US Seeks EU Due Diligence Carveout for American Firms

The U.S. government is pressing the European Union to shield American companies and their upstream suppliers from large portions of the bloc’s recently narrowed sustainability rules, warning that it will take “any actions necessary” if Brussels fails to address what Washington considers unreasonable burdens on U.S. commerce.

In a five-page submission published by the U.S. Mission to the European Union, Washington asked the bloc to significantly limit how its Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD) apply to U.S. businesses. Its demands range from excluding non-EU companies from CSDDD’s direct scope to limiting penalties, supplier audits and private lawsuits.

The U.S. also wants responsibility for due diligence and enforcement confined to a company’s EU subsidiaries or European business partners. CSDDD should apply only to goods produced in, or services supplied from, the EU, it said.

For fashion, one of the most consequential requests concerns suppliers that sit beyond the first tier of production. Washington said producers and farmers that do not directly supply a company covered by CSDDD should not face audits or information requests, particularly when their products are not sold in the European market.

That could have significant implications for an industry in which brands frequently have no direct contractual relationship with cotton growers, chemical manufacturers, spinners, textile mills and other businesses deeper in their supply chains. Those tiers are also where many of fashion’s most persistent forced-labor, wage, safety and environmental risks can be difficult to trace.

The U.S. government argued that the directives’ “extraterritorial reach” could sweep in companies and suppliers with little connection to the European market while forcing American businesses to comply with overlapping or conflicting standards. It specifically objected to the EU’s double-materiality model, which requires companies to report both how sustainability issues affect their finances and how their activities affect people and the environment.

U.S. law, by comparison, centers corporate disclosure requirements on information considered financially material to investors, the submission said.

Washington wants the European Commission to designate the U.S. a “negligible risk” jurisdiction and establish presumed compliance for companies operating in countries with what it considers robust corporate-governance and supply-chain rules. It said the U.S. already maintains a “rigorous regulatory regime” governing supply-chain mapping and due diligence.

The U.S. prohibits the importation of goods produced with forced labor and has additional disclosure and sourcing requirements at the federal and state levels. But it has no economy-wide counterpart to CSDDD requiring large companies to identify, prevent and address human-rights and environmental harms throughout their operations and supply chains.

The demands arrive after the EU has already substantially narrowed both directives through its Omnibus I simplification package. The final changes raised CSDDD’s threshold for EU companies to more than 5,000 employees and 1.5 billion euros in net worldwide turnover. Non-EU companies fall within its direct scope only when they generate more than 1.5 billion euros in net turnover inside the EU. The overhaul also removed CSDDD’s climate-transition-plan requirement and eliminated its harmonized civil-liability regime.

The revised directive allows companies to focus their assessments on areas where adverse impacts are most likely or severe and gives them greater latitude to prioritize direct business partners. Companies are expected to comply with the updated due diligence requirements beginning in July 2029.

CSRD’s scope was similarly reduced to EU companies with more than 1,000 employees and annual turnover above 450 million euros. For a non-EU group, reporting applies when the parent generates more than 450 million euros in the bloc and its EU subsidiary or branch exceeds 200 million euros in turnover.

The European Commission subsequently revised its reporting standards, cutting mandatory data points by more than 60 percent and estimating that the changes would reduce reporting costs by more than 30 percent per company.

Washington acknowledged that the reforms represented progress but said they did not go far enough. The U.S. and EU agreed in their August 2025 trade framework to work toward ensuring that CSDDD and CSRD would not create “undue restrictions on transatlantic trade.” The EU also committed to addressing U.S. concerns about applying CSDDD to companies from countries with “relevant high-quality regulations.”

The latest submission effectively tells Brussels what Washington believes fulfilling that commitment should entail.

Beyond the directives’ scope, the U.S. wants fines against American businesses limited to revenue generated inside the EU. The amended CSDDD currently allows penalties of up to 3 percent of a company’s worldwide net turnover.

Washington also called for a regulator-led enforcement system that would permit civil claims only after a supervisory authority had determined that a company failed to comply. Any permitted claim should have to demonstrate a direct connection to harm occurring in or materially affecting the EU, it said.

The submission raised separate concerns about third-party auditors, alleging that customers have already threatened to terminate contracts with U.S. companies based on inaccurate verification reports. It asked the EU to require verifiers to be independent, accredited and overseen by member states.

It also urged the Commission and EU member states not to revive mandatory climate-transition plans through guidance or national implementation after lawmakers removed the provision from CSDDD.

That legal distinction could determine how much room the EU has to accommodate Washington without reopening legislation it finished overhauling only months ago. Several U.S. requests would appear to require changes to the directive itself rather than implementation guidance, including eliminating the provisions that place non-EU companies directly within CSDDD’s scope and changing how penalties are calculated.

The submission does not identify which agency drafted it, when it was delivered or which EU officials received it. It closes by reserving the United States’ right to submit further comments on CSDDD, CSRD and any future revisions.

The European Commission and U.S. Mission to the EU did not respond by press time. U.S. Ambassador to the EU Andrew Puzder’s public message was less procedural. “Now it’s time for the EU to deliver,” he wrote last week.