• Washington has warned it could take action unless the EU further limits the impact of CSRD and CSDDD on U.S. companies.
• The EU has already narrowed both laws, but the U.S. says their extraterritorial reach and supply chain requirements remain too burdensome.
• The dispute puts corporate sustainability regulation at the center of transatlantic trade tensions, with implications for global ESG reporting and due diligence standards.

The United States has threatened action against the European Union unless Brussels further reins in its corporate sustainability rules.

Washington says recent EU reforms have failed to adequately protect American companies from costly reporting and due diligence requirements. The warning raises the prospect of another trade dispute over Europe’s climate and ESG regulation.

The dispute centers on two pillars of the EU sustainability rulebook. The Corporate Sustainability Reporting Directive, or CSRD, requires companies to disclose sustainability-related information. The Corporate Sustainability Due Diligence Directive, or CSDDD, requires companies to address environmental and human rights risks across their operations and supply chains.

The U.S. government acknowledged that Brussels had made “some positive reforms.” However, it said the EU had “failed to fully address U.S. concerns.” Washington warned that it “will take any actions necessary to address unreasonable burdens on U.S. commerce.”

Washington Pushes EU to Go Further

The latest pressure follows commitments made under the U.S.-EU trade framework agreed in August 2025.

Under that agreement, the EU committed to work toward ensuring that CSRD and CSDDD “do not pose undue restrictions on transatlantic trade.” Brussels also agreed to pursue reductions in the administrative burden facing businesses.

U.S. Ambassador to the EU Andrew Puzder said on Friday that “now it’s time for the EU to deliver.”

Washington’s concerns focus heavily on the international reach of the European rules. U.S. officials argue that American companies can face extensive compliance obligations despite having relatively limited operations within the EU.

The U.S. has also challenged Europe’s double materiality standard. That approach requires companies to consider both financial sustainability risks and their impacts on people and the environment.

Washington argues that this creates requirements beyond the financial materiality approach commonly applied in the United States.

EU Has Already Scaled Back ESG Rules

Brussels has substantially reduced the scope of both directives through its regulatory simplification agenda.

Under changes to CSDDD, the employee threshold was raised from more than 1,000 workers to more than 5,000. The revenue threshold was also lifted to €1.5 billion, approximately $1.75 billion.

The requirement for companies to prepare climate transition plans was removed.

CSRD has also been narrowed. Changes reduced the number of mandatory reporting datapoints and sharply cut the expected number of non-EU companies covered by the rules.

Around 1,200 non-EU companies are now expected to fall within scope, compared with roughly 10,000 previously.

Washington says those concessions do not go far enough.

Its latest requests include significantly limiting reporting and due diligence obligations for U.S. businesses. The U.S. also wants restrictions on enforcement actions against American companies.

Washington has asked the EU to prevent penalties against U.S. companies from being calculated using revenue generated outside Europe.

It also wants the United States designated as a jurisdiction posing negligible risk because of its existing governance framework. Such a designation could support presumed compliance for companies operating under U.S. regulations.

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Brussels Defends Regulatory Autonomy

The European Commission has pushed back against demands that it fundamentally change its regulatory regime.

A Commission spokesperson said Brussels had made “considerable efforts” to explain its rules and highlight “its willingness to cooperate with the US to increase trade where possible.”

However, the EU has drawn a firm line around its ability to set its own corporate rules.

“We have been very clear and consistent on the fact that neither our rules framework nor our regulatory autonomy are up for negotiation,” said the spokesperson.

Puzder has warned that the consequences could extend beyond U.S. companies.

“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.”

ESG Rules Become a Transatlantic Trade Issue

The confrontation carries broader implications for executives and investors operating across both markets.

Multinationals must now manage sustainability compliance alongside growing geopolitical risk. Rules originally designed around corporate transparency and supply chain accountability are increasingly intersecting with trade policy.

The dispute also matters for investors seeking comparable ESG information across global markets. Further reductions to reporting requirements could lower corporate compliance costs while narrowing the pool of standardized sustainability data.

The tension extends beyond CSRD and CSDDD. Washington has also criticized the EU’s Carbon Border Adjustment Mechanism, describing its impact on U.S. exporters as another trade concern.

For Brussels, the challenge is to protect its regulatory autonomy while maintaining one of the world’s most important trade relationships. For Washington, the issue is increasingly one of market access.

The outcome could influence how far governments can extend sustainability requirements across borders, and whether ESG regulation becomes a recurring fault line in global trade.