Thousands of American, Canadian and British companies will have to step up their sustainability reporting under European Union rules set to take effect starting in the next few years, in a regulatory effort to boost visibility on everything from companies’ greenhouse-gas emissions to gender pay differences. 

The Corporate Sustainability Reporting Directive, or CSRD, will likely require at least 10,000 companies outside the EU to make and independently verify a number of sustainability disclosures, and about a third of those are in the U.S., according to estimates by financial data firm Refinitiv provided to The Wall Street Journal. 

EU officials have estimated more than 50,000 European companies will have to report, but they haven’t said how many non-EU businesses they expect to be covered by the rules.

Newsletter Sign-up

Sustainable Business

A weekly look at environmental, social and governance issues and strategies for corporate decision makers.

The rules will apply to businesses based outside the EU including:

• Companies that have listed securities, such as stocks or bonds, on a regulated market in the European Union

• Companies that have annual EU revenue of more than €150 million, or about $163 million, and an EU branch with net revenue of more than €40 million

• Companies with an EU subsidiary that is a large company, defined as meeting at least two of these three criteria: more than 250 EU-based employees, a balance sheet above €20 million or local revenue of more than €40 million

The data from Refinitiv, which is part of

London Stock Exchange Group

PLC, indicates there are nearly 10,400 foreign companies that have an EU stock listing and more than 100 companies that aren’t listed in the EU but have more than €150 million in local revenue. Of the total number of companies Refinitiv has identified, 31% are American, 13% are Canadian and 11% are British. 

The estimates exclude foreign companies that are subject to the reporting requirements due to other conditions, such as having an EU bond listing. Additional non-EU companies will likely be bound by the rules, said Refinitiv’s director of sustainable finance, Elena Philipova. 

The CSRD’s first batch of standards is expected to be published in June, but Ms. Philipova, who was part of a recent EU experts group on sustainable finance, said she doesn’t expect the rules to be much different from those in a draft released in November. 

However, they might be trimmed back as part of an initiative European Commission President

Ursula von Der Leyen

announced in March to simplify and reduce reporting requirements across the bloc.

The draft includes 82 annual disclosure requirements, each of which can involve separate metrics and explanations. The rules include disclosures on greenhouse-gas emissions and plans aligned with the 2015 Paris agreement to reduce those emissions, as well as things like pollution entering waterways and gender pay differences. Depending on industry-specific standards that are still being developed, companies will have to report different types of data. Companies will also need to have a third party audit their data.

The European requirements will likely be more demanding than frameworks 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.

Businesses based in the EU that reported under the bloc’s previous sustainability rules must follow the new requirements from 2025. 

“EU companies already have experience of mandatory ESG disclosure requirements,” said Donato Calace, senior vice president of accounts and innovation at analytics firm Datamaran, referring to the abbreviation for environmental, social and governance. “The vast majority of U.S. companies don’t have this experience and still see ESG as a communication and PR exercise, rather than regulatory disclosure, so this process will be a steeper learning curve for them and a more difficult task.” 

Country-level regulators will enforce the rules and penalties can vary, but listed companies that don’t comply may be fined a percentage of their annual revenue in the bloc. 

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 and other public groups such as unions, according to EFRAG, formerly known as the European Financial Reporting Advisory Group, which prepared the draft standards.

Related yearly auditing costs for “limited assurance” can range from 0.013% to 0.026% of revenue, EFRAG said. Under limited assurance, auditors gather less information to validate companies’ financial reporting than they would for a full audit, a level known as reasonable assurance. The EU rules call for limited-assurance audits to start, with a goal of eventually moving to reasonable assurance.

Other sustainability reporting regulations are also set to go into effect in the next few years. The SEC is close to releasing final rules mandating that U.S.-listed companies disclose selected climate-related information including their greenhouse-gas emissions as early as 2025. 

The ISSB, under the umbrella of the influential International Financial Reporting Standards Foundation, is also finalizing its guidelines on what climate information companies should report to investors. Like with IFRS financial reporting standards, countries are free to choose to adopt the ISSB’s standards or not. The U.S., for example, hasn’t adopted IFRS, using generally accepted accounting principles instead.

Officials from leading economies including EU countries, the U.S. and Canada have encouraged the efforts by the ISSB, which is holding talks with regulators regarding adoption of its standards.

Multinational businesses could face a patchwork of requirements, if the mandatory climate reporting standards vary significantly between the standard setters. Strict EU rules have become the de facto global standard for chemicals and data privacy, but it is too early to tell if the bloc’s climate reporting will go the same way. 

Officials at standard-setters ISSB and EFRAG are meeting regularly, an effort aimed partly at helping companies avoid double reporting.

Write to Dieter Holger at

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8