At least 10,000 foreign companies to be hit by EU sustainability rules

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Here’s the intro from this note penned by Tim Mohin:

New research from Refinitiv this week revealed that more than 10,000 non-EU companies will be affected by the EU’s new sustainability reporting rule, the Corporate Sustainability Reporting Directive (CSRD) – about 30% of them American companies and 10% Canadian.

Most US-based public companies have been following the new climate disclosure rule from the Securities and Exchange Commission (SEC), expected to be finalized this month. While there is no way to predict the content of the SEC’s final rule, it is certain to be tied up in court for some time.

By the time the courts sort out the SEC rule, thousands of US companies will have to report even more ESG information in Europe. The reason? Like many EU policies, the CSRD applies to non-EU companies if they do business in Europe over certain thresholds (e.g., EU revenue of more than €150 million/year).

Even more interesting, the rule requires companies to report on a new set of standards that cover far more than the climate impacts in the SEC proposal. The EU standards delve into areas such as biodiversity, social issues, and supply chain management – requiring disclosure of more than 100 key performance indicators.

The EU adopted “double materiality” as the basis for their standards – which encompasses both ESG impact on financial performance as well as the impact of the company’s operations on the environment and society.

The new rules are coming quickly. After being approved in January, the first wave of companies will need to collect information next year for their 2025 reports. And all of these new disclosures must be integrated into the company’s assured financial statements.