US Bill Signals Long Campaign Against CSDDD
PROTECT USA Act’s short-term impact will likely be limited but could set lay groundwork for future regulatory or executive actions.
A bill seeking to challenge the application of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) to US firms reflects negative sentiment among American executives as well as politicians, adding to domestic pressures on the landmark law.
Earlier this month, US Senator and Senate Banking Committee member Bill Hagerty introduced the Prevent Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA) Act to “shield US companies from the EU harmful extraterritorial regulations”, namely the CSDDD.
Hegarty branded EU’s “ideologically motivated regulatory overreach”, including the CSDDD, as an “affront to US sovereignty”.
The objective of the CSDDD is to enhance environmental and human rights protections in the EU and globally by requiring large firms to act on harms in their operations and supply chains. Despite being subject to streamlining in a recent omnibus package, it is still set to apply to large companies, designated as entities with more than 500 employees and a net worldwide turnover of €150 million (US$161.8 million).
According to SOMO – the Centre for Research on Multinational Corporations’ CSDDD datahub, which launched in January – there are around 7,000 companies and 4,300 corporate groups that meet the directive’s thresholds.
In its current form, the CSDDD will eventually apply to US companies with an annual group-wide revenue from the EU market of more than €450 million. According to SOMO, 315 US firms will meet the criteria for the CSDDD’s rules.
“Legally speaking, for US companies there’s no way out of this EU legislation,” Richard Gardiner, EU Public Policy Lead at the World Benchmarking Alliance, told ESG Investor. “They’re going to have to deal with these rules in some shape or form, they need to wake up to this.
“I don’t think anyone’s taking this bill seriously, but there’s more general concern of where the US is heading,” he added. “It seems to be political messaging or posturing, but the line of what’s possible and impossible under Trump is fairly fuzzy.”
Corporate intentions
The Hagerty-led bill was issued following the publication of a letter last month by the Senate Banking Committee Chairman to Trump administration officials which outlined concerns about the potential impact of the EU’s CSDDD regulation on US companies.
It also urged the administration to engage with the EU and voice direct opposition to the directive and “encourage an indefinite pause on its implementation”.
Corporate trade associations have advocated to exclude US firms from European regulations such as the CSDDD and Corporate Sustainability Reporting Directive (CSRD). US business groups and banks have actively lobbied against the CSDDD and related regulations, citing concerns over extraterritorial impacts, compliance costs and competitiveness.
Failure to comply with the CSDDD could result in fines of up to 5% of net global turnover for US companies, as well as potential civil claims.
“The liability part of CSDDD is what really worries companies,” said Gardiner. “American and European companies are digging in now and seeing an opportunity to delete and remove liability aspects and that’s what’s driving a lot of the conversation.”
Bryan McGannon, Managing Director at US SIF, said that the bill is “at the very beginning of the long legislative process” and would require “substantial bipartisan support in order to pass the Senate, which looks unlikely at this point”.
“This bill is likely to have low impact in the near term,” he added. “However, it is worth watching whether new regulatory or executive actions attempt to achieve the same goals as the PROTECT USA bill.”
The omnibus effect
The European Commission’s first omnibus, unveiled at the end of last month, looks to reduce the sustainability reporting burden for companies by modifying CSDDD and CSRD. In the eyes of many, including investors, businesses, lawyers and civil society organisations, the changes risk severely watering down the directives.
Under the omnibus, the EC has proposed to delay initial CSDDD compliance by one year, to 26 July 2028.
“The omnibus has opened the door for all the sharks,” said Gardiner. “At an event earlier this week, panels were having conversations we had four or five years ago. Everything is being rehashed and reopened.
“The omnibus has emboldened people, because everything is back in play and has given those who don’t want legislation the comfort to know that nothing’s off the table,” he added.
Changes to the CSRD and CSDDD risk making high quality, comparable and reliable sustainability data harder to access for investors – potentially having a detrimental impact on confidence – with fewer companies mandated to disclose information under the directives.
“US investors are eager to get reliable, comparable and consistent disclosures whether it be from the US Securities and Exchanges Commission, California’s climate disclosure laws, independent frameworks or European regulations,” said McGannon.
The European Council and the Parliament are treating the delay of the CSRD and CSDDD as a priority item, with a vote on the stop-the-clock proposal scheduled for 1 April. If approved, the proposal would delay the transposition deadline of the CSDDD and the first phase of its application by one year, while it would push back the application of CSRD requirements for large companies that have not yet started reporting, as well as listed SMEs, by two years.
Some countries have called for the CSDDD to be further watered down, with France arguing it should not apply to companies smaller than 5,000 employees and revenues lower than €1.5 billion.
“Investors need to shout a lot louder about this and really think about what they are going to do when they don’t have comparable information for all these companies,” said Gardiner.
He also warned that reducing the scope of CSDDD and utilising voluntary standards would be “unscrutinised and not comparable”, with investors having to spend more money to gather reliable information.
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