Washington pushes EU to limit impact of CSRD and CSDDD on US firms

United States calls for sustainability regulation to be softened

The United States has called on the European Union to further limit the impact of two key sustainability regulations, the CSRD and CSDDD. The EU and US previously agreed on methods to remove barriers to transatlantic trade as part of the 2025 US-EU trade framework known as the Turnberry Agreement.

The CSDDD is a regulation that will impose sustainability and human rights due diligence standards on firms operating within the EU, and the CSRD will require businesses in the EU to disclose their environmental and social impacts.

In a recent government release, the US has raised concerns over the impact of the regulation, noting that “within the Turnberry Agreement is a commitment by the EU to ‘undertake efforts to ensure’ that the CSDDD and CSRD ‘do not pose undue restrictions on transatlantic trade’ and ‘to work to address U.S. concerns regarding the imposition of CSDDD requirements on companies of non-EU countries with relevant high-quality regulations.’”[i]

In particular, the release highlights that reporting on due diligence practices under the CSDDD and the CSRD includes impact-based materiality reporting and a “double materiality” standard, which differs from the single financial materiality standard under US law. Therefore, the extraterritorial reach of the CSRD and CSDDD would significantly expand the reporting burden for non-EU companies with minimal links to the EU market[ii]. Supporters of the directives argue that the double materiality approach provides investors and stakeholders with a fuller picture of how businesses both affect, and are affected by, environmental and social issues.

In a post on X, US Ambassador to the EU, Andrew Puzder, said “Extraterritorial provisions harm American businesses and workers, but it is not just the U.S. that will suffer. Unless the EU changes course, these directives will burden EU and non-EU businesses of all sizes -- and European consumers are the ones who will ultimately foot the bill. We welcome the opportunity to submit public comment and look forward to working with the EU Commission to align these measures with the Framework Agreement. “[iii]

Washington is also asking that the EU and its Member States significantly limit CSDDD and CSRD reporting and due diligence requirements on U.S. businesses and similarly limit enforcement actions. In addition, the EU should only apply the CSDDD to goods that are produced in, or services that are supplied from, the EU. The US also asks that the EU prohibits penalties on US businesses or an EU subsidiary of a US business if the financial punishment is based on revenue derived from activities outside the EU.

Beleaguered CSDDD & CSRD: Delayed and watered down

Brussels has already made significant changes to both pieces of legislation. Last year the European Commission released its Omnibus Specification package, an attempt to streamline sustainability reporting within the EU[iv]. The package covered the CSDDD, the CSRD, the Carbon Border Adjustment Mechanism (CBAM), and The EU green taxonomy[v]. Further changes followed last October. The European Parliament's Committee on Legal Affairs voted to significantly narrow the scope of both directives, limiting their application to only the largest companies.

Where both the CSDDD and CSRD had previously been due to apply to companies with at least 250 employees, this was increased, meaning:

· CSDDD will now be limited to companies with at least 5,000 employees and €1.5 billion ($1.73 billion) in annual revenue. Businesses will also be required to ensure they have transition plans that align with EU climate law and the Paris Agreement.

· The CSRD will only apply to companies with at least 1,000 employees and annual revenue of €450 million ($520 million) or more, though financial holdings and listed subsidiaries will be exempt.

The decision to narrow the scope of the CSDDD and CSRD comes on the heels of implementation delays for both directives. During talks on the Omnibus Specification Package, MEPs overwhelmingly voted to support delays, meaning that the deadline for EU countries to enact the CSRD into national law would be pushed back by a further year, moving the deadline to July 2027. Additionally, the deadline for compliance for companies currently under the directive’s scope would also be pushed back.

Further, EU companies with more than 5,000 employees and net turnover higher than €1.5 billion ($1.73 billion), as well as non-EU companies with a turnover above this threshold who operate within the EU, would now be granted until 2028 to comply, while SMEs will be required to submit sustainability reporting in 2029. Lastly, the CSDDD was given a one-year extension, providing EU member states with additional time to transpose and apply the directive into national law.