The EU's Corporate Sustainability Reporting Directive (CSRD) is set to launch its initial phase in 2024. U.S. companies operating within the EU should already be taking steps to comply with these mandatory disclosure requirements.
HR Policy Global’s Take: Companies must first identify if any aspects of their operations fall under these rules, then strategize how to collect the necessary data. Notably, the EU rules are broader than those of the SEC’s in the U.S., encompassing a wider range of sustainability issues and company impacts on society. This includes collaboration with workers' representatives, addressing negative impacts on workforces and supply chains, collective bargaining coverage, diversity metrics, wage data, and other HR-related information.
U.S. companies will be affected:
- U.S. companies which have a subsidiary in the EU with over 500 employees listed on an EU-regulated market must produce a report for that subsidiary starting in 2025 for FY2024 data.
- "Large" EU subsidiaries of U.S. companies meeting at least two of these three criteria: having above 250 EU-based employees, a balance sheet exceeding €20 million, or local revenue over €40 million, must start reporting for those subsidiaries in 2026 for FY2025 data.
- Non-EU parent companies must publish a global CSRD report in 2029 for FY2028 data, using reporting standards specific to non-EU companies.
Big Picture: These reports must comply with the regulations of the EU member state in which they are published, with the specific requirements depending on the rules each member state establishes by July 6, 2024. Our partners at Jones Day Europe have outlined several common reporting mechanisms to help navigate the complexity:
- EU subgroup parent reports: If a non-EU company has a subgroup parent company in the EU, it can issue a CSRD report covering relevant EU subsidiaries and subgroups as a reporting entity, thereby exempting each "large" subsidiary and subgroup.
- Largest subsidiary reports: The CSRD allows a non-EU group to designate its largest EU subsidiary to publish the CSRD on behalf of all EU reporting companies/subgroups.
- Voluntary global report: Some companies are opting to issue early consolidated reports at the non-EU parent company level, applying EU reporting standards to the global report.
- Companies listed in the EU: Companies listed on an EU-regulated market have their own standalone reporting obligations and are regulated by the EU member state where they have listed securities.
Next Steps: HR Policy Global will collaborate with our external partners to bring key updates on this important topic.