an ESG disclosure scoping assessment. To the extent that they are not already doing so, multinational companies can proactively scan the horizon for ESG disclosure requirements in the regions where they operate or have business partners.
  • If the CSRD is applicable, conduct a materiality assessment to understand ESG risks and opportunities. Companies falling within the scope of the CSRD’s reporting requirements can (i) assess the proposed EFRAG reporting standards for the CSRD; (ii) map their value chain, including their suppliers, customers, business partners, and downstream users; (iii) engage with their internal teams and value chain participants to gather, measure, and verify ESG data; and (iv) assess, in meaningful quantitative and qualitative terms, the environmental and social impact of their activities throughout their global value chain. In situations where gathering ESG data is impossible, companies can begin to prepare to provide a reason for noncompliance and a plan to obtain ESG data for future reports.
  • Consider whether the company will be indirectly impacted. US businesses with significant relationships with EU or non-EU based but potentially in-scope companies can begin to assess whether they will be indirectly brought into the CSRD’s reporting regime through value chain reporting, either by familiarizing themselves with the regulations or proactively reaching out to their partners to begin discussions on what may be required from them.
  • Build a proactive, informed, and globally minded ESG team. Designing and implementing ESG disclosure policies is complex, so businesses should ensure that their ESG team is proactive, informed, and globally minded.

You may also enjoy our prior alert, 10 considerations for companies on the path to sustainability. Learn more about the implications of the CSRD by contacting any of the authors or your DLA Piper relationship lawyer, and visit our Sustainability and Environmental, Social, and Governance portal for the latest information on ESG developments.