New EU rules to increase sustainability reporting for thousands of American, Canadian and British companies

Starting in the next few years, the European Union will require thousands of American, Canadian, and British companies to step up their sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). This regulatory effort aims to increase visibility on aspects ranging from companies’ greenhouse-gas emissions to gender pay differences. Financial data firm Refinitiv estimates that at least 10,000 companies outside the EU will have to make and independently verify several sustainability disclosures. More than 50,000 European companies will also have to report, but EU officials have not disclosed how many non-EU businesses will be covered by the rules.

The first batch of standards is expected to be published in June, and companies will need to report different types of data, depending on industry-specific standards that are still being developed. The rules include disclosures on greenhouse-gas emissions, plans aligned with the 2015 Paris agreement to reduce those emissions, pollution entering waterways, and gender pay differences. Companies will also need to have a third party audit their data.

The European requirements are likely to be more demanding than those being developed by the U.S. Securities and Exchange Commission and the International Sustainability Standards Board. Unlike those two sets of standards, the latest EU draft requires companies to include information important from a sustainability perspective, even if it is financially immaterial.

Foreign companies with EU listings will need to start reporting these disclosures in 2025 if they have more than 500 employees in the EU. The rules go into effect in 2026 for other large non-EU companies with EU listings and in 2027 for small and midsize enterprises with EU listings. Foreign companies not listed in the EU but subject under other criteria have until 2029 to make disclosures.

While administrative costs to report can range from 0.004% to 0.008% of a company’s yearly revenue, depending on their industry and what information they consider relevant to their investors, related yearly auditing costs for “limited assurance” can range from 0.013% to 0.026% of revenue. Penalties for listed companies that do not comply with the rules may include being fined a percentage of their annual revenue in the bloc.