ESRS for Non-EU Groups and ESRS-40a: Scope, Exemptions and Emerging Requirements

Technical status. Directive (EU) 2026/470 is final EU legislation and amended the Article 40a thresholds. EFRAG states that reporting under ESRS-40a is expected for financial years starting on or after 1 January 2028, with first reports published in 2029. The ESRS-40a text available at the review date was an Exposure Draft open for consultation from 23 July to 31 October 2026. The revised general ESRS adopted by the Commission on 3 July 2026 were not yet in force until publication in the Official Journal. Legal scope, national transposition and the final delegated standard must be rechecked for each reporting entity.

Educational material. It does not replace the applicable delegated act, national law, legal advice, professional judgement or an assurance conclusion.

A multinational group can face several sustainability-reporting obligations at the same time. An EU subsidiary may be directly in scope because of its own characteristics. An EU intermediate parent may be required to prepare consolidated reporting. A subsidiary may qualify for an exemption because a higher parent publishes compliant consolidated sustainability reporting. Separately, the ultimate non-EU parent group may fall within Article 40a because of significant EU turnover and a qualifying EU subsidiary or branch.

These routes have different reporting subjects, report locations, assurance arrangements and standards. Treating them as one “CSRD for non-EU companies” test creates three common errors:

assuming Article 40a replaces direct EU subsidiary reporting;

claiming a group exemption without satisfying publication, language, assurance and inclusion conditions; and

designing a full double-materiality ESRS statement when the proposed ESRS-40a architecture is focused on material impacts rather than the full impact-risk-opportunity model.

The practical objective is a controlled legal-entity map. For every EU subsidiary, branch and issuer, the map should record the legal route, reporting level, exemption analysis, responsible publisher, standard, reporting period, assurance requirement and status of any draft rules used for planning.

An EU subsidiary or EU parent may itself be required to report under Articles 19a or 29a. The fact that its ultimate parent is outside the EU does not remove the EU undertaking’s own legal analysis. The reporting subject is the EU undertaking or EU group, and the sustainability statement is prepared under the ESRS applicable to EU undertakings.

This route may also affect a non-EU issuer whose securities are admitted to trading on an EU regulated market. Listed-issuer analysis should therefore be performed separately from the Article 40a turnover test.

Control point: maintain a legal conclusion for each EU entity rather than one conclusion for the global group.

A subsidiary that would otherwise report may be exempt where it and, where relevant, its subsidiaries are included in consolidated sustainability reporting of a parent and the prescribed conditions are met. The conditions are not satisfied merely because the parent publishes an ESG report.

The exemption analysis should test, among other matters:

whether the parent report covers the exempted undertaking and the required reporting perimeter;

whether the parent report is prepared under ESRS or standards formally determined to be equivalent where that route is permitted;

whether the required assurance opinion is available;

whether the report, links and exemption statement are published in the required manner and language;

whether the subsidiary is excluded from the exemption because of its listing status or another specific rule; and

whether the subsidiary’s management report contains the required identification, links and exemption statement.

A group should not use “covered by the parent report” as a shorthand conclusion. Each condition should have evidence and an owner.

Article 40a is a separate reporting route for a qualifying EU subsidiary or, in the absence of such a subsidiary, a qualifying EU branch of a third-country undertaking. The EU entity publishes and makes accessible a sustainability report at the level of the ultimate third-country parent or its group.

Following the 2026 amendments, EFRAG summarises the core scope test as:

the third-country undertaking generates more than EUR 450 million net turnover in the EU in each of the last two consecutive financial years; and

it has either a qualifying EU subsidiary or a qualifying EU branch exceeding EUR 200 million net turnover in the preceding financial year.

The detailed legal test should be performed using the amended Accounting Directive and national implementation. Currency conversion, turnover definitions, group versus individual level, acquisitions, disposals and changes in the EU structure require documented judgement.

The ESRS-40a Exposure Draft proposes that EU subsidiaries or branches subject to ESRS-40a need not publish a separate ESRS-40a report where the ultimate third-country parent prepares a sustainability statement under the full ESRS applicable to EU undertakings, or in a manner formally equivalent, and the assurance and accessibility requirements are met.

This route may be attractive for groups already using one global double-materiality reporting architecture. It is not a shortcut based on self-declared alignment. The legal basis, equivalence decision, perimeter, assurance and publication conditions must all be controlled.

Figure 1. Route-by-route decision tree for non-EU groups. Original London Reporting Academy practitioner visual; legal conclusions require entity-specific review.

The EU subsidiary or branch has the publication obligation, but the report concerns the ultimate third-country parent or group. This distinction affects ownership. Local management cannot complete the report from EU-entity data alone if the reporting subject is the global group.

The project needs:

a group-level reporting owner authorised to request information globally;

local EU legal and publication owners;

a group boundary consistent with the ultimate parent’s applicable accounting requirements;

a policy for branches, joint arrangements and entities outside normal consolidation systems;

evidence-sharing arrangements that permit assurance access; and

a process for explaining unavailable information without disguising the gap.

Create a two-year EU turnover schedule that identifies:

the ultimate third-country parent;

each EU subsidiary and branch;

the source of net-turnover figures;

consolidation and elimination treatment;

currency and translation method;

acquisitions, disposals and reorganisations;

the qualifying EU publisher; and

the reviewer and approval date.

Do not leave the threshold conclusion in an email. It may need to be revisited after a restructuring, a change in the definition of turnover or a national implementation decision.

The ESRS-40a Exposure Draft reflects the legal mechanism under which the EU subsidiary or branch requests necessary information from the ultimate parent. If not all information is provided, the publisher prepares the report using information in its possession, obtained or acquired, and clearly identifies the limitation.

This is a fallback, not a project design. A group relying on it risks an incomplete report, an assurance qualification or a public statement that required information was unavailable. The preparation plan should therefore include legal access rights, data-request protocols, retention expectations and escalation to group governance.

Article 40a reporting is accompanied by an assurance opinion. The report and opinion are made accessible through the mechanisms provided by Articles 40c and 40d and national law. The group should identify early:

the intended assurance provider and applicable assurance standard;

whether the provider can access non-EU evidence and personnel;

local language and filing requirements;

website and register publication responsibilities;

the required publication deadline; and

how an unavailable assurance opinion would be described and escalated.

The Exposure Draft is useful for design, but every planning document should label it visibly as draft.

The draft describes a report covering the ultimate parent or group’s material impacts on people and the environment and how those impacts are managed. It removes the full risks-and-opportunities architecture used in general ESRS. The proposed reporting areas remain governance, strategy, management of impacts, and metrics and targets.

This means a group should not mechanically clone its EU ESRS double-materiality matrix and call the result ESRS-40a. A shared impact inventory, due-diligence evidence and data model may be reusable, but the final ESRS-40a materiality and disclosure tests must be applied separately.

The draft states that the ESRS-40a report is prepared at the level of the ultimate third-country parent or its group. The term “undertaking” in the draft generally refers to that parent or group. Systems and drafting templates should use that meaning consistently; otherwise, the report can switch unintentionally between the EU publisher and the global reporting subject.

A central consultation question is whether an undertaking may limit certain reporting to EU-related impacts rather than global impacts. The draft contains a proposed mixed approach and asks whether it is workable and decision-useful.

Preparers should model both views:

a global impact inventory for the whole reporting subject; and

a traceable EU nexus identifying impacts connected with EU products, services, operations, workers, communities, consumers and value-chain relationships.

Do not build an EU-only dataset that cannot later support global reporting if the final option changes.

The draft retains a structured disclosure logic around how material impacts are governed and managed. Group policies should be tested for actual scope. A global policy displayed on a website is not evidence that it applies to all material impacts, geographies and value-chain relationships. Actions need resources and implementation evidence. Targets need baselines, boundaries, methodologies, time horizons and progress.

The draft, like the general ESRS architecture, may require entity-specific information where prescribed disclosures do not provide the material information needed for fair presentation. The group should retain a controlled process for defining company-specific metrics and narrative disclosures rather than assuming the standard’s list is exhaustive.

Figure 2. Confirmed Article 40a legal layer versus proposed ESRS-40a disclosure layer. Original London Reporting Academy practitioner visual.

Context. Northbridge Global is headquartered outside the EU. It has an EU-listed subsidiary, a large private subsidiary that is itself an intermediate parent, and a branch in another Member State. The group exceeds the Article 40a EU turnover threshold.

Route analysis. The listed subsidiary is assessed under the direct issuer and Article 19a/29a route. It cannot assume that an Article 40a group report replaces its own obligation. The private intermediate parent tests whether it can use a consolidated exemption based on a qualifying parent sustainability statement. The branch is included in the Article 40a publisher analysis, but the legal team confirms whether the existence of a qualifying EU subsidiary changes which entity must publish.

Planning conclusion. Northbridge creates one group impact inventory and evidence platform, but three controlled reporting records. Its full ESRS statement includes impacts, risks and opportunities. The Article 40a planning module uses the draft impact-focused architecture and keeps EU-related-impact fields separate. The exemption file contains the parent report, assurance opinion, language and publication links rather than a one-line management assertion.

Limitation. The final ESRS-40a may change after consultation, and Member State implementation can affect publication mechanics. Northbridge therefore labels the ESRS-40a module “planning against July 2026 Exposure Draft” and assigns update triggers.

Illustrative wording - adapt to the applicable legal route. “The sustainability report has been prepared at the level of the ultimate parent undertaking and its consolidated subsidiaries. It is published by [EU subsidiary/branch] pursuant to the third-country reporting requirements applicable for the year ended [date]. The reporting boundary follows the Group’s applicable accounting consolidation perimeter, supplemented by upstream and downstream value-chain information where necessary to report material impacts. The Group assessed material impacts using the methodology described in section [X]. Where information requested from operations or value-chain relationships was not available, the affected disclosure, estimation method and limitation are identified in the relevant section. This report does not replace separate sustainability reporting obligations of EU entities that are not covered by an applicable exemption.”

The wording is useful because it separates publisher, reporting subject, boundary and other EU obligations. It is not a universal compliant clause and must reflect the final standard and national rules.

Starting with Article 40a before testing direct EU scope. Correct with a legal-entity route matrix.

Using one threshold memo for all EU subsidiaries and branches. Correct with entity-specific conclusions and a group reconciliation.

Treating an ESG or ISSB report as automatically equivalent to ESRS. Correct by requiring a formal equivalence basis where the law requires it.

Claiming a consolidated exemption without publishing the parent report and assurance opinion in the prescribed way. Correct with an exemption evidence checklist.

Using the EU subsidiary’s data boundary for a group-level Article 40a report. Correct by documenting the ultimate-parent/group perimeter.

Describing the Exposure Draft as a final mandatory standard. Correct with status banners and a change register.

Running a financial-materiality-only process for ESRS-40a. Correct by building an impact-focused assessment supported by due-diligence evidence.

Assuming the proposed EU-related-impact option will survive unchanged. Correct by retaining both global and EU-nexus fields.

Ignoring information-access and confidentiality constraints outside the EU. Correct with legal data-sharing, retention and assurance protocols.

Waiting until publication to appoint an assurance provider. Correct by confirming criteria, evidence locations and group access early.

Failing to re-test the exemption annually. Correct by linking the exemption to report version, assurance and current publication links.

Using Article 40a as a reason not to report material EU-entity information. Correct by testing separate entity obligations and decision-useful disaggregation.

Myth: “A single ESRS-40a report will automatically satisfy every EU sustainability-reporting obligation of a non-EU group.”

Reality: Article 40a is one route. EU subsidiaries, intermediate parents and issuers may have direct reporting obligations or may qualify for exemptions only when detailed conditions are met. One group dataset can support several reports, but legal scope, reporting subject, standards, materiality conclusions, assurance and claims remain route-specific.

Primary connections

Accounting Directive Articles 19a and 29a - individual and consolidated sustainability reporting.

Accounting Directive Articles 40a to 40d - reporting, standards, responsibility and publication for certain third-country undertakings.

Directive (EU) 2026/470 - amended scope and Article 40a thresholds.

ESRS-40a Exposure Draft - proposed detailed reporting standard for the third-country route.

Revised ESRS - potential full-ESRS route and source architecture for group systems.

Next practical materials

ESRS Reporting Boundaries: Financial Consolidation, Own Operations and the Value Chain.

ESRS Data Governance and Internal Controls: From Datapoint Owners to Assurance Evidence.

ESRS Gap Assessment: How to Compare Your Current Report with Revised Requirements.