The EU Platform on Sustainable Finance (PSF), an expert group mandated by the European Commission to advise it on the development of sustainable finance policies and the European sustainable and responsible investment association (Eurosif) have issued statements calling to remove a proposed “mixed approach” to sustainability reporting for large non-EU companies that allows them to disclose less information on their impacts than their EU counterparts.
The statements were made in response to a consultation by the European Financial Reporting Advisory Group (EFRAG) on its Exposure Draft of the European Sustainability Reporting Standards for certain non-EU undertakings (ESRS-40a), outlining proposed sustainability reporting requirements for non-EU companies included in the scope of the EU’s Corporate Sustainability Reporting Directive (CSRD).
The European Sustainability Reporting Standards (ESRS) set out the rules and requirements for companies to report on sustainability-related impacts, opportunities and risks under the EU’s CSRD, which began applying from the beginning of 2024. The CSRD also includes a requirement for large non-EU companies that operate in the EU to provide sustainability reporting based on ESRS for third country undertakings, with reporting requirements currently scheduled to begin in 2029 on the 2028 financial year.
Released in July 2026, the proposed ESRS-40a focuses reporting requirements exclusively on companies’ impacts, removing the ESRS’ broader focus on areas that also include sustainability-related risks and opportunities.
The proposed standards also introduced a controversial “mixed approach” for non-EU companies to report on impacts, other than those related to climate, either on a global basis, or limited to “EU-related impacts,” reporting only on impacts of products or services sold in the EU or on the impacts of the company’s activities in the EU.
Notably, EFRAG members at the time expressed concerns with the mixed approach, and EFRAG said that it was included due to an explicit request by the European Commission.
In a “Basis for Conclusions” document published alongside the exposure draft, EFRAG notes a series of concerns that were raised by its members regarding the inclusion of the mixed approach in the non-EU ESRS draft. These included concerns that the mixed approach would not support a level playing field between EU companies and their international peers, that using different scopes for different topics would impair understandability, and uncertainty relating to the feasibility of separating EU-related impacts. Additionally, one of the key concerns raised by EFRAG members about the mixed approach was that “Relevant information may be lost, with a consequential risk of greenwashing, in particular as regards human rights impacts and environmental impacts, the latter of which cannot be confined to a specific geography.”
Echoing similar concerns, in its response, the PSF warned that the mixed approach “would weaken comparability, create an uneven playing field for transparency between EU and non-EU companies and reduce the usefulness and reliability of sustainability information,” adding that it could increase complexity and reporting costs, obscure severe environmental and human rights impacts occurring outside the EU, and create significant usability challenges for investors.
Similarly, Eurosif cited concerns with the mixed approach including incomplete and potentially misleading information, additional costs to investors to fill in information gaps, less consistent reporting leading to usability challenges, and an uneven playing field between EU and non-EU companies.
Both groups also raised concerns with the exclusion of EU Taxonomy-related disclosures from ESRS-40a, warning that the lack of this information would create difficulties for financial markets participants in meeting their own disclosure obligations. The PSF and Eurosif both recommended enabling non-EU companies to report Taxonomy-related information voluntarily.
Click here to access the PSF’s and Eurosif’s responses to the EFRAG consultation.
