ARTICLE | July 07, 2023

In the past year, North America has seen a surge in environmental, social and governance (ESG) regulatory development.

This activity includes the Securities Exchange Commission’s (SEC) proposed rules on climate disclosures and cybersecurity and the proposed Federal Acquisition Regulation concerning the disclosure of greenhouse gas emissions and climate-related financial risk in the U.S., as well as the Office of the Superintendent of Financial Institutions guidelines on climate risk management for federally regulated financial institutions and insurers in Canada.

These developments, however, pale in comparison to the years of regulatory changes and improvements that have occurred in Europe (specifically, the EU) over the last 20 years. The most recent of these developments, arguably the most comprehensive, is the Corporate Sustainability Reporting Directive—a significant update to the Non-Financial Reporting Directive (NFRD) adopted in 2014.

In short, the CSRD will increase the number of covered entities from 11,000 to over 50,000 in the EU and expand disclosure requirements to focus on double materiality—a concept focused on how the social and environmental factors affect a company financially, as well as how the company’s operations and strategies affect society and the environment.

Focusing on North America

The most notable change within the CSRD is the applicability of the regulation to become an international regulatory compliance standard for companies outside of the EU. There are several trigger points that would require non-EU undertakings—as they are referred to in the regulation—to report against the CSRD. The most common trigger to require CSRD reporting is by meeting two of the following three thresholds in the EU:

1. A turnover of more than €40 million
2. Assets of more than €20 million
3. Having more than 250 employees

A few other ways non-EU companies need to comply with CSRD global regulatory compliance reporting mandates are:

1. A non-EU undertaking traded on an EU-regulated market
2. A non-EU undertaking that operates within the EU and has a group-level turnover of over €150 million in the EU

Compliance dates range from as early as 2025 to 2029, depending on the category that non-EU undertakings and their subsidiaries fall under. While the NFRD’s requirements were generally met by a handful of regulations within North America, the CSRD requirements far exceed any of these requirements (and exceed the expectations of North American stakeholders, for that matter).

Consequently, it behooves North American companies to start to develop the necessary processes, procedures, controls, data systems, roles and responsibilities, and disclosure documentation to address the requirements of the CSRD as soon as possible. The scope of the CSRD’s disclosures will require organizations to take a holistic approach to prepare for compliance, independent assurance and (most importantly) real-world impact as a result of sustainable efforts.

Where can North American companies start?

Understanding if and when CSRD global compliance regulations will affect your company outside the EU can be challenging and confusing. Leveraging the experience and resources of an experienced advisor can help you implement a CSRD strategy with a framework that can identify where you may have exposure to the new standard and address any key challenges well before your necessary compliance date.

As the North American regulatory landscape changes, companies that proactively address reporting and compliance gaps aligned to leading industry ESG practices can focus their strategies and operations on driving value from their ESG and global compliance activities rather than feel the burden of increased regulatory requirements.

If you need support or advice when evaluating your CSRD compliance demands, RSM’s global compliance and reporting services and ESG advisory services teams can guide you on your journey.

“In order to meet the coming CSRD requirements, ADM was searching for RSM’s guidance as the team has extensive expertise on the subject," said Dirk Renders, Global Director, Statutory Accounting at ADM.

The RSM team verified historical financial statements to determine the scope of entities that will likely pass ESG reporting thresholds. Assessment on a country-by-country basis was made, outlining which entities will need reporting in the near future, together with the timeline implementation. We are pleased with the cooperation and professional approach of the team. 

"ADM is looking forward for RSM assistance in terms of incorporating further 2023 policies into data packs for financial reporting and submission, as well as finding a qualified auditor to provide limited assurance on the required information for reporting,” said Renders. 

Pairing leading ESG insight with global regulatory compliance reporting knowledge and experience, RSM developed the GCRS Rapid Assessment^® –a highly focused effort to enable companies in North America to understand how and when the CSRD will apply to them and then quickly map existing efforts to CSRD requirements to unveil key gaps that to address before their respective compliance dates.

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