Representatives Hill, Wagner, Barr and Senators Scott, Hagerty Express Concerns with the European Union’s Corporate Sustainability Due Diligence Directive

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Representatives Hill, Wagner, Barr and Senators Scott, Hagerty Express Concerns with the European Union’s Corporate Sustainability Due Diligence Directive

Washington, Feb 27 -

The Chairman of the House Financial Services Committee, French Hill (AR-02), Chairman of the Subcommittee on Capital Markets, Ann Wagner (MO-02), Chairman of the Subcommittee on Financial Institutions, Andy Barr (KY-06), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, Tim Scott (R-S.C.), and Chairman of the Subcommittee on National Security and International Trade and Finance, Bill Hagerty (R-TN), sent a letter to the Secretary of the U.S. Department of Treasury, Scott Bessent, and Director of the National Economic Council, Kevin Hassett, to voice their concerns regarding the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD). The bicameral group of members lay out the significant risks CSDDD poses to the competitiveness of the United States.

In the letter, the lawmakers urged the Administration to:

1. Support European calls to indefinitely pause CSDDD.

2. Assert that CSDDD’s extraterritorial application is untenable and detrimental to global productivity. European firms listing in the U.S. could also face similar regulatory exposure, which may discourage transatlantic economic cooperation.

3. While Europe is free to create a hostile business climate for companies in their own jurisdiction, to protect American companies, CSDDD’s Article 29 (civil liability) should be removed from the Directive and not replicated in future EU regulations.

4. Clarify that U.S. companies are not bound by net zero transition plans akin to those imposed on EU firms. The U.S. has shifted its stance on climate commitments, and CSDDD’s Article 22 on mandatory transition plans should be abandoned.

Read the full letter here or below:

We write to express our concerns regarding the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) and the significant risks it poses to the competitiveness of the United States. The Directive’s extraterritorial reach extends beyond the European Union, implicating U.S. businesses in ways that threaten economic productivity, corporate governance principles, and jurisdictional sovereignty.

Recently, President Trump, in a speech before the World Economic Forum in Davos, Switzerland, identified “non-economic” trade barriers that impede market access to Europe. CSDDD exemplifies such a barrier, imposing extensive regulatory burdens on U.S. companies operating globally. Given the substantial ramifications of this Directive, we strongly urge you to engage with European counterparts to vocalize direct opposition and encourage an indefinite pause on its implementation. According to a recent estimate, at least 300 U.S. companies listed in the S&P 1500 will be directly affected by CSDDD, though this number is likely higher due to the Directive’s broad application to companies generating revenue from Europe.

CSDDD imposes stringent due diligence requirements on in-scope companies, mandating the evaluation of supply chains to identify, mitigate, and eliminate human rights and environmental abuses as defined by United Nations (UN) and Organisation for Economic Cooperation and Development (OECD) principles. However, these principles have not been ratified by Congress, raising concerns about the legitimacy of EU enforcement against U.S. companies based on these principles.

Additionally, small businesses that supply larger companies will also be affected, even if their operations are solely within the U.S. Compliance efforts will require significant resource allocation, diverting funds away from critical areas such as research and development, talent acquisition, and investment. Furthermore, U.S. firms will face increased litigation risks and potential enforcement actions from EU member states, with penalties under the Directive reaching up to five percent of a company’s global turnover.

Beyond economic risks, CSDDD undermines U.S. jurisdictional sovereignty. U.S. corporate governance law distinguishes between publicly and privately held companies, with regulatory obligations calibrated accordingly. However, CSDDD disregards this distinction, requiring all companies meeting the €450 million turnover threshold to disclose information beyond what is relevant to U.S. investors. The U.S. Securities and Exchange Commission (SEC) recently indicated its intent to unwind similar disclosure requirements, further highlighting the misalignment of CSDDD with U.S. legal principles.

The implications of CSDDD on U.S. corporate governance are also profound. A recent analysis from corporate law academics suggests that U.S. firms will face disproportionately higher legal risks under CSDDD than their European counterparts. This concern is further underscored by the United Auto Workers lawsuit against Mercedes Benz, in which an American labor union sought to circumvent established U.S. labor law for a factory in America by appealing to foreign legal frameworks to influence U.S. labor and corporate practices.

Additionally, CSDDD mandates that U.S. companies incorporate European stakeholder perspectives into their business planning processes to address human rights and environmental risks. This requirement in CSDDD could violate U.S. directors' fiduciary duty to act in the best interest of their shareholders, exposing companies to litigation risks and enforcement actions in the U.S.

Given these concerns, we strongly urge the Administration to:

1. Support European calls to indefinitely pause CSDDD.

CSDDD represents a serious and unwarranted regulatory overreach, imposing significant economic and legal burdens on U.S. companies. We strongly urge immediate diplomatic engagement to challenge and halt its implementation.