US pressure mounts over EU sustainability rules

The US government is pressing the European Union to further limit the application of its corporate sustainability reporting and due diligence rules to American companies, reopening a transatlantic dispute over the reach and cost of European regulation.

Washington has submitted formal comments on the EU’s Corporate Sustainability Due Diligence Directive, or CSDDD, calling for a substantial reduction in the obligations applying to US businesses and tighter limits on enforcement against companies based outside Europe.

The intervention also covers the Corporate Sustainability Reporting Directive, or CSRD, which requires companies within its scope to publish environmental, social, and governance information alongside conventional financial reporting.

European policymakers have already narrowed both regimes significantly. Amendments agreed this year reduced the number of companies expected to fall within the sustainability due diligence framework, delayed implementation, and formed part of a wider simplification programme intended to cut corporate reporting burdens.

Andrew Puzder, the US ambassador to the EU, said: “Now it’s time for the EU to deliver. Under the Framework Agreement, the EU committed ‘to ensure’ that its Corporate Sustainability Due Diligence Directive and Corporate Sustainability Reporting Directive ‘do not pose undue restrictions on transatlantic trade’.”

At the centre of the dispute is the extraterritorial reach of European law. Non-EU groups can fall within the rules when their activities or revenues meet specified thresholds, meaning businesses headquartered in the US may face European reporting or due diligence obligations without being incorporated in the bloc.

US officials want Brussels to reduce that exposure further and restrict the extent to which penalties can be linked to economic activity generated outside Europe.

Europe’s simplification programme has already altered the compliance landscape considerably. Revised sustainability reporting standards published in July proposed cutting mandatory datapoints by more than 60%, with the overall reduction exceeding 70% once voluntary requirements are included.

Those changes followed growing concern within the EU that the original framework placed excessive demands on companies and their supply chains. Policymakers have been trying to preserve comparable sustainability information while reducing duplication, limiting unnecessary data collection, and easing the burden on smaller businesses pulled indirectly into larger companies’ reporting processes.

The international dimension is harder to resolve. European regulators designed the rules partly to prevent companies trading in the Single Market from gaining an advantage simply because they are headquartered elsewhere. Washington argues that the same approach can impose European policy choices on American companies and create unnecessary barriers to trade.

Multinational groups face a practical problem regardless of how the political negotiations develop. Sustainability reporting, procurement controls, human rights due diligence, and financial governance increasingly rely on shared datasets collected across subsidiaries and suppliers. Different national regimes can therefore create overlapping requirements that are difficult to isolate from one another operationally.

Preparations for the non-EU regime are continuing alongside the political debate. EFRAG opened consultation this month on sustainability standards for groups headquartered outside the EU, setting out how businesses falling within the European framework may eventually be expected to report.

That technical work is advancing while the scope of the underlying legislation remains politically contested. Companies preparing compliance programmes must therefore decide how much infrastructure to build before the final perimeter of the rules is settled.

Reducing formal legal obligations would not necessarily eliminate the commercial demand for sustainability information. Large customers, banks, insurers, and investors may continue asking suppliers for emissions, workforce, and supply chain data even when those suppliers fall outside direct regulatory thresholds.

The distinction between statutory reporting and contractual data demands has become increasingly important. A smaller supplier may escape a formal CSRD obligation but still be required to provide information to a larger customer that remains within scope, particularly where the customer needs evidence covering its wider value chain.

At the same time, repeated changes to reporting requirements can create their own cost. Companies that began preparing systems, controls, and assurance processes under the original timetable may need to revisit those investments as thresholds, deadlines, and disclosure requirements change.

The EU’s amended CSDDD timetable currently requires member states to transpose the directive into national law by July 2028, with the principal company obligations due to apply from July 2029. Further European Commission guidance is expected before then.

Brussels must now balance internal pressure for simpler regulation with demands from Washington for broader exemptions and safeguards. The outcome will influence not only which companies fall within the rules, but also how multinational groups organise sustainability data, supplier oversight, and compliance across jurisdictions over the remainder of the decade.