Unlocking corporate sustainability: Demystifying ESRS/CSRD for US companies

Over the past few years, the European Union (EU) has taken significant strides in establishing sustainable reporting standards for companies operating within its member states. The primary objective of this endeavor is to regulate and enhance Environmental, Social, and Governance (ESG) practices while combating the problem of greenwashing. Notably, on November 10, 2022, the EU Parliament endorsed the Corporate Sustainability Reporting Directive (CSRD) with overwhelming support. Thus, member states have been given a period of 18 months to incorporate the directive into their respective national legislations, leading to its enforcement in 2024. Will the impact of these regulations affect US-based companies?

The EU’s CSRD

The EU’s CSRD is a new directive mandating companies to both report on and audit their ESG impact, ensuring transparency in their sustainability practices and performance. Under the CSRD, the European Sustainability Reporting Standards (ESRS) provide specific guidelines on how a company demonstrates their sustainability impact (impact materiality) and how it influences their development, performance, and position (financial materiality), double materiality.

EU member state companies are required to integrate the CSRD into their reporting standards by June 2024. Importantly, the scope of CSRD reporting encompasses the entire company, including its operations outside the EU, rather than solely focusing on subsidiaries or branches based within the EU.

Implications of the CSRD for US-based Companies

US-based companies with significant business activities in the EU will need to publish sustainability information that encompasses their entire operations. US-based companies may be obligated to comply with the CSRD if they fall into the following categories:

  1. They are listed on a regulated market in the EU.
  2. They have an annual revenue in the EU exceeding €150 million and an EU branch with net revenue over €40 million.
  3. They possess an EU subsidiary that qualifies as a large company, meeting at least two of the following criteria:

    • Having over 250 employees based in the EU.
    • Generating local revenue of more than €40 million in net sales.
    • Possessing a balance sheet total exceeding €20 million.

US-based companies that could be affected by the CSRD and are not currently treating their sustainability reporting with the same level of rigor as their financial reporting should promptly begin doing so.

Position Green’s advice for US-based companies affected by the CSRD

Position Green advises US-based companies affected by the CSRD to first evaluate how their company will be impacted. This can be achieved by conducting an assessment that compares the company’s current material topics with the CSRD’s double materiality requirements. Obtaining reliable, transparent, and comprehensive data is crucial for complying with the CSRD.

If your company is affected by the CSRD, we at Position Green recommend taking proactive measures to prepare. Our full-cycle CSRD and ESRS solution is designed to help companies achieve compliance and drive their sustainability agenda by providing actionable insights.

Read more about our full-cycle CSRD and ESRS solution.

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