EFRAG met on July 1 and voted to advance exposure drafts of the new ESRS for non-EU companies. Officially called the European Sustainability Reporting Standards for Third Country Groups (ESRS-TC), the new standards will apply to the global operations of in-scope companies. A recent write-up in Cleary Gottlieb’s EU Policy and Regulation Update discusses the core elements of the draft:
“The ESRS-TC will consist of 12 standards, i.e., two general cross-cutting standards, five environmental standards, four social standards and one governance standard. These will follow the ESRS’s approach to fair presentation, users of information, value chain and transitional reliefs – with a focus however on impacts rather than double materiality.”
The exposure drafts also leave some questions unanswered. Notably, the reporting scope for covered entities. Right now the draft lays out two options as discussed in the memo:
- “Global approach: Impacts are reported at the global level across all sustainability topics;
- Mixed approach: Climate-related impacts are reported globally, while reporting on all other topics is limited to EU-related impacts, provided that those impacts are managed accordingly (e.g., separate segments or products). EU-related impacts would be required to include both: (i) customer-based impacts (arising from products/services sold or provided in the EU market) and (ii) location-based impacts (arising from activities conducted within the EU).”
At the moment, the materials released by the EU are limited to a marked-up version of the exposure draft. However, a cleaner draft is expected to be released for public consultation on July 23. The EU hopes to have the final ESRS-TC approved by mid-2027, giving reporters time to review the standards before third country reporting begins in 2029 on 2028 data.
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