Blab Business
U.S. Urges EU to Narrow Scope of Corporate Sustainability Directives, Threatens Action
Washington has taken a hard line, telling Brussels that the EU’s sweeping sustainability rules should not reach beyond American companies’ EU operations.
On 19 August 2026 the U.S. Mission to the European Union sent a five‑page memorandum demanding that the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) apply only to U.S. firms operating in the bloc. The note also calls for penalties, audits and lawsuits to be confined to EU subsidiaries or partners.
The CSDDD, adopted in 2024, obliges companies to identify, assess, prevent, mitigate and remedy adverse impacts on people and the environment throughout their operations and supply chains. The CSRD, which replaced the Non‑Financial Reporting Directive, requires large firms to disclose sustainability information. Both directives were recently simplified under the Omnibus I package, raising the employee and turnover thresholds for EU‑based firms and limiting the scope for non‑EU companies.
Under the new thresholds, the CSDDD covers EU firms with more than 5,000 employees and 1.5 billion euros of worldwide turnover. Non‑EU companies fall within its direct scope only when they generate more than 1.5 billion euros of net turnover inside the EU. The CSRD now applies to EU firms with more than 1,000 employees and 450 million euros of annual turnover, while a non‑EU group must meet a 450‑million‑euro threshold in the bloc and have an EU subsidiary with 200 million euros of turnover.
Washington’s submission argues that the directives’ extraterritorial reach forces American companies to comply with standards that have little connection to the European market. It specifically objects to the EU’s double‑materiality model, which requires companies to report on both how sustainability issues affect their finances and how their activities affect people and the environment. The U.S. claims its disclosure regime focuses on information material to investors.
A key concern for the U.S. is the impact on the fashion industry. Many brands have no direct contractual relationship with cotton growers, chemical manufacturers, spinners or textile mills that sit beyond the first tier of production. Washington requests that producers and farmers who do not supply a CSDDD‑covered company directly be exempt from audits or information requests, especially when their products are not sold in the EU.
The U.S. also seeks to limit enforcement to revenue generated inside the EU. The current CSDDD allows penalties of up to 3 percent of a company’s worldwide net turnover. Washington asks that fines be capped at revenue earned within the EU and that civil claims be permitted only after a supervisory authority has determined non‑compliance.
Another point of contention is the role of third‑party auditors. Washington alleges that some verifiers have issued inaccurate reports, prompting customers to threaten contract terminations. It calls for verifiers to be independent, accredited and overseen by member states.
The U.S. also urges the EU not to revive mandatory climate‑transition plans through guidance or national implementation after the directive removed the provision. Washington’s request would require changes to the directive itself, including eliminating the direct scope for non‑EU companies and altering penalty calculations.
The submission was delivered to the European Commission and the U.S. Mission to the EU, but neither body responded by press time. U.S. Ambassador to the EU Andrew Puzder issued a brief statement last week saying, “Now it’s time for the EU to deliver.”
The EU and U.S. agreed in an August 2025 trade framework to work toward ensuring that the CSDDD and CSRD would not create undue restrictions on trans‑Atlantic trade. The latest U.S. submission outlines what Washington believes that commitment should entail.
The directives are scheduled to take effect in July 2029 for the CSDDD and in 2027 for the CSRD, giving companies several years to prepare. The U.S. has reserved the right to submit further comments on the directives or any future revisions.
The outcome of this negotiation will shape the regulatory environment for multinational firms operating between the United States and the European Union, with implications for supply‑chain transparency, forced‑labor compliance and cross‑border trade costs.
On 19 August 2026 the U.S. Mission to the European Union sent a five‑page memorandum demanding that the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) apply only to U.S. firms operating in the bloc. The note also calls for penalties, audits and lawsuits to be confined to EU subsidiaries or partners.
The CSDDD, adopted in 2024, obliges companies to identify, assess, prevent, mitigate and remedy adverse impacts on people and the environment throughout their operations and supply chains. The CSRD, which replaced the Non‑Financial Reporting Directive, requires large firms to disclose sustainability information. Both directives were recently simplified under the Omnibus I package, raising the employee and turnover thresholds for EU‑based firms and limiting the scope for non‑EU companies.
Under the new thresholds, the CSDDD covers EU firms with more than 5,000 employees and 1.5 billion euros of worldwide turnover. Non‑EU companies fall within its direct scope only when they generate more than 1.5 billion euros of net turnover inside the EU. The CSRD now applies to EU firms with more than 1,000 employees and 450 million euros of annual turnover, while a non‑EU group must meet a 450‑million‑euro threshold in the bloc and have an EU subsidiary with 200 million euros of turnover.
Washington’s submission argues that the directives’ extraterritorial reach forces American companies to comply with standards that have little connection to the European market. It specifically objects to the EU’s double‑materiality model, which requires companies to report on both how sustainability issues affect their finances and how their activities affect people and the environment. The U.S. claims its disclosure regime focuses on information material to investors.
A key concern for the U.S. is the impact on the fashion industry. Many brands have no direct contractual relationship with cotton growers, chemical manufacturers, spinners or textile mills that sit beyond the first tier of production. Washington requests that producers and farmers who do not supply a CSDDD‑covered company directly be exempt from audits or information requests, especially when their products are not sold in the EU.
The U.S. also seeks to limit enforcement to revenue generated inside the EU. The current CSDDD allows penalties of up to 3 percent of a company’s worldwide net turnover. Washington asks that fines be capped at revenue earned within the EU and that civil claims be permitted only after a supervisory authority has determined non‑compliance.
Another point of contention is the role of third‑party auditors. Washington alleges that some verifiers have issued inaccurate reports, prompting customers to threaten contract terminations. It calls for verifiers to be independent, accredited and overseen by member states.
The U.S. also urges the EU not to revive mandatory climate‑transition plans through guidance or national implementation after the directive removed the provision. Washington’s request would require changes to the directive itself, including eliminating the direct scope for non‑EU companies and altering penalty calculations.
The submission was delivered to the European Commission and the U.S. Mission to the EU, but neither body responded by press time. U.S. Ambassador to the EU Andrew Puzder issued a brief statement last week saying, “Now it’s time for the EU to deliver.”
The EU and U.S. agreed in an August 2025 trade framework to work toward ensuring that the CSDDD and CSRD would not create undue restrictions on trans‑Atlantic trade. The latest U.S. submission outlines what Washington believes that commitment should entail.
The directives are scheduled to take effect in July 2029 for the CSDDD and in 2027 for the CSRD, giving companies several years to prepare. The U.S. has reserved the right to submit further comments on the directives or any future revisions.
The outcome of this negotiation will shape the regulatory environment for multinational firms operating between the United States and the European Union, with implications for supply‑chain transparency, forced‑labor compliance and cross‑border trade costs.
