On 16 June 2026, EFRAG, the technical advisor to the European Commission (Commission), released an unapproved Exposure Draft of the sustainability reporting standard for non-EU groups (N-ESRS). The N-ESRS sets out the information that undertakings are required to disclose in accordance with Article 40a of the Accounting Directive, as amended by the EU Corporate Sustainability Reporting Directive (EU CSRD).
This article outlines the background to the standard-setting process, the content of the draft N-ESRS, implications for non-EU companies, and next steps.
Whilst the EU CSRD provides a high-level overview of the reporting requirements that companies within its scope will be subject to, specific information that must be reported was deferred to be set out in separate standards, to be developed by EFRAG and ultimately adopted by the Commission.
The EU CSRD confirms that these standards were to be different for: (i) EU companies and groups (including EU subsidiaries of global groups) under Articles 19a and 29a of the EU CSRD, and (ii) global group reporting under Article 40a.
The European Sustainability Reporting Standards (ESRS), initially adopted in July 2023, offer detailed reporting requirements and datapoints that EU companies and groups subject to the EU CSRD will or may need to report, in accordance with Articles 19a and 29a. EFRAG was initially tasked with developing the ESRS and produced a set of 12 standards in this regard.
In February 2025, the Commission proposed its first Sustainability Omnibus Package (the Omnibus); a set of legislative proposals intended to reduce administrative burdens for companies by amending a range of EU sustainability frameworks, including the EU CSRD. For more information on the Omnibus process, including revised thresholds and amended requirements following its finalisation, refer to this Latham article.
As part of the Sustainability Omnibus process, the Commission formally instructed EFRAG to revise the ESRS through a delegated act, with the intention of substantially reducing the reporting burden by substantially reducing datapoints and simplifying processes such as the materiality assessment. The revised standards were submitted to the Commission on 2 December 2025 and are expected to be adopted shortly following a public consultation. For more information on the revised ESRS details, see this Latham article.
For Article 40a reporting, however, a different set of reporting standards were intended to be used, reflecting the fact that Article 40a reporting was to be conducted on an impact materiality basis only (as opposed to Article 19a/29a’s double materiality focus). These standards were to be referred to as the N-ESRS.
Pre-Omnibus, no final set of N-ESRS was adopted by the Commission, and EFRAG paused work on the N-ESRS while revising the ESRS. However, now that the Omnibus process has been concluded and the Commission is close to finalising the ESRS, EFRAG resumed that work in March 2026 and released the Exposure Draft in June 2026.
As amended by the Omnibus, the scope of the EU CSRD extends to non-EU groups with an ultimate parent company outside the EU, that generate more than €450 million net turnover in the EU in each of the two consecutive financial years, and have an EU subsidiary or branch exceeding €200 million in net turnover.
The Omnibus process substantially adjusted these scoping thresholds. EFRAG estimates that this will reduce the number of non-EU companies in scope from around 10,000 pre-Omnibus to 1,200 post-Omnibus. The largest proportion of companies will have parent companies in the US, followed by the UK, together making up around half of the non-EU companies in scope.
With US parent companies estimated to make up the largest proportion of non-EU entities expected to fall within the scope of the N-ESRS, understanding how these changes may impact US companies in practice is an important concern. On June 16, EFRAG held a webinar where the Sustainability Reporting Technical Expert Group provided comments on the unapproved draft (V1) of the N-ESRS and invited public comment. Though the webinar did not specifically address the implication of the N-ESRS for non-EU entities, it provided a detailed walkthrough of technical provisions, addressing questions from participants as they arose. However, as the EFRAG due process timeline continues, additional information regarding impact on stakeholders, such as US companies, is likely to emerge more fully. Though the N-ESRS are still being developed, in-scope non-EU companies should begin to track their governance structures and data gaps in preparation for the N-ESRS finalisation expected around mid-2027.
EFRAG has stated that the simplified ESRS was used as the basis for the N-ESRS. Many aspects will follow the ESRS approach, such as the standard structure, application to the upstream and downstream value chain, and the ability to incorporate information by reference to other reports.
The N-ESRS encompasses two cross-cutting standards (N-ESRS 1 General Requirements and N-ESRS 2 General Disclosures), five environmental standards, four social standards, and one governance standard, in line with the ESRS.
One notable divergence is that whilst the ESRS adopts a double materiality approach, considering both financial and impact materiality, the N-ESRS will focus on impact materiality only. As a result, references to “risks and opportunities” have been removed from the N-ESRS. The overall objective of the N-ESRS, as set out in the Exposure Draft, is to present fairly all “material sustainability-related impacts and how the undertaking manages them”.
EFRAG has clarified that this does not specifically exclude financial information, as it may provide helpful context for the impacts.
EFRAG has outlined three reporting options for non-EU businesses:
US companies with any EU presence should begin to review their group structures to discern how the Omnibus I Directive may impact their requirements. In-scope companies should also consider whether they want to apply entity-level reporting or parent-level reporting, allowing them to potentially benefit from the subsidiary exemption.
The upcoming consultation on the N-ESRS will cover four key elements: the content of the standard and datapoints; the mixed reporting approach detailed above; interoperability with the IFRS; and references to EU laws and regulations.
EFRAG has also launched a call for interest to participate in testing the draft N-ESRS ahead of the public consultation. Companies can register their interest by 1 July 2026.
Several upcoming (tentative) dates to note are set out below:
Reporting under the N-ESRS will begin from financial years commencing on or after 1 January 2028, with the first reports due in 2029.
This article was prepared with the assistance of Samantha Banfield at Latham & Watkins.
Latham & Watkins will continue to monitor developments relating to the CSDDD and the broader European sustainability regulatory landscape.