EFRAG Proposes ESRS-40a for Certain Non-EU Groups

EFRAG has opened consultation on draft ESRS-40a, the proposed sustainability reporting standards for certain non-EU groups with significant EU turnover. The draft focuses on impacts, requires group-level reporting and allows non-climate disclosures to be limited to EU-related impacts.

Article 40a of the Accounting Directive requires certain EU subsidiaries and branches of non-EU groups to publish and make accessible a sustainability report on the material impacts of their ultimate third-country parent or group on people and the environment. EFRAG has published the ESRS-40a Exposure Draft, specifying what those reports would cover and how they would be prepared.

A Draft Standard Under Article 40a

On 23 July 2026, EFRAG launched a 100-day public consultation open to stakeholders within and outside the EU. Comments are due by 31 October 2026. EFRAG expects to submit its final Technical Advice in January 2027, after which the European Commission will conduct its own public consultation before adopting a delegated act.

The standards now designated as ESRS-40a were previously referred to as Non-EU ESRS (N-ESRS) and ESRS for third countries (ESRS-TC). EFRAG also plans to publish a Cost-Benefit Analysis in mid-August 2026 to support feedback on the expected costs and benefits of the proposals.

The first reports under the future ESRS-40a are expected to cover the 2028 financial year and be published in 2029.

Scope and Reporting Level

An EU subsidiary or branch would publish an ESRS-40a sustainability report where its net turnover exceeds EUR 200 million in the preceding financial year, its ultimate parent is governed by third-country law, and the parent or group generated more than EUR 450 million of net turnover in the EU in each of the previous two financial years.

The publication duty sits with the EU subsidiary or branch, but the report is prepared at the level of the ultimate third-country parent or group. A separate ESRS-40a report is not required where the ultimate parent reports under the full ESRS or in a manner that the European Commission has formally determined to be equivalent to ESRS, provided that the applicable assurance and accessibility requirements are met.

Impact Materiality Sets the Content

Taken as a whole, the report is intended to present fairly the parent or group’s material sustainability-related impacts and how they are managed, and to provide decision-useful information to users. Across material topics, disclosures cover governance, strategy, the management of impacts through policies and actions, and metrics and targets.

The assessment covers actual and potential, positive and negative impacts connected with the undertaking’s own operations and its upstream and downstream value chain, including through its products, services and business relationships. These business relationships are not limited to direct contractual relationships.

The undertaking may assess impact materiality using a top-down approach, a bottom-up approach or a combination of the two. A top-down assessment starts from the undertaking’s strategy, business model, sectors, geographies and value chain, while a bottom-up assessment starts at the level of individual impacts. The two approaches may be combined across different topics.

Actual negative impacts are assessed based on severity, considering scale, scope and irremediable character. Potential negative impacts are assessed based on severity and likelihood; for potential human rights impacts, severity takes precedence. Actual positive impacts are assessed based on scale and scope, while potential positive impacts are assessed based on scale, scope and likelihood. Positive impacts cannot be netted against negative impacts.

The results of engagement with affected stakeholders conducted through due diligence are a key input to the assessment.

Disclosure requirements and datapoints are subject to information materiality, with entity-specific disclosures required where the standards do not provide sufficient granularity.

ESRS-40a Compared With Full ESRS

ESRS-40a retains the same overall architecture as the full ESRS, comprising two cross-cutting and ten topical standards. However, the full ESRS and ESRS-40a differ in their materiality approach, reporting structure and reporting boundary.

The full ESRS apply double materiality and require reporting on material impacts, risks and opportunities. ESRS-40a applies impact materiality only. Requirements linked exclusively to financial materiality, including anticipated financial effects and resilience analysis, are therefore not included.

Although ESRS-40a does not require disclosures on the financial effects of sustainability matters, it still requires information on the resources committed to managing material impacts. This includes significant current and planned operating and capital expenditure for key actions and the climate transition plan.

ESRS-40a is therefore narrower than the full ESRS in its reporting lens, but it is not a simplified local report.

Global Reporting Boundary and the EU-related Impacts Option

By default, an ESRS-40a report covers the same group of entities as the ultimate parent’s consolidated financial statements.

For non-climate topics, the undertaking may limit reporting to EU-related impacts arising from its activities in the EU or from products and services sold or provided, or reasonably assumed to be sold or provided, in the EU market. Such impacts may occur outside the EU. The option may be applied at the level of a topic, sub-topic or group of impacts where the relevant impacts can be separately identified and faithfully represented.

Material climate-related impacts must be reported for the global group. Where the EU-related impacts option is used, the report must explain the methodology, assumptions and inputs used to determine the boundary, together with the accuracy of the resulting estimate. If climate change is assessed as not material and ESRS E1 is omitted, the undertaking must explain that conclusion.

Phase-ins and Assurance

Comparative information may be omitted in the first reporting year. All disclosure requirements under E4, S2, S3 and S4 may be omitted for the first two reporting years. Where any of these topics are material, the undertaking must still provide brief information on its strategy and business model, policies, actions, targets and relevant metrics.

Quantitative information on substances of concern may be omitted for three years. Specified S1 disclosures have a one-year phase-in, as does information on substances of very high concern where the undertaking uses articles containing them. During the first three years, missing value-chain information requires an explanation of the efforts made, reasons for the gap and plans to address it.

The report must be accompanied by an assurance opinion. The EU subsidiary or branch must request the necessary information from the ultimate parent. If the parent does not provide all of it, the subsidiary or branch must publish the information available and identify what is missing. Absence of the assurance opinion must also be disclosed, without removing the assurance requirement.

ESRS-40a narrows the reporting lens to impacts, but it still requires a defensible reporting boundary across a global group and its value chain.