We investigate whether the European Union’s (EU) corporate sustainability disclosure mandate has had spillover effects on U.S. firms through their EU subsidiaries. The Non-Financial Reporting Directive (NFRD) mandated large EU public interest entities to disclose their environmental and social matters starting in 2018, enhancing the EU’s sustainability information environment. We find that U.S. firms with EU subsidiaries improved their CSR transparency compared to U.S. firms without EU subsidiaries following NFRD. Moreover, U.S. multinationals indirectly exposed to NFRD through their EU subsidiaries significantly improved their CSR performance. We find that the spillover effect of NFRD on U.S. multinationals is greater for firms with greater EU market exposure, superior prior ESG performance, more established ESG policies, and more salient EU subsidiaries (as proxied by their size, revenue, and similarity in operations). Our findings support that EU subsidiaries of U.S. multinationals serve as channels through which firms observe and strategically imitate global peers operating in more heavily regulated information environments. 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.
