CSRD for Non-EU Companies: The Article 40a Regime Most Groups Are Still Ignoring
If your legal or sustainability team concluded that the Omnibus "got us out of CSRD," this post is for you.
That conclusion is correct for a large number of mid-sized non-EU groups. But for any group generating more than EUR 450 million in EU net turnover - and with a qualifying EU subsidiary or branch - the Omnibus did something different: it raised the bar, narrowed the population, and pushed the deadline to 2029. It did not remove the obligation.
The regime in question is Article 40a of the Accounting Directive, inserted by the CSRD. It is a standalone reporting obligation for non-EU (third-country) parent undertakings. It is separate from the Article 19a/29a regime that applies to EU-headquartered companies. It uses different standards. It has a different filing mechanic. And right now, with EFRAG's ESRS-40a Exposure Draft open for public consultation until 31 October 2026, the standard-setting process is live.
Here is what large non-EU groups - US, UK, Swiss, Japanese, Korean, Indian - need to understand before FY2028 data collection begins.
1. The Two-Part Threshold Test
Article 40a applies when a non-EU group clears both of the following hurdles:
Limb 1 - EU net turnover at group level: More than EUR 450 million generated in the EU (individually or on a consolidated basis), in each of the last two consecutive financial years.
Limb 2 - EU foothold: The group must have either (a) an EU subsidiary with net turnover exceeding EUR 200 million in the preceding financial year, or (b) an EU branch with net turnover exceeding EUR 200 million in the preceding financial year.
Note that both routes into Limb 2 now sit on the same EUR 200 million line. EFRAG states the test as follows: third-country undertakings not listed on EU regulated markets that generate net turnover in the Union exceeding EUR 450 million in each of the last two consecutive financial years, and that have either EU branches with net turnover exceeding EUR 200 million in the preceding financial year, or are the ultimate parent of EU subsidiaries with net turnover exceeding EUR 200 million in the preceding financial year, will have to report.
The Omnibus I Directive raised the non-EU parent group turnover threshold from EUR 150 million to EUR 450 million net turnover generated in the EU, required in each of the last two consecutive financial years. The branch threshold was simultaneously raised from EUR 40 million to EUR 200 million.
EFRAG estimates that the Omnibus changes reduced the number of non-EU companies in scope by approximately 88% - from roughly 10,000 to around 1,200 worldwide.
Worked example
Consider a US-headquartered industrial group with the following EU profile:
- Group EU net turnover: EUR 600 million (FY2024 and FY2025)
- German subsidiary: EUR 250 million net turnover, 800 employees
- French branch: EUR 80 million net turnover
Does it clear the test?
| Threshold limb | Requirement (post-Omnibus) | This group | Pass? |
|---|---|---|---|
| Limb 1 - EU group turnover | > EUR 450m in EU, each of last 2 FYs | EUR 600m (FY2024 & FY2025) | Yes |
| Limb 2 - EU subsidiary | > EUR 200m net turnover (preceding FY) | EUR 250m - clears the threshold | Yes |
| Limb 2 - EU branch | > EUR 200m net turnover (preceding FY) | EUR 80m - does not clear, but not needed | No |
| Overall Article 40a scope | Both limbs must pass; Limb 2 needs only one qualifying entity | Limb 1 met; Limb 2 met via the German subsidiary | In scope |
In this example the group clears both limbs. Limb 1 is satisfied comfortably at EUR 600 million in both look-back years. Limb 2 is satisfied by the German subsidiary at EUR 250 million, which exceeds the EUR 200 million line - the French branch at EUR 80 million is simply irrelevant once the subsidiary qualifies. Limb 2 asks only whether at least one qualifying EU entity exists, not whether all of them do.
The group is therefore in scope, and must have data collection running during FY2028 for a report published in 2029.
Now change one fact: the German subsidiary is restructured and its net turnover falls to EUR 150 million. Neither the subsidiary nor the branch now clears EUR 200 million. Limb 2 fails and the group drops out of scope - even though group EU turnover is unchanged at EUR 600 million.
That asymmetry is worth dwelling on. Limb 1 moves slowly and predictably with group revenue. Limb 2 can flip on a single intra-group reorganisation, a carve-out, or a change in how EU revenue is booked between entities. Borderline groups are usually won and lost on Limb 2, and it needs to be monitored by whoever owns legal-entity structure, not only by the sustainability team.
The two-year look-back on Limb 1 is also easy to misread. Both years must independently exceed EUR 450 million. A group that dipped below the line in one year is not in scope for that cycle - but should keep monitoring, because a single strong year can re-trigger the obligation.
There is no employee headcount threshold under Article 40a. Unlike the EU undertaking regime (which requires both >1,000 employees AND >EUR 450m turnover), the non-EU parent test is purely turnover-based. A capital-light group with few EU employees but large EU revenues can still be fully in scope.
2. Who Actually Files - and Who Bears the Risk
This is the single most misunderstood mechanic of the Article 40a regime, and it matters for governance and enforcement planning.
The non-EU parent prepares the sustainability report. The report covers the entire consolidated group - not just EU activities. But the EU subsidiary or branch is the entity that publishes and files it, and that entity is the one legally on the hook under national enforcement.
If a third-country undertaking falls within the scope of Article 40a, one of its EU subsidiaries that would be within the scope of the CSRD in its own right, or a large EU branch, will have to publish and make accessible a sustainability report on behalf of its third-country parent undertaking.
As EFRAG's Basis for Conclusions Document clarifies, the reporting boundary extends to the entire group of the ultimate third-country parent - meaning compliance with ESRS-40a will in practice require a coordinated, group-wide effort, even if the formal obligation rests with a single EU entity.
In practical terms, this creates a split responsibility that groups need to govern explicitly:
- The parent owns data collection, materiality assessment, and report preparation - across its global operations.
- The EU subsidiary or branch owns publication, filing with the relevant national register, and regulatory exposure if the report is late, incomplete, or non-compliant.
Article 40a requires that at least one sustainability report be disclosed by one subsidiary or branch in each Member State. To avoid double reporting, Member States may allow one subsidiary or branch to comply by providing a link to the sustainability report published by another Union subsidiary or branch of the same third-country undertaking.
The practical implication: if your group has subsidiaries in Germany, France, and the Netherlands, you need to decide which entity leads the filing - and document that decision clearly. The German GmbH that signs off on the filing is the entity that faces German enforcement action if something goes wrong.
3. Which Standard Applies - ESRS-40a, Full ESRS, or Equivalence
Non-EU groups in scope have three routes:
| Route | Standard | Materiality basis | EU subsidiary exemption? | Key trade-off |
|---|---|---|---|---|
| Route A (default) | ESRS-40a (formerly N-ESRS) | Impact only — no double materiality | No — subsidiaries must still file separately under Art. 19a/29a if individually in scope | Lighter parent-level burden, but may create parallel subsidiary filings |
| Route B (voluntary) | Full ESRS (2026 revised) | Double materiality (impact + financial) | Yes — qualifying EU subsidiaries included in the consolidated report are exempt from standalone filing | Higher parent-level burden, but can eliminate subsidiary-level duplication |
| Route C (future) | Commission-deemed equivalent standard (e.g. ISSB-based national standard) | Depends on equivalence decision | Conditional on equivalence scope | No equivalence decisions adopted yet; timeline uncertain |
ESRS-40a: lighter, but not light
EFRAG has published working papers of its sustainability reporting standards for non-EU parent entity reporting. These standards were initially designated "N-ESRS" and are now formally called ESRS-40a, in contrast to the ESRS applicable to EU-organised entities.
Following a request from the European Commission, EFRAG developed the ESRS-40a Exposure Draft, issued for public consultation on 23 July 2026 and open for 100 days until 31 October 2026. The feedback received will contribute to the finalisation of EFRAG's technical advice to the European Commission, expected in early 2027. The Commission is then expected to launch its own consultation before adopting the standard via a delegated act.
The most structurally important difference from the EU ESRS is the materiality basis. Whilst the ESRS adopts a double materiality approach - considering both financial and impact materiality - ESRS-40a focuses on impact materiality only. Disclosures regarding identification of climate-related risks and scenario analysis, resilience in relation to climate change, and anticipated financial effects from material physical and transition risks are deleted entirely from ESRS-40a.
ESRS-40a would allow reporting to be limited to EU-related impacts for topics other than climate change, if certain conditions are met. Climate impacts must be reported at the global level regardless.
EFRAG's Basis for Conclusions confirms that non-EU groups benefit from the same phased-in transitional provisions as EU companies reporting under the standard ESRS for the first time. Value chain data gaps are excused for the first three years, provided that companies explain what they tried to do and how they plan to close those gaps.
The subsidiary exemption calculus
Filing under ESRS-40a does not exempt qualifying EU subsidiaries from their own standalone CSRD reports under Articles 19a or 29a. A non-EU group with multiple large EU subsidiaries may therefore end up with both a parent-level ESRS-40a report and separate subsidiary-level ESRS reports - a parallel compliance burden that negates some of the simplification benefit.
A non-EU parent may instead voluntarily produce a group-level consolidated sustainability statement under the full ESRS. Doing so activates the subsidiary exemption: qualifying EU subsidiaries included in the parent's consolidated ESRS report are relieved of their own standalone filing obligations. For groups with several large EU subsidiaries, the voluntary ESRS pathway may reduce total reporting volume despite the higher parent-level disclosure requirements.
This is a genuine strategic choice - and it needs to be made early, because it determines system design, data architecture, and the scope of the materiality assessment.
4. The Mixed-Approach Trap
The ESRS-40a Exposure Draft introduces what EFRAG calls a "mixed approach": for topics other than climate, non-EU groups may choose to report either on a global basis or limit disclosures to EU-related impacts only.
The mixed approach allows non-EU companies to report on impacts, other than those related to climate, either on a global basis, or limited to "EU-related impacts" - reporting only on impacts of products or services sold in the EU or on the impacts of the company's activities in the EU.
This sounds like a simplification. In practice, it creates a boundary problem - and EFRAG itself is not entirely comfortable with it. Ahead of the consultation, EFRAG SRB Chair Kerstin Lopatta wrote to the European Commission recording the Board's reservations about the mixed approach and clarifying that it reflects a request from the Commission rather than EFRAG's own preference. That letter is published on EFRAG's consultation page, and it is a signal that this element of the draft may yet move.
Groups that already report under ISSB-based frameworks (IFRS S1/S2) or GRI at the global level will be tempted to layer EU-specific disclosures on top of their existing reports. But the frameworks are not interchangeable. Differences in materiality, calculation methodology and reporting boundaries, particularly where a non-EU group applies the mixed approach, may leave gaps for non-climate indicators.
The specific risks:
- Materiality mismatch. ISSB uses financial (investor-focused) materiality. ESRS-40a uses impact materiality. A topic that is not financially material under ISSB may still be impact-material under ESRS-40a - and therefore required to be disclosed.
- Boundary mismatch. A group reporting EU-only impacts under the mixed approach must define "EU activities" consistently across all topics. That definition is not trivial for integrated supply chains.
- Calculation methodology. GHG accounting under GHG Protocol and ESRS E1 are broadly aligned but not identical - particularly for Scope 3 categories and the treatment of biogenic emissions.
The safest approach is to decide your standards route before you design your data collection system - not after. Retrofitting an ISSB-aligned system to produce ESRS-40a-compliant outputs is significantly more expensive than building for ESRS-40a from the start.
5. The Overlooked Earlier Obligation: EU Subsidiaries in Their Own Right
Many non-EU groups have a CSRD obligation that predates 2029 — and they don't know it.
An EU subsidiary of a non-EU parent may itself be individually in scope under Article 19a or 29a of the Accounting Directive if it exceeds both more than 1,000 employees AND more than EUR 450 million net turnover on a standalone or consolidated (subgroup) basis. This obligation applies from FY2027, with first reports published in 2028 — a full year before the Article 40a deadline.
If your German or French subsidiary clears both thresholds, it has its own CSRD obligation right now, regardless of what the parent group does.
EU-based subsidiaries of non-EU groups meeting the revised CSRD thresholds are required to prepare a sustainability statement, either for the entity under Article 19a or for a subgroup under Article 29a of the CSRD.
This may be an additional obligation that does not absolve EU-based subsidiaries that fall within the scope of Articles 19a or 29a CSRD from publishing required sustainability statements.
The interaction between the two obligations is important, and note that the two tests are genuinely different. The Article 40a subsidiary test is a EUR 200 million net turnover threshold used only to establish the parent's EU foothold. The Article 19a/29a test is a separate, higher bar: more than 1,000 employees and more than EUR 450 million net turnover. A EUR 250 million German subsidiary can therefore trigger its parent's Article 40a obligation while having no CSRD obligation of its own.
If the non-EU parent chooses to report under the full ESRS (Route B above), a qualifying EU subsidiary can be exempted from its standalone filing. But if the parent reports under ESRS-40a (Route A), the subsidiary's own Article 19a/29a obligation remains - and that obligation requires double materiality, not just impact materiality.
Groups with large EU subsidiaries should run the Article 19a/29a threshold test now, separately from the Article 40a analysis. These are two distinct legal obligations with different thresholds, different timelines, different standards, and different filing entities.
See our post on CSRD scope thresholds after the Omnibus for the full EU undertaking threshold analysis.
6. The 2026-2027 Action Checklist
The ESRS-40a Exposure Draft consultation closes 31 October 2026. EFRAG's technical advice to the Commission is expected in early 2027. The Commission will then run its own consultation before adopting the standard as a delegated act. First mandatory ESRS-40a reports cover financial year 2028, with filing due in 2029.
That timeline is tighter than it looks. FY2028 data collection must be running from 1 January 2028. For Scope 3 and value chain data - which require supplier engagement and methodology alignment - you need to be collecting in FY2027 so that FY2028 is not your first year of data.
Pull EU net turnover figures for FY2024 and FY2025 at group level. Identify all EU subsidiaries and branches and their individual net turnover. Apply the Article 40a test: >EUR 450m group EU turnover in both years, plus at least one EU subsidiary OR EU branch above EUR 200m net turnover in the preceding financial year. Document the analysis and the data sources.
For each EU subsidiary or subgroup, check whether it exceeds 1,000 employees AND EUR 450 million net turnover on a standalone or consolidated basis. If yes, that entity has its own CSRD obligation from FY2027 - independent of the parent's Article 40a position. Assign ownership now.
If the group is in Article 40a scope, identify the EU subsidiary or branch that will publish and file the report. Consider which jurisdiction's enforcement regime you are most comfortable with. Document the governance structure: who at the parent prepares, who at the EU entity signs off and files.
Choose between ESRS-40a (Route A), full ESRS (Route B), or monitoring equivalence (Route C). If you have multiple large EU subsidiaries, model whether the subsidiary exemption under Route B produces a net reduction in total group reporting burden. This decision drives data architecture, system selection, and materiality assessment scope.
EFRAG has explicitly invited non-EU stakeholders to respond. The mixed-approach boundary definition, the treatment of value chain data, and the interoperability with ISSB are all open questions. Groups that engage now can shape the final standard. The consultation is at efrag.org.
Value chain data gaps are excused for the first three years under ESRS-40a transitional provisions - but only if you can demonstrate you tried to collect the data and explain how you plan to close the gap. Starting collection in FY2027 means FY2028 is year two of collection, not year one. That is a materially better position at audit.
EFRAG's technical advice is expected in early 2027, followed by a Commission consultation before adoption of ESRS-40a as a delegated act. Equivalence decisions for third-country standards (e.g. ISSB-based national frameworks) have not yet been made. Groups relying on Route C should treat it as a contingency, not a plan.
What the Omnibus Actually Did to Article 40a
To close the loop on the opening misconception: the Omnibus I Directive made three changes to Article 40a.
- Raised the group EU turnover threshold from EUR 150 million to EUR 450 million - a threefold increase.
- Raised the EU branch threshold from EUR 40 million to EUR 200 million - a fivefold increase.
- Set the EU subsidiary test at EUR 200 million net turnover in the preceding financial year, putting the subsidiary and branch routes into Limb 2 on the same line.
These changes removed approximately 88% of previously in-scope non-EU groups. But the groups that remain are, by definition, among the largest non-EU groups operating in the EU. If your group generates EUR 600 million in EU revenues and has a German subsidiary above EUR 200 million, the Omnibus did not help you. It confirmed your obligation, clarified the standard-setting timeline, and started the clock on FY2028 data collection.
The ESRS-40a Exposure Draft is live. The consultation closes 31 October 2026. The standard will be finalised during 2027. FY2028 begins in under 18 months.
Related reading:
- Are you still in scope for the CSRD? The new thresholds, decoded
- CSRD Reporting Deadlines After the Omnibus: Your Wave-by-Wave Timeline
- ESRS vs ISSB vs GRI: The ESG Reporting Frameworks Compared
This article is guidance to help you understand the Article 40a regime. It is not legal advice. Confirm specifics against the primary sources - including the EFRAG ESRS-40a consultation page - and seek qualified advice before relying on any conclusions for your own compliance decisions.
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