Japan's government has asked the European Financial Reporting Advisory Group (EFRAG) to make its draft sustainability standard for non-EU companies easier to apply. In a comment letter dated 28 October 2026, it makes two requests on the ESRS-40a exposure draft, which EFRAG published on 23 July 2026. The Financial Services Agency announced the letter on 30 October.
The two requests
The first concerns cross-referencing. The draft lets a company that reports under jurisdictional rules functionally aligned with the ISSB standards refer to that report inside its ESRS-40a report. The letter asks EFRAG to clarify how companies should handle requirements that are similar to, but not identical with, the ISSB's. It suggests an appendix listing the ESRS-40a-specific "top-ups" over the ISSB standards. Identifying them, the letter says, would be "quite challenging" for companies.
The second concerns the draft's mixed approach, an option for topical standards other than climate-related standards. It lets a company limit reporting to impacts from products and services sold in the EU market, and to its EU activities. Companies told the government that preparing for it needs a lot of time and that compliance from 2028 would not be feasible. The letter says allocating impacts between EU and non-EU sales within one legal entity is a major difficulty.
The alternative
Japan proposes sorting each group company into one of three categories: located in the EU; located outside the EU but making products or providing services in the EU market; or located outside the EU with no such activity. A parent would report the impacts of the first two categories. Companies in the second category could also include some non-EU impacts. The letter says this would capture all EU-related impacts while avoiding the allocation exercise. It adds that the general materiality principle should decide whether a company with only a very small EU share falls in the second or third category.
The burden argument
The letter says EU companies report under the ESRS only, while Japanese companies subject to CSRD Article 40a must prepare an ISSB-aligned report for Japanese regulatory purposes and an ESRS-40a report for European purposes. It describes this as an additional burden and calls for a level playing field. It also notes that ESRS-40a is not final while the announced start for Article 40a application is 2028, leaving little preparation time. These are the government's own characterisations.
The letter welcomes the draft's use of the ISSB standards and the mixed approach, and says it reflects concerns raised in dialogue with Japanese companies expected to fall within scope. It is a comment on a draft. It does not change EU requirements.