U.S. Government Formally Asks EU to Narrow Corporate Sustainability Due Diligence Law

The United States government has submitted formal comments to the European Union requesting significant changes to the Corporate Sustainability Due Diligence Directive (CSDDD) and its companion Corporate Sustainability Reporting Directive (CSRD), arguing both directives' extraterritorial reach imposes disproportionate and duplicative obligations on U.S. companies. The submission invokes the August 21, 2025 United States-European Union Joint Statement on a Framework Agreement, in which the EU committed to ensure the directives "do not pose undue restrictions on transatlantic trade" and to address U.S. concerns about CSDDD's application to non-EU companies with comparable domestic regulation. The U.S. states it acknowledges some positive changes made in the EU's December 2025 Sustainability Omnibus reforms but says they fail to fully resolve its concerns.

 

Why the Materiality Standard Dispute Sits at the Core of This Disagreement

 

Central to the U.S. submission is an objection to CSDDD and CSRD's use of "double materiality," a reporting standard requiring companies to disclose both how sustainability issues affect their own financial performance and how their own operations affect people and the environment. That stands in contrast to the single financial materiality standard under U.S. securities law, which generally requires disclosure only of information material to a company's own financial condition and investor decision-making. The U.S. submission argues this difference means the EU directives would substantially expand reporting obligations for non-EU companies whose only connection to those requirements comes through their relationship with an EU-linked business partner, rather than through any direct financial materiality to the U.S. company's own operations.

That distinction reflects a genuine and longstanding difference in regulatory philosophy between the two jurisdictions: EU sustainability regulation has increasingly moved toward requiring companies to report on their broader societal and environmental impact regardless of direct financial materiality, while U.S. securities regulation has remained anchored to the narrower principle that disclosure obligations should track financial relevance to investors specifically, a divide visible elsewhere in the SEC's own reconsideration of its climate disclosure rules covered in earlier reporting this batch.

 

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Why the Extraterritorial Scope Concern Matters in Practice

 

The submission's most concrete complaint concerns CSDDD's scope: as currently written, the U.S. argues, American companies and subsidiaries with no physical presence, operations, employees or assets in the EU could still fall within the directive's scope simply by supplying a business partner that is itself in scope, even if the U.S. company sells exclusively to U.S. customers and has no direct connection to the EU market. The U.S. cites this as a specific example: a U.S. supplier to an EU-headquartered company, producing goods solely for U.S. consumers, could face CSDDD due diligence and reporting obligations despite never intending to place its products on the EU market.

The submission frames this as conflicting with the "objective territorial principle" of international law, under which states generally limit application of their laws to entities physically present within their territory or engaged in conduct with direct effects there. On that basis, the U.S. requests the EU eliminate the specific CSDDD provision (Article 2.2(a)-(c)) establishing this broader scope, narrowing the directive's application to EU-domiciled businesses, and limit due diligence obligations under Articles 7-17 to activities and products directly linked to the EU market, explicitly excluding producers and farmers who do not themselves sell into the EU.

 

What the Submission Asks For on Enforcement and Litigation

 

Beyond scope, the U.S. submission raises specific objections to how CSDDD would be enforced. It asks that any penalties be calculated using only revenue derived from a company's activities inside the EU, rather than "worldwide turnover" as currently referenced in Article 27(4), arguing the latter creates potential for what it calls "abusive fines with extraterritorial impact." It also raises concern about Article 29, which the U.S. reads as creating a private right of action allowing civil litigation against companies for CSDDD non-compliance, potentially exposing in-scope companies to lawsuits across multiple EU member state court systems with what the submission describes as a risk of inconsistent interpretation. The U.S. requests a "regulator-led approach" instead, under which civil claims could only proceed after an official supervisory authority has already assessed and confirmed non-compliance, rather than allowing private litigants to bring claims independently.

The submission separately raises concern about CSDDD's provision for third-party verification bodies under Article 20(5), noting the directive currently does not require oversight of these assessors, and stating that U.S. companies have already reported customers threatening to terminate contracts based on what the submission characterises as inaccurate verification reports from unregulated third-party verifiers, even before CSDDD has taken effect.

 

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Why the Submission Specifically Objects to Reintroducing Climate Transition Plan Requirements

 

The submission also addresses climate policy directly, requesting that the EU respect the prior deletion of CSDDD's Article 22, which had required companies to adopt climate transition plans aligned with net-zero goals, and asks that this requirement not be reintroduced through subsequent EU guidance or through reference to OECD voluntary guidelines not explicitly listed in the directive's text. That request reflects a broader pattern within the submission: repeated emphasis that implementation guidance should not expand obligations beyond what the current, already-amended text of the directive specifies, treating the December 2025 Omnibus reforms as a floor the EU should not walk back through subsequent rulemaking.

 

What Comes Next

 

The submission states explicitly that the U.S. "will take any actions necessary to address unreasonable burdens on U.S. commerce absent a solution that addresses these concerns," language signalling that failure to resolve these issues could prompt further U.S. trade or regulatory response beyond formal comment. The document is also framed as provided "without prejudice" to further U.S. submissions on CSDDD, CSRD or future revisions, indicating this is one stage in an ongoing bilateral process rather than a final position. Whether the EU's eventual implementing guidance and any further legislative revision addresses the specific scope, enforcement and litigation concerns raised here, and how that process interacts with the broader Framework Agreement both governments have already committed to, will determine whether this dispute is resolved through negotiated adjustment or escalates into a more consequential transatlantic trade friction point.