EFRAG has published its long-awaited draft sustainability reporting standard for non-EU companies under the CSRD, proposing a significantly narrower disclosure framework than the one applied to EU companies. The proposal extends the EU’s wider simplification agenda beyond Europe and raises fresh questions for institutional investors about comparability, coverage and the reliability of cross-border sustainability data.

The draft standard, known as ESRS-40a, applies to large non-EU companies operating in Europe. Following the EU’s Omnibus reforms, EFRAG estimates the number of non-EU companies within scope will fall from around 10,000 to approximately 1,200. It is open for a public consultation which closes at the end of October.

That direction is consistent with Minerva’s recent analysis of the revised ESRS framework, which reduced mandatory datapoints and narrowed the number of companies required to report. ESRS-40a now takes that simplification agenda into the non-EU reporting regime.

For multinational companies, that may reduce compliance complexity. For institutional investors, it creates a new asymmetry. European companies and non-EU peers operating in the same market may no longer be reporting against the same information set, potentially making sector comparison, portfolio monitoring and stewardship analysis more difficult.

EFRAG’s Mixed Approach Under Scrutiny

The most debated element of the draft is EFRAG’s proposed “mixed approach” to reporting impacts.

For topics other than climate, companies would be allowed to report impacts either globally or only in relation to their EU activities. In practice, a company could disclose some impacts worldwide while limiting others to products, services or operations connected to the EU. EFRAG’s own example suggests a company could report microplastics impacts globally while reporting air pollution impacts only on an EU basis.

Supporters may see this as a proportionate solution for global businesses. The investor concern is that it may make disclosures harder to interpret and compare. If reporting boundaries vary by topic, company and geography, users of the data will need to determine not only what has been disclosed, but what has been excluded.

That matters for issues that do not fit neatly within geographic boundaries. Supply chain labour practices, biodiversity impacts, pollution and human rights risks may be connected to EU revenue or operations without being fully captured through an EU-only reporting lens.

EFRAG’s Basis for Conclusions acknowledges concerns raised during the drafting process. Members warned that the mixed approach could undermine a level playing field between EU and non-EU companies, reduce understandability and potentially obscure material impacts. One particularly striking concern is that relevant information could be lost, creating a risk of greenwashing, especially where environmental and human rights impacts cannot realistically be confined to a single geography.

The document also notes that the inclusion of the mixed approach reflects an explicit request from the European Commission.

Europe Refines Disclosure as the US Reconsiders It

Viewed in isolation, the proposal may appear to signal a weakening of the EU’s sustainability reporting ambitions. Viewed globally, it points to a wider regulatory divide.

Europe is debating how far non-EU companies should report impacts beyond their EU activities. In the United States, the Securities and Exchange Commission has stepped away from defending its climate disclosure rules, with a proposal to fully remove them currently open for consultation until 3 August.

The contrast is important. The EU remains committed to mandatory sustainability disclosure, but is narrowing scope, reducing datapoints and introducing greater flexibility over reporting boundaries. The US debate has moved closer to whether federal sustainability disclosure mandates should exist at all.

For institutional investors, both directions create challenges. Europe’s reforms may reduce reporting volume but also increase judgement about coverage and comparability. A US rollback would further limit standardisation across global capital markets. The result is fragmentation at the point when investors need more consistent information to compare issuers, assess transition exposure and support engagement priorities.

The more immediate risk is that divergence is no longer only between jurisdictions. It is also emerging within the EU framework itself, between EU reporters and non-EU companies operating in the same market.

What’s Next for ESRS-40a and Non-EU Sustainability Reporting?

EFRAG’s consultation runs until 31 October and asks whether the removal of risks and opportunities disclosures is appropriate, and whether the mixed approach can produce meaningful, decision-useful information.

EFRAG intends to finalise the standard in January 2027, after which the European Commission will consult before formal adoption.