Update: 13 December 2023

The first edition of this paper was published on 22 August 2023. Since that date, the European Commission has finalized its guidance indicating that Article 8 of the Taxonomy Regulation and the Disclosures Delegated Act apply to third-country issuers in scope of the Transparency Directive as a result of amendments made by CSRD. This paper has been updated to take this into account.

The EU’s Taxonomy Regulation entered into force on 12 July 2020. It created a framework relating to the reporting of environmental sustainability of economic activities and investments. It does this by defining various standardized criteria that economic activities and investments must meet, and which corporate performance may be measured against, in order to qualify as “environmentally sustainable.” In 2023, a new Corporate Sustainability Reporting Directive made express provisions for non-EU entities to be covered by certain specific reporting requirements under the EU’s separate Accounting Directive and Transparency Directive. Since this paper was first published, the European Commission has finalized its guidance to the effect that the Taxonomy Regulation also applies to third-country issuers with securities listed on EU-regulated markets, given that some provisions of the Transparency Directive cross-refer to the Taxonomy Regulation. However, the text of CSRD contains no express provision requiring an extraterritorial extension in scope of the Taxonomy Regulation to such persons. This publication discusses legal uncertainties in the underlying texts which result in a reasonable basis for the opposite interpretation—that the Taxonomy Regulation does not clearly apply to non-EU issuers. Unless and until there are any further developments on the matter, issuers would be well-advised to follow the Commission’s guidance, which is likely to be highly persuasive to regulators and courts.

The interplay between the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Regulation is difficult to navigate. The text of CSRD includes no express provision extending the scope of the Taxonomy Regulation to third-country issuers. Third-country issuers with securities listed on an EU regulated market are uncontroversially subject to the EU’s Transparency Directive,^[1] which governs disclosure of financial and business matters of issuers (with exemptions for certain wholesale debt issuers)^[2], and that directive was amended to include environmental reporting at least for EU issuers.

The Commission’s guidance is presumably based upon an assumption that, considering the purpose of the CSRD, it ought to have the effect of extending the scope of the Taxonomy Regulation to these third-country issuers. Such an interpretation results in significant additional obligations for relevant third-country issuers (in addition to the substantial obligations already imposed by the CSRD and the sustainability reporting standards being adopted under it). The impact on third-country issuers is likely to be disproportionately onerous, since many EU issuers have been subject to (or familiar with) the Taxonomy Regulation on a phased basis prior to the introduction of CSRD. Third-country issuers will need to become compliant in a relatively shorter time period. In our view and as will be discussed in more detail in this publication, the legislative texts, preparatory papers and recitals are at best equivocal in supporting the interpretation that the Taxonomy Regulation does not apply to third-country issuers.

The below table summarises the position in relation to third-country issuers in the context of CSRD, which is structured as a set of amendments to other existing pieces of legislation.

Non-EU companies with EU listings had raised concerns about the onerous and potentially extraterritorial nature of the EU legislative proposals concerning environmental issues, in particular those that form part of the “European Green Deal,” a package of policies with the aim of climate neutrality by 2050. For example, members of U.S. House and Senate Committees have recently written to Treasury Secretary Janet Yellen to express their concerns about “onerous extra-territorial climate mandates” imposed on U.S. businesses by the CSRD and other EU ESG legislation and the possibility that these will “significantly harm” U.S. businesses.^[3] Similar concerns have been raised in relation to the European Commission’s proposed Corporate Sustainability Due Diligence Directive (CSDDD), which is part of the Green Deal and is intended to complement the CSRD.

Nothing in this paper should be taken as arguing that the aim and purpose of CSRD and related measures as regards international commitments and public policy imperatives to improve sustainability and reduce carbon emissions are not laudable; this paper simply presents a view on the extension of certain EU legislation to non-EU companies.

CSRD

The CSRD entered into force on 5 January 2023 and introduces corporate sustainability reporting rules that will apply to certain EU and non-EU undertakings by making amendments to:

• the Accounting Directive^[4];
• the Transparency Directive^[5]; and
• the Audit Directive^[6] and the Audit Regulation.^[7]

In our note of 14 December 2022, we summarized CSRD and its scope generally. As set out in further detail in that note, the CSRD imposes corporate sustainability reporting rules on the following categories of undertaking:

(1) EU undertakings that are:

• Large;
• parents of a large group; or
• small- or medium-sized undertakings (SMEs) with securities admitted to trading on one or more EU-regulated markets.

The new sustainability reporting rules are imposed on these EU undertakings by Articles 19a (Sustainability reporting) and 29a (Consolidated sustainability reporting) of the Accounting Directive, as amended by CSRD.

(2) Non-EU undertakings with sufficient EU-generated turnover and at least (i) an EU branch with a net turnover of more than EUR 40 million; or (ii) an EU subsidiary that is large or EU-listed as described above. The obligations apply to these non-EU undertakings indirectly, since the obligations are imposed on the EU subsidiary or branch, rather than the non-EU undertaking itself.

The new sustainability reporting rules are imposed indirectly on these non-EU undertakings by Article 40a (Sustainability reports concerning third-country undertakings) of the Accounting Directive, as amended by CSRD.

(3) Certain non-EU undertakings with securities admitted to trading on one or more EU-regulated markets (e. non-EU issuers in scope of the Transparency Directive).

The new sustainability reporting rules are imposed on these non-EU undertakings by cross-references to the Accounting Directive in Article 4 (Annual financial reports) of the Transparency Directive, as amended by CSRD, which cross-refers to the sustainability reporting rules in Articles 19a, 29a and related provisions in the Accounting Directive.

Some wholesale debt issuers are exempt from Article 4 of the Transparency Directive and would therefore appear not to be within scope of the CSRD.^[8]

Since our note of 14 December 2022, the Commission has been consulting^[9] on adjusting the financial criteria for the “small”, “medium” and “large” categories referred to above:

• “Large” undertakings are currently those which, on their balance sheet dates, exceed the limits of at least two of the three following criteria: (i) balance sheet total EUR 20,000,000; (ii) net turnover EUR 40,000,000; (iii) average number of employees during the financial year of 250. The Commission proposal would increase the balance sheet and net turnover thresholds to EUR 25,000,000 and EUR 50,000,000 respectively.

• “Small” undertakings are currently those which, on their balance sheet dates, do not exceed the limits of at least two of the three following criteria: (i) balance sheet total EUR 4,000,000; (ii) net turnover EUR 8,000,000; (iii) average number of employees during the financial year of 50. The Commission proposal would increase the balance sheet and net turnover thresholds to EUR 5,000,000 and EUR 10,000,000 respectively.

If they enter into force, the Commission’s proposals would reduce the number of undertakings in scope of CSRD.

Taxonomy Regulation

The Taxonomy Regulation, which entered into force on 12 July 2020, created a framework relating to the environmental sustainability of economic activities and investments. It does this by providing for overarching criteria that economic activities and investments must meet in order to qualify as “environmentally sustainable.”

Although it was not itself amended by CSRD, the Taxonomy Regulation is closely related to CSRD. Both pieces of legislation comprise part of the European Green Deal, and there are a number of interactions between the two legislative packages. For example, there are cross-references in (i) the Accounting Directive and Transparency Directive to the Taxonomy Regulation and (ii) the Taxonomy Regulation to the Accounting Directive (as amended by CSRD).

The effect of these cross-references is that some of the undertakings in scope of CSRD reporting obligations are also required to comply with the Taxonomy Regulation, including in particular Article 8 of the Taxonomy Regulation and the delegated act (the Disclosures Delegated Act^[10]) adopted under that Article. Article 8 of the Taxonomy Regulation requires certain undertakings to disclose how and to what extent their activities are associated with Taxonomy Regulation–qualifying environmentally sustainable economic activities. The Disclosures Delegated Act prescribes the content, methodology and presentation of information to be disclosed by undertakings in scope of Article 8 concerning what proportion of their economic activities is environmentally sustainable for these purposes.

Existing Clarity in Relation to Undertakings in Scope of Article 19a, 29a and 40a of the Accounting Directive

Article 19a and 29a Undertakings in Scope of the Taxonomy Regulation

It is clear that the EU undertakings described in section (1) above of our categorization of CSRD undertakings (i.e. large, parent of a large group or listed SME) are subject to the Taxonomy Regulation. This is because the Taxonomy Regulation cross-refers to the relevant operative provisions (Articles 19a and 29a) of the Accounting Directive and expressly makes them applicable to such entities:

Article 1(2)(c), Taxonomy Regulation: “[This Regulation applies to:] undertakings which are subject to the obligation to publish a non-financial statement or a consolidated non-financial statement pursuant to Article 19a or Article 29a of [the Accounting Directive].”

Article 8(1), Taxonomy Regulation: “Any undertaking which is subject to an obligation to publish non-financial information pursuant to Article 19a or Article 29a of [the Accounting Directive] shall include in its non-financial statement or consolidated non-financial statement information on how and to what extent the undertaking’s activities are associated with economic activities that qualify as environmentally sustainable under Articles 3 and 9 of this Regulation.”

There are also provisions in the Accounting Directive itself that require such undertakings to comply with Article 8 of the Taxonomy Regulation (see Article 29d of the Accounting Directive).

Article 40a Undertakings Outside the Scope of the Taxonomy Regulation

It is also clear that the non-EU undertakings described in section (2) above of our categorization of CSRD undertakings (i.e. with sufficient EU-generated turnover and an in-scope EU branch or subsidiary) are not subject to the Taxonomy Regulation. There is no cross-reference in the Taxonomy Regulation to the relevant operative provision (Article 40a) of the Accounting Directive, nor any reference in Article 40a of the Accounting Directive to the Taxonomy Regulation. This is confirmed in the Commission’s June 2023 User Guide to Navigate the EU Taxonomy for Sustainable Activities (the “Taxonomy User Guide”), which states that “The CSRD also applies to non-EU companies with activities in the EU above a certain threshold [i.e. Article 40a companies], but Taxonomy rules will not apply to these companies.”^[11]

A Draft Commission Notice dated 19 December 2022 relating to the interpretation of the Disclosures Delegated Act under Article 8 of the Taxonomy Regulation (the Draft Commission Notice) originally stated that Article 40a undertakings would be subject to the reporting obligations in Article 8 of the Taxonomy Regulation and the Disclosures Delegated Act for financial years starting on or after 1 January 2028.^[12] This was omitted from the final version of the notice dated 20 October 2023 (the Final Commission Notice),^[13 the Commission having confirmed, in correspondence with market participants, that the Taxonomy Regulation and Disclosures Delegated Act do not apply to these non-EU undertakings.

Lack of Clarity in Relation to Third-country Issuers Subject to the Transparency Directive

This position as regards the application of the Taxonomy Regulation to third-country issuers described in section (3) above of our categorization of CSRD undertakings, i.e. third-country issuers in scope of the Transparency Directive, has been more controversial.

The cross-references in the Transparency Directive to the Taxonomy Regulation are drafted in a manner that makes them difficult to interpret. For example, under Article 4 of the Transparency Directive, management reports drawn up by issuers subject to the Transparency Directive must be drawn up:

“in accordance with Articles 19, 19a and 20, and Article 29d(1) of [the Accounting Directive], and shall include the specifications adopted pursuant to Article 8(4) of [the Taxonomy Regulation], when drawn up by undertakings referred to in those provisions.” (Article 4(5) of the Transparency Directive, first subparagraph)

“in accordance with Articles 29 and 29a and Article 29d(2) of [the Accounting Directive] and shall include the specifications adopted pursuant to Article 8(4) of [the Taxonomy Regulation], when drawn up by undertakings referred to in those provisions.” (Article 4(5) of the Transparency Directive, second subparagraph)

Under Article 4(2), issuers must then, “where appropriate,” include in their annual financial reports statements “confirming” that their management reports are “prepared in accordance with sustainability reporting standards referred to in Article 29b of [the Accounting Directive] and with the specifications adopted pursuant to Article 8(4) of [the Taxonomy Regulation]” (Article 4(2)(c), Transparency Directive).

The definition of “sustainability reporting” in the Transparency Directive (which is used in Article 4 of the Transparency Directive, the relevant parts of which are extracted above) cross-refers to the definition of that term in Article 2(18) of the Accounting Directive. That definition cross-refers only to Articles 19a, 29a and 29d of the Accounting Directive, and not to the Taxonomy Regulation.

In the absence of clear wording to the contrary and prior to the Commission’s guidance, it was a more plausible interpretation that these cross-references to the Taxonomy Regulation were intended to cross-reference the obligations for EU issuers already in scope of the Taxonomy Regulation rather than extending the scope of the Taxonomy Regulation for the first time to all third-country issuers that are in scope of the Transparency Directive.^[14]

Taxonomy Regulation User Guide

In the Taxonomy User Guide, “Use Case 12” appeared to assume that non-EU companies are not in scope of the Taxonomy Regulation:

“Use Case 12: Reporting against the EU Taxonomy for non-listed SMEs or non-EU companies. Your company is a non-listed SME or a non-EU company, therefore it will not need to comply with the Taxonomy disclosures referred to in the CSRD. How can you still use the EU Taxonomy to measure and report your impact on climate change adaptation and mitigation?”

It might be argued that the references to “non-EU companies” here are intended to refer to non-EU companies not in scope of CSRD sustainability reporting obligations at all. This User Guide should be clarified to address the position of third-country issuers as regards the Taxonomy Regulation.

Lack of Clear Wording in the Taxonomy Regulation

The Taxonomy Regulation clearly cross-refers to undertakings subject to obligations pursuant to Articles 19a and 29a of the Accounting Directive. It makes no such cross-reference to issuers in scope of the Transparency Directive. Such issuers are in scope of CSRD sustainability reporting obligations only by virtue of cross-references to the Accounting Directive in the Transparency Directive. It is suboptimal that the EU finalised a legislative package intended to drastically extend the territorial reach of the Taxonomy Regulation without clear operative provisions to that effect. The principles of legal certainty and clarity ought to mean that clear express provisions in this regard should be expected for such an inclusion.

There is an alternative interpretation, presumably now supported by the Commission, that these third-country issuers are to become indirectly subject to the obligations in Articles 19a and 29a of the Accounting Directive by virtue of the cross-references to those provisions in the Transparency Directive. However, that is difficult to reconcile with the requirement that such persons are subject to obligations “pursuant to” Articles 19a and 29a, since it is the Transparency Directive that imposes the direct obligations on these issuers. The legislation is in need of clarification.

Lack of Evidence of Intention in the Preparatory Papers

If the EU intended for the Taxonomy Regulation to apply to third-country issuers, we would expect to see some explanation, justification or discussion in the preparatory papers drafted around the time the references to the Taxonomy Regulation were negotiated. Notably, the cross-references in the Transparency Directive to the Taxonomy Regulation were not present in the original CSRD and seem to first appear in the position of the European Parliament adopted at first reading on 10 November 2022. However, none of the preparatory papers discuss any intention or proposal by any of the EU institutions to make such a novel extension of the scope of the Taxonomy Regulation. Instead, there are general references to the need merely to “align” the CSRD proposal with the Taxonomy Regulation.

No Adaptation of the Taxonomy Regulation for Third-country Issuers

It is surprising that the scope of the Taxonomy Regulation has been extended to third-country issuers, without thought to amending or adapting in any way the Taxonomy Regulation or the Disclosures Delegated Act, which might properly apply to such entities. The EU has, as discussed above, brought third-country issuers in scope of Articles 19a and 29a of the Accounting Directive in a similar manner to EU issues, but the position with regards to the Taxonomy Regulation is compounded by practical difficulties in applying the delegated act made under Article 8(4) of the Taxonomy Regulation, discussed above.

For example:

• Unlike in the Transparency Directive, there is no equivalency regime for third-country issuers provided for in the Taxonomy Regulation.
• Article 8 of the Taxonomy Regulation and the Disclosures Delegated Act differentiate between disclosures for “financial undertakings” and those for “non-financial undertakings.” These definitions would be difficult to interpret or apply as a territorial matter if the intention were to capture third-country issuers, since (i) the former refers mostly (but not exclusively) to types of financial undertaking by reference to EU-specific definitions and (ii) the latter cross-refers to undertakings subject to Article 19a and 29a of the Accounting Directive.
• The disclosure obligations in the Annex to the Disclosures Delegated Act for credit institutions seem to have been drafted broadly with EU credit institutions in mind (having not been amended by CSRD) and could be difficult for third-country credit institutions to apply if that were the intended outcome. Although there is an equivalency regime for prudential consolidation under the EU Capital Requirements Regulation, this does not apply to matters of environmental disclosure.

These shortcomings will likely create implementation headaches for third-country issuers and listing authorities.

The Case for a Broader Interpretation

European Commission Notice

The Final Commission Notice assumes the applicability of the Disclosures Delegated Act (and presumably, therefore, the wider Taxonomy Regulation regime) to third-country issuers, stating that:

“… the same phased approach described above will apply to third-country undertakings with securities listed on the EU regulated markets, due to the fact that the CSRD has also amended Directive 2004/109/EC (Transparency Directive).”

This statement was present in the Draft Commission Notice and the Commission retained it in the Final Commission Notice.

Notably, the Final Notice is not directly on point and certainly was not written to answer the question of whether the Taxonomy Regulation regime applies to third-country issuers, but a question about the timing and nature of phased implementation. The Commission has now asserted that the Taxonomy Regulation regime will apply “due to the fact that the CSRD has also amended [the Transparency Directive]”. As this note discusses above, it is far from clear that the amendments made by CSRD to the Transparency Directive are intended to, or have the effect of, extending the scope of the Taxonomy Regulation for the first time to all third-country issuers that are in scope of the Transparency Directive.

The Final Commission Notice is not legally binding; as expressly stated on the face of the notice, it is “merely intended to assist” in implementation of the law and only the Court of Justice of the European Union “is competent to authoritatively interpret Union law”. However, ultimately, the view of the European Commission is likely to be very persuasive to a Court or other body considering the matter.

EFRAG

The Commission has adopted delegated acts containing the first set of detailed sustainability reporting standards (ESRS) in accordance with Article 29b of the Accounting Directive, which requires the Commission to adopt these, taking into account technical advice from the European Financial Reporting Advisory Group (EFRAG) and other EU legislation, including the Taxonomy Regulation. The first set of ESRS, which are the standards to be used by undertakings in scope of Articles 19a and 29a of the Accounting Directive, contain the following requirement:

“113. ‘The undertaking shall include in its sustainability statement the disclosures pursuant to Article 8 of [the Taxonomy Regulation] and to the Commission Delegated Regulations that specify the content and other modalities of those disclosures. The undertaking shall ensure that these disclosures are separately identifiable within the sustainability statement. The disclosures relating to each of the environmental objectives defined in the Taxonomy Regulation shall be presented together in a clearly identifiable part of the environmental section of the sustainability statement. These disclosures are not subject to the provisions of ESRS, with the exception of this paragraph and the first sentence of paragraph 115 of this standard.

…

115. The undertaking shall structure its sustainability statement in four parts, in the following order: general information, environmental information (including disclosures pursuant to Article 8 of [the Taxonomy Regulation]), social information and governance information…’

(ESRS 1)

The explanatory note published by EFRAG in November 2022 alongside the pre-adoption drafts of the ESRS explained as follows:

“The undertakings subject to the scope of the CSRD are also obliged to disclose information required by Article 8 of the Regulation (EU) 2020/852 (Taxonomy Regulation) in conjunction with the Commission Delegated Regulation (EU) 2021/2178 …”

These statements assumed an obligation to comply with Article 8 of the Taxonomy Regulation for all undertakings in scope of CSRD, including third-country issuers.

It is expected that non-binding technical guidance on the ESRS will be published by EFRAG. It may be that the issue will be addressed in more detail in that guidance.

Separate ESRS guidance will need to be adopted in relation to non-EU undertakings in scope of Article 40a of the Accounting Directive.

References Generally to Subjecting Third-country Issuers to the “Same” Rules as EU Undertakings

Preparatory papers and recitals to CSRD cited below refer to issuers, including third-country issuers, falling under “the same sustainability reporting requirements” as EU undertakings subject to the Accounting Directive and the “extension of the sustainability reporting requirements” to issuers, “including non-EU issuers.” It can be argued that since Article 8(4) of the Taxonomy Regulation will apply to EU issuers, the same rules are intended to apply to third-country issuers:

• Recital 23 to CSRD states that these cross-references themselves impose the same obligations on third-country undertakings as those that arise for EU undertakings: “In order to ensure that undertakings whose securities are admitted to trading on a regulated market in the Union, including third-country issuers, fall under the same sustainability reporting requirements, Directive 2004/109/EC should contain the necessary cross-references to any requirement on sustainability reporting in the annual financial report.”
• The text of the Explanatory Memorandum to the CSRD proposal stated that the amendments made by the CSRD to the Transparency Directive “enable the extension of the sustainability reporting requirements to companies listed on EU regulated markets, except micro-companies, including non-EU issuers.”
• Footnote 238 to the Commission Staff Working Document (Impact Assessment) accompanying CSRD states that: “The Transparency Directive (Directive 2004/109/EC), sets out the publication requirements of the annual financial reports and mandates Member States to designate national competent authorities to supervise its legal obligations. The reference to the content of the management report, and where necessary to the separately reported non-financial information, would be clarified in article 4 of the directive. This is the same amendment by which third-country issuers would be included under the scope of the reporting requirements as described in section 5.3.3(iii).” Section 5.3.3(iii) states that non-financial disclosure requirements would be “extended to (1) EU SMEs with securities listed in EU regulated markets and (2) non-EU SMEs with securities listed in EU regulated markets, excluding micro-undertakings as defined in the Accounting Directive.”

The recitals and the preparatory papers cited above all refer merely to “sustainability reporting requirements” and not specifically to the Taxonomy Regulation. As noted above, “sustainability reporting” is defined in the Transparency Directive as relating to the reporting under Articles 19a, 29a and 29d of the Accounting Directive, which provisions are uncontroversially applied to third-country issuers.

Taxonomy User Guide

Footnote 9 to the Taxonomy User Guide referred to above (and other materials relating to CSRD) generally suggests that the scope of the Taxonomy Regulation has been extended to all undertakings in scope of CSRD, except as described in section (2) above of our categorization of CSRD undertakings:

“The Non-Financial Reporting Directive (NFRD) covered companies (including partnerships) that (i) have more than 500 employees (on average) and (ii) a balance sheet total of EUR 20 million or a net turnover of EUR 40 million in a financial year (i.e. ‘large companies’ if both conditions are met) and (iii) are EU Public Interest Entities (PIE), i.e. a traded company on a regulated market (i.e. a ‘listed company’), a banking company, an authorised insurance company or a company carrying out an insurance market activity. The Corporate Sustainability Reporting Directive (CSRD) extends this scope to all large companies (even if un-listed) and all listed SMEs (except micro-enterprises). The CSRD also applies to non-EU companies with activities in the EU above a certain threshold, but Taxonomy rules will not apply to these companies.”

Page 7 of the Taxonomy User Guide (emphasis added) also states:

“The EU Taxonomy ... is also closely linked to other EU policies related to non-financial disclosure. First, it complements the EU’s Non-Financial Reporting Directive (NFRD) or Corporate Sustainability Reporting Directive (CSRD) as companies that fall under the scope of the NFRD (or now CSRD) have a mandatory obligation to disclose alignment of their activities or investments with the criteria set out in the EU Taxonomy.”

This seems to imply that entities under section (3) above of our categorization of CSRD undertakings (third-country issuers subject to the Transparency Directive) are in scope of the Taxonomy Regulation, since they are not expressly called out as an exception. However, the User Guide is not directly on point. This wording could have arisen due to references in various communications to the Non-Financial Reporting Directive (the pre-CSRD iteration of the Accounting Directive) being used interchangeably with references to the CSRD. This would be inaccurate, since the scope of CSRD is wider than that of the Non-Financial Reporting Directive (including in particular because the former amends the Transparency Directive to extend the scope of sustainability reporting rules to third-country issuers).

Purposive Interpretation

In all likelihood, the Commission’s guidance is based on a purposive reading of CSRD, that CSRD was supposed to extend the scope of the Taxonomy Regulation to these third-country issuers, given the focus of CSRD generally on significantly extending the scope and nature of sustainability-related disclosures to be made by in-scope undertakings.

Recourse is necessary to purposive interpretations where the texts are unclear and two interpretations could be taken. It is clearly undesirable that purposive interpretative principles are necessary to assert a broad extraterritorial jurisdiction of onerous new legislation to third-country entities, in the absence of a clear express legislative provision to this effect. In our view, this point should be properly clarified in the legislation itself.

Footnotes

[1] See Article 1 and Article 2(1)(d) of the Transparency Directive.
[2] See Article 8 of the Transparency Directive, which exempts issuers exclusively of debt of at least EUR 100,000 denomination from the disclosure obligations in Articles 4 and 5 of the Transparency Directive. The references in this note to third-country issuers generally refer to third-country issuers that are not in scope of these exemptions.
[3] Letter dated June 5, 2023 from Tim Scott and James Comer to Janet Yellen
[4] Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (the “Accounting Directive”).
[5] Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (the “Transparency Directive”).
[6] Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (the “Audit Directive”). The Audit Directive is not examined in this note.
[7] Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (the “Audit Regulation”). The Audit Regulation is not examined in this note.
[8] See endnote 5.
[9] https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13912-Adjusting-SME-size-criteria-for-inflation_en.
[10] Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation (the “Disclosures Delegated Act”).
[11] The Taxonomy User Guide is practical guidance issued by the European Commission and as such is not binding, though it is of interpretative relevance
[12] Draft Commission Notice dated 19 December 2022 on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets (second Commission Notice)..
[13] Commission Notice dated 20 October 2023 on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets (second Commission Notice)..
[14] Arguably, based on the text alone, a similar lack of clarity should arise in relation to whether the cross-references to the Accounting Directive here really subject third-country issuers to the sustainability reporting rules in the Accounting Directive, or whether they are merely intended as a cross-reference to those rules to the extent that they are applicable to EU issuers in scope of both the Transparency Directive and the Accounting Directive. This uncertainty arises because the relevant definitions in the Accounting Directive, and the scope of the Accounting Directive generally, are limited to EU undertakings. However, it is possible to read the operative provisions in Articles 19a and 29a in a jurisdiction-neutral manner, and it is overwhelmingly clear and uncontroversial based on the preparatory papers to CSRD, recitals and guidance that the intent was to extend the scope of those sustainability reporting rules to third-country issuers.

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