Home ESG Must US Companies Comply with EU’s Taxonomy Regulation?

Must US Companies Comply with EU’s Taxonomy Regulation?

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The EU’s Corporate Sustainability Reporting Directive (CSRD) extends an extra-jurisdictional requirement for certain companies that operate – but are not headquartered – in the EU. These companies, referred to as third-country companies, must file reports at the consolidated entity level beginning in 2028. One group of companies in scope are those with securities listed on EU exchanges, known as third-country issuers.

CSRD references the EU’s Taxonomy Directive, which establishes criteria that economic activities and investments must meet to be considered “environmentally sustainable.” This has many wondering if the interplay between the CSRD and the Taxonomy Directive will create a requirement for third-country issuers to also comply with the Taxonomy Directive. A recent Shearman & Sterling memo discusses this possibility and makes the case that the Taxonomy Directive will not apply to third-country issuers.  The memo states:

“In our view, it would be an incorrect application of purposive interpretative principles to invoke these so as to assert a broad extraterritorial jurisdiction of onerous new legislation to third country entities, in the absence of a clear express provision to this effect. Moreover, it is difficult in our view to draw a purposive interpretation of this nature given the lack of clear evidence of intention in the preparatory papers and, at present, inconsistent guidance (in particular in the Taxonomy User Guide).”

This analysis could be subject to change if new guidance is issued on the point, but for now, it appears that the Taxonomy Directive will not apply to third-country issuers – including US companies. The EU’s Green Deal has presented a challenge as companies worldwide struggle to keep up with the fast pace of new legislation. The full implications of extra-judicial provisions of EU law, like the one in the CSRD, are not yet fully known.

The post Must US Companies Comply with EU’s Taxonomy Regulation? appeared first on PracticalESG.

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