U.S. Multinationals Need to Get Ready for the EU’s New ESG Disclosure Requirements

Although the ESG disclosures in the United States are mainly prescribed by general principles and materiality, the Securities and Exchange Commission (SEC) is planning to adopt more prescriptive and detailed ESG disclosure rules in the near future.

U.S. multinationals with operations in Europe, however, will soon be forced by the E.U.’s comprehensive new environmental, social, and governance (ESG) requirements to decide how much information to disclose and where to disclose it, according to an article by law firm Skadden, Arps, Slate, Meagher & Flom.

The new E.U. law, the Corporate Sustainability Reporting Directive (CSRD), was adopted at the end of 2022, and the standards implementing it, the European Sustainability Reporting Standards (ESRS), were released in July 2023. They both require comprehensive, detailed disclosures covering a broad spectrum of sustainability topics.

Starting on or after January 1, 2028, multinationals based outside the E.U. will need to start reporting under the detailed E.U. rules and consider how to ensure compliance. If the disclosures appear false or misleading or are inconsistent with disclosures in other jurisdictions, this could result in unexpected liability for companies whose securities are traded in the United States.

These are the anticipated issues that U.S. multinational companies would need to consider under CSRD:

• Any public disclosures required under the CSRD would be subject to the anti-fraud provisions of U.S. securities laws.
• The CSRD may mandate disclosures that are not necessarily material or otherwise required for purposes of U.S. securities laws.
• There may be conflicting disclosure requirements between the CSRD and SEC rules. If the E.U. does not recognize that they are equivalent and acknowledge that U.S. disclosures satisfy its requirements, companies will need to consider how best to meet the competing jurisdictional demands.