EU Investor Groups Challenge Weaker Sustainability Reporting Rules for Non-EU Companies

Why the reporting boundary matters

A proposed option for non-EU companies to report only selected impacts tied to the EU could leave investors with an incomplete picture. The EU Platform on Sustainable Finance (PSF) and investor association Eurosif are urging the European Financial Reporting Advisory Group (EFRAG) to remove that option from draft sustainability reporting standards, warning it could weaken comparability and hide serious impacts beyond Europe. The disagreement is about where companies draw the reporting boundary, and whether investors can interpret disclosures consistently when that boundary changes from one topic to another.

For investors, sustainability reporting is useful only if it gives enough context to judge a company’s effects across its business. A geographically limited account might answer questions about activity connected to the EU while leaving other impacts out of view. That creates a practical problem: a narrower disclosure can look complete on its own, even when it doesn’t describe the company’s wider footprint.

A narrower scope for non-EU companies

EFRAG’s consultation concerns ESRS-40a, a draft set of European Sustainability Reporting Standards for certain non-EU companies covered by the EU’s Corporate Sustainability Reporting Directive (CSRD). The standards set out sustainability reporting requirements under the directive, which began applying in 2024. Large non-EU companies operating in the EU are scheduled to begin reporting under the third-country standards in 2029, covering the 2028 financial year. That timetable gives companies time to prepare, but it also means the scope question is being settled well before these disclosures are due.

Released in July 2026, the proposal focuses on companies’ sustainability impacts. That narrows the broader ESRS scope, which also covers sustainability-related risks and opportunities. The distinction matters: impacts describe how a company affects people and the environment, while risks and opportunities concern how sustainability issues may affect the company. A standard centered on impacts still needs a clear boundary if users are to understand what the reported picture includes.

For impacts other than climate-related ones, the draft offers what it calls a “mixed approach.” Companies could report their impacts worldwide or limit disclosures to “EU-related impacts”: those linked to products or services sold in the EU, or to company activities within the bloc. This gives companies a choice in how far they look across their operations and markets. But when reporting boundaries differ, two disclosures may be difficult to compare even if they address the same subject.

EFRAG’s accompanying “Basis for Conclusions” records objections from members. They argued that different geographic scopes across topics could make disclosures harder to understand, and questioned whether companies could reliably separate EU-related impacts. They also warned the approach could undermine a level playing field with EU companies. One concern was that “Relevant information may be lost, with a consequential risk of greenwashing,” particularly for human rights and environmental impacts that cannot always be confined to one region.

This is more significant than it looks. Human rights and environmental effects can involve connected activities across borders, so assigning an impact to one market may not capture how it arose or who is affected. If you're working in this space, the key question is whether a geographic limit can be applied consistently enough to produce disclosures that remain useful. The draft’s own recorded objections suggest that answer isn’t settled.

Investor groups warn of information gaps

The PSF says the mixed approach would reduce the comparability, usefulness and reliability of sustainability information, while creating different transparency expectations for EU and non-EU companies. It also warns that separating impacts by geography could add reporting complexity and cost, obscure serious environmental and human rights harms outside the EU, and make the information less useful to investors. The argument is that a narrower scope could require more explanation and judgment, while still giving users less visibility into the company’s impacts.

Eurosif raises similar concerns: disclosures could be incomplete or misleading, investors might incur added costs to fill information gaps, and inconsistent reporting could make company data more difficult to use. In its view, the approach would also give EU and non-EU companies different transparency obligations. Investors comparing companies need to know not just what a disclosure says, but also what it leaves outside its boundary.

Here's the thing: a choice between global reporting and an EU-focused account may seem flexible, but flexibility can shift the burden onto the reader. Investors may have to work out which impacts are included, how companies made the distinction, and whether the omissions matter to the comparison at hand. And this is the part most people overlook: more disclosure pages don’t necessarily mean more comparable information if each company applies a different geographic frame.

Both groups also object to the draft’s omission of EU Taxonomy-related disclosures. Without that data, financial market participants may have difficulty meeting their own disclosure obligations. The PSF and Eurosif recommend allowing non-EU companies to provide the information voluntarily. That recommendation would make the data available where companies choose to report it, but voluntary provision could leave users with uneven coverage.

What the final standards could signal

The responses put the focus on whether the final standards will give investors a comparable view of companies’ impacts across borders. The decision will also shape how much work investors must do to interpret gaps between disclosures, and whether non-EU companies’ reporting can be read alongside information from EU companies on a consistent basis. A clear scope would help users understand what a company has reported; a choice of scopes may require them to account for differences before making comparisons.

That said, the consultation record captures concerns and recommendations, not a final resolution. EFRAG’s next step is to weigh those comments as it develops the standards. The central trade-off is plain: a geographically limited option may narrow the reporting task for companies, while making it harder for investors to assess impacts that cross borders or fall outside EU-linked activity. The numbers here are underwhelming in one sense: the debate offers no shortcut to comparability. Clear boundaries and consistent disclosures still have to do the work.

A reporting boundary is only useful if readers can see where it sits and what it excludes. For investors, the practical test will be whether the resulting disclosures make those limits clear enough to assess a company’s impacts, rather than asking users to infer what the report leaves out. A short fragment, then: Scope matters.

EFRAG’s consultation responses are available from the PSF and Eurosif.