The U.S. government has formally asked the European Union to significantly narrow two of its flagship sustainability laws, the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD), arguing that both still place unfair burdens on American businesses despite recent reforms.
Reforms Fall Short
While Washington acknowledges in its letter that the EU’s December 2025 “Omnibus” simplification package trimmed the reach of both directives (i.e., changes are expected to remove around 90% of originally in-scope companies from the CSRD’s reach and 70% of originally in-scope companies from the CSDDD’s reach), it says those changes did not go far enough to satisfy commitments made in the August 2025 U.S.-EU trade framework, under which the EU agreed to ensure the rules wouldn’t create “undue restrictions on transatlantic trade.”
The letter centers on a handful of recurring themes:
- Extraterritorial Reach — According to the letter, the directives’ extraterritorial reach and costly and onerous supply chain due diligence obligations will adversely impact the ability of U.S. businesses to compete on a level playing field in the EU market. In particular, U.S. companies with little or no direct connection to the EU market could still get swept into the CSDDD’s scope (e.g., a U.S. subsidiary or supplier to an EU-headquartered company in scope of the CSDDD that produces products exclusively in the United States, for U.S. consumers only), an approach the letter says runs counter to standard international legal principles limiting a country's laws to persons with either a physical presence in their territories or who engage in conduct with direct effects or consequences in their territories.
- Extensive and Overlapping Reporting Burdens — The EU’s requirement that companies report both the financial risks and the societal/environmental impacts of their operations goes beyond the single financial-materiality standard used in U.S. law, significantly expanding the reporting burden for U.S. companies with minimal links to the EU market. The United States has a rigorous regulatory regime governing supply chain mapping and due diligence. Therefore, extending the CSDDD to U.S. companies subject to this regime would create duplicative and potentially conflicting obligations for these companies, thus violating basic principles of international comity.
- Enforcement and Litigation Risk — The letter objects to fines based on worldwide revenue rather than EU-derived revenue, and to CSDDD provisions that could allow private lawsuits without a prior regulatory finding of noncompliance. It also raises concerns about a lack of oversight for third-party compliance verifiers, noting that inaccurate reports from unreliable third-party verifiers have already led some customers of U.S. companies to threaten contract terminations.
What the United States Is Requesting
Specifically, the letter asks that the EU:
- Significantly limit CSDDD and CSRD reporting and due diligence requirements on U.S. businesses, and limit enforcement actions against U.S. businesses. Specifically, the EU should significantly limit the CSDDD to EU-domiciled businesses, EU subsidiaries, and goods/services actually produced in or supplied from the EU. The EU subsidiary or firm located in the EU, and not the parent company located in a third country, should hold responsibility for due diligence and related enforcement in order to avoid duplicative compliance structures.
- Limit the CSDDD’s due diligence requirements to activities and products linked to the EU market. Producers that do not directly supply the in-scope EU buyer, including producers and farmers who do not purposefully avail themselves of the EU market and whose products are not sold there, should not be subject to audits or information requests under CSDDD.
- Establish a “presumed compliance” provision for companies operating in high-quality regulatory jurisdictions, such as the United States, and eliminate reporting and due diligence requirements for firms operating in countries with robust corporate governance and supply-chain mapping regulations.
- Keep mandatory climate transition plans out of the directive, consistent with their removal during the Omnibus process.
- Require third-party compliance verifiers to be independent, accredited, and properly overseen, to prevent inaccurate or conflicted reports.
- Bar any penalties on any U.S. business, or EU subsidiary of a U.S. business, that are based on revenue derived from activities outside the EU.
- Take a regulator-led approach, allowing civil claims to proceed only after the appropriate supervisory authority has assessed compliance and concluded that the company that is the target of the action failed to comply with the relevant CSDDD obligations. Where civil claims are permitted, require plaintiffs to show a direct link to harm in the EU, and bar Member States from creating new avenues for litigation.
- Narrow the definition of “stakeholders” under the CSDDD’s impact materiality assessment to include for an in-scope company the “employees, the employees of its subsidiaries and of its business partners, and their trade unions and workers’ representatives, and individuals or communities whose rights or interests are or could reasonably be expected to be directly affected by the products, services and operations of the company, its subsidiaries and its business partners and the legitimate designated representatives of those individuals or communities.”
The Bottom Line
The letter closes with a pointed warning: “The United States will take any actions necessary to address unreasonable burdens on U.S. commerce absent a solution that addresses these concerns.” While there may still be room for negotiation given that neither directive’s core obligations kick in for large non-EU companies until 2029, the letter makes clear that, as far as Washington is concerned, the matter is not closed.