CSRD Article 40a: Non-EU Parents Are Caught by Turnover

A Japanese group with European subsidiaries reads the Omnibus and concludes it is finished with CSRD. The thresholds went up. The Dutch subsidiary employs 300 people. No entity in the group employs 1,000 people inside the Union. The file closes.

Article 40a uses a different test. It does not ask how many people the group employs in Europe. It asks how much the group sells there.

The test the Omnibus did not remove

Article 40a was inserted into the Accounting Directive, Directive 2013/34/EU, by the CSRD. It places a sustainability reporting duty on undertakings governed by the law of a third country when their European business is large enough. The Omnibus I directive, Directive (EU) 2026/470, raised the numbers. It kept the article.

After the Omnibus the trigger reads as follows. A third-country undertaking not listed on an EU regulated market is in scope when it generates net turnover in the Union above €450 million in each of the last two consecutive financial years, and when it either has EU branches with net turnover above €200 million in the preceding financial year, or is the ultimate parent of EU subsidiaries with net turnover above €200 million in the preceding financial year (EFRAG).

Now put the two entry tests next to each other. An EU company enters CSRD scope only with more than 1,000 employees and more than €450 million turnover (our Omnibus explainer). A third-country parent enters on turnover alone. The third-country trigger carries no headcount requirement at all (A&O Shearman).

A Tokyo head office can sit below every employee threshold in Europe and still be in scope. Turnover alone can trigger Article 40a.

The duty to prepare and the duty to publish sit in different entities

The sustainability report is prepared at group level, by the non-EU parent. The obligation to publish it and make it accessible sits with the EU subsidiary or the branch (PwC Viewpoint).

For a Japanese group that split is easy to get wrong in planning. Almost all the work happens in Tokyo. The entity answering for a missed deadline is a European subsidiary with no sustainability team.

The first reporting year is 2029

EFRAG states the position plainly: the first sustainability statements under Article 40a are required to be published in 2029, based on financial year 2028. PwC reads the same rule as applying to financial years beginning on or after 1 January 2028.

Set that against the other two clocks a Tokyo group is already running.

In-scope EU companies report in 2028, on financial years starting on or after 1 January 2027. Japan starts earlier still: SSBJ is mandatory for Prime-listed companies above ¥3 trillion market capitalisation for the fiscal year ending March 2027, above ¥1 trillion from 2028, and above ¥500 billion from 2029 (our SSBJ roadmap).

SSBJ reporting starts before the 2029 Article 40a report, and an in-scope European subsidiary may report between them. Separate systems would make the group build the same data base three times.

The standards are separate, and they are still a draft

CSRD provided for separate standards for third-country undertakings, and EFRAG has been developing them since 2024. The project was renamed in June 2026 from ESRS for Non-EU Groups to ESRS-40a. EFRAG issued the exposure draft on 23 July 2026 and ran a public consultation for 100 days, from 23 July to 31 October 2026.

The European Commission has not adopted them. Everything written about their content, here included, describes an exposure draft that can still change.

ESRS-40a asks for impact materiality. It leaves out the financial effects of sustainability matters, climate-related risks, scenario analysis and resilience (PwC In depth). A group that has already done a double materiality assessment for a European subsidiary will find half of it unused here, and the other half reusable.

A reporting entity can cover impacts for the entire non-EU group, or take a mixed scope: climate for the whole group, other topics limited to EU-related impacts, meaning European operations and products sold into EU markets. EFRAG’s Sustainability Reporting Board approved the exposure draft for consultation while recording reservations about this approach, and said it reflects a request from the European Commission (EFRAG).

The cap that protects small undertakings from information requests under the revised ESRS does not appear in ESRS-40a. EU Taxonomy reporting applies only to listed non-EU groups (PwC In depth). A Japanese group’s Asian suppliers therefore sit outside the European protection its Dutch subsidiary relies on.

An EU subsidiary is released from its own ESRS reporting only when the parent reports under the full ESRS or an equivalent standard. Reporting under ESRS-40a does not carry that exemption (PwC In depth). A group that picks the lighter document at the top may keep the full one at the bottom.

PwC estimates roughly 1,200 non-EU undertakings will qualify, most of them from the United States and the United Kingdom. That is an estimate, not a register, and it says nothing about whether any particular Japanese group is among them.

What a Tokyo head office can map now

Start with consolidated EU turnover for the last two years. This is a finance question, not a sustainability question, and the answer already exists somewhere in the group. Compare the net turnover generated in the Union against €450 million.

Then identify every EU subsidiary or branch that clears €200 million. Whether that threshold is measured at the level of a consolidated EU sub-group is not settled in the text, and member states may read it differently (A&O Shearman), so identify the candidates rather than one answer.

The group also needs a provisional choice between full ESRS and ESRS-40a. That choice decides whether European subsidiaries keep their own reporting obligation.

Both regimes will describe the same emissions from the same factories. The SSBJ reporting entity follows the consolidated financial statements, and our dual-reporting guide covers where the two datasets meet and where they genuinely diverge.

ESRS-40a wants impacts. SSBJ and IFRS S2 want risks and financial effects. They draw on the same underlying data. Separating the teams is how a group ends up with two numbers for one factory.

What is not settled

The Commission has not adopted ESRS-40a, so its content, its datapoint list and the mixed approach can all move. National transposition of the Omnibus is due by 19 March 2027, and the €200 million sub-group question may be answered differently in different member states. The revised ESRS themselves were only adopted on 3 July 2026 and apply to financial years beginning on or after 1 January 2027, which is why the datapoint remapping is still working through most groups.

The turnover test is already knowable. A Tokyo group can calculate it now. Until it does, it does not know whether Article 40a applies.

The free CSRD readiness check takes about three minutes. It covers the dimensions an assurance provider will test: socious.io/csrd-check.

Socious Report takes one dataset into AI-drafted CSRD, SSBJ and ISSB reports, then adds an independent Socious Verify credential.