Study Overview
We examine whether the European Union’s (EU) Non-Financial Reporting Directive (NFRD), which mandated large EU firms to disclose environmental and social information starting in 2018, generated spillover effects on U.S. multinationals through their EU subsidiaries.
Study Results
We find that U.S. firms with EU subsidiaries significantly improved their CSR transparency and performance relative to firms without EU subsidiaries following the start of mandated NFRD reporting. The effects are stronger for firms with greater EU exposure, superior prior ESG performance, more established ESG policies, and more salient EU subsidiaries—measured by their size, revenue, and operational similarity. These findings suggest that EU subsidiaries serve as channels through which U.S. firms observe, learn from, and strategically imitate peers operating under stricter disclosure regimes. More broadly, our results indicate that sustainability reporting regulations can have spillover effects beyond their formal jurisdictions and underscore the importance of global standards in shaping corporate CSR practices across borders.