The European Union’s sustainability regulatory framework may be headed for another round of change as the United States pushes the EU to further limit how its corporate sustainability rules apply to American companies.

The latest pressure centers on two major pieces of European legislation: the Corporate Sustainability Due Diligence Directive (CSDDD), which establishes requirements for companies to identify and address certain human rights and environmental impacts across their operations and value chains, and the Corporate Sustainability Reporting Directive (CSRD), which governs corporate sustainability disclosures.

While both directives have already been significantly amended through the EU’s recent simplification efforts, the U.S. government is arguing that additional concessions are needed, particularly around the rules’ application to companies and activities outside the European Union.

Sustainability Regulation Becomes a Trade Issue

The dispute has its roots in the August 21, 2025 U.S.-EU trade framework agreement. As part of that agreement, the EU committed to work to ensure that CSDDD and CSRD would not create “undue restrictions” on transatlantic trade.

The agreement specifically contemplated reducing administrative burdens under CSDDD, reconsidering its civil liability framework and climate transition obligations, and addressing U.S. concerns about applying the directive to companies from non-EU jurisdictions with strong existing regulatory systems.

Since then, the EU has taken significant steps to reduce the requirements of both laws. Directive (EU) 2026/470, adopted on February 24, 2026 and published on February 26, amended both CSRD and CSDDD as part of the EU’s broader Omnibus I simplification process. Among other changes, the reforms raised applicability thresholds, delayed or removed requirements for many companies, shifted CSDDD toward a more risk-based due diligence model, removed its mandatory climate transition plan requirement, and eliminated the EU-wide harmonized civil liability regime originally contemplated under CSDDD.

For CSRD, the reforms similarly narrowed the population of companies expected to report and were accompanied by efforts to substantially simplify the underlying sustainability reporting standards. The European Commission adopted additional changes to those standards on July 3, 2026.

The U.S. government, however, does not believe those changes go far enough.

The U.S. Pushes Back on Extraterritorial Requirements

The central U.S. concern is extraterritoriality, meaning the extent to which European rules can impose requirements on companies, subsidiaries, suppliers, and activities located outside the EU.

According to comments described by Ropes & Gray, the U.S. is asking the EU to substantially limit CSDDD requirements for American businesses. One proposal would generally restrict requirements to EU subsidiaries, EU business partners, and goods or services connected directly to the European market.

The U.S. has also called for the EU to consider the United States a low-risk or negligible-risk jurisdiction for purposes of supply chain due diligence. Under such an approach, companies operating in jurisdictions with what the U.S. characterizes as high-quality corporate governance and supply chain regulation could potentially benefit from reduced requirements or a form of presumed compliance.

Other requests include limiting CSDDD fines to revenue generated from EU activities rather than worldwide turnover, making audits and supplier verification more explicitly risk-based, and limiting private litigation until regulators have first determined that a company failed to meet its obligations.

CSRD Is Also Under Scrutiny

Although much of the latest U.S. criticism focuses on CSDDD, CSRD remains part of the discussion. One particular area of disagreement is the EU concept of double materiality. Under CSRD, companies may be required to consider both how sustainability issues financially affect the company and how the company affects people and the environment. The U.S. comments contrast this with the financial materiality approach traditionally used in U.S. securities reporting.

The U.S. is also seeking limitations on reporting requirements for non-EU operations that have little or no direct connection to European consumers or markets.

Importantly, these are requests from the U.S. government, not newly enacted EU exemptions. Companies should therefore continue assessing their obligations based on the legislation currently in force rather than assuming that further exclusions will ultimately be adopted.

What Companies Should Watch Next

For multinational companies, the development highlights how quickly the European sustainability regulatory landscape continues to evolve.

The immediate question is no longer simply whether the EU will simplify CSDDD and CSRD. Significant simplification has already occurred. Instead, companies should watch whether the EU agrees to further narrow the geographic reach, enforcement mechanisms, and value chain implications of those requirements in response to U.S. trade pressure.

There are also signs that the broader U.S.-EU negotiations are continuing. The EU has moved forward with implementation of tariff-related elements of the 2025 trade framework, including final Council approval of relevant measures in June 2026, while both sides continue discussions over non-tariff regulatory issues.

For sustainability and compliance teams, this means applicability analyses should remain dynamic. U.S.-headquartered multinationals in particular should continue mapping their EU entities, revenues, and value chain relationships while monitoring whether future EU guidance or legislation creates additional exemptions, equivalency concepts, or jurisdiction-specific treatment.

Key Takeaway

CSDDD and CSRD have already been substantially narrowed, but the regulatory debate is not over. U.S. policymakers are now seeking further protections for American businesses, especially from requirements affecting activities outside the EU. Any additional concessions could materially change compliance obligations for U.S.-based multinationals, but until those changes are formally adopted, companies should continue planning against the current legal framework.