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US Congress members set out case against EU sustainability rules

Senator French Hill
Photo: Getty Images

Michael R Pfeuffer | Morgan Lewis, Marc Rotter | Ropes & Gray

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Members of US Congress and State Officials call for action against the EU CSDDD and CSRD.

Last week, we took an in-depth look at the European Commission’s Wednesday proposal to amend the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD) and Taxonomy Regulation. See An in-depth look at the leaked Draft Directive on corporate sustainability.

US efforts to stop the CSDDD and CSRD also ramped up last week, presumably timed around the release of the “simplification omnibus package.” As discussed in this article, prominent House and Senate Republicans and officials from 26 states have sent public letters calling on the Trump Administration to take action.

The Congressional letter

On the same day that the omnibus proposal was announced, the Chairman of the House Financial Services Committee (French Hill; Republican – Arkansas), Chairman of the Subcommittee on Capital Markets (Ann Wagner; Republican – Missouri), Chairman of the Subcommittee on Financial Institutions (Andy Barr; Republican – Kentucky), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs (Tim Scott; Republican – South Carolina) and Chairman of the Subcommittee on National Security and International Trade and Finance (Bill Hagerty; Republican – Tennessee), sent a letter to Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, voicing concerns about the CSDDD.

The House and Senate members expressed concern that the CSDDD is a “non-economic” trade barrier that poses significant risks to the competitiveness of the United States. Competitive and other concerns cited in the letter include the following: 

  • The CSDDD requires due diligence in accordance with UN and OECD principles that have not been ratified by the US Congress, raising concerns about the legitimacy of EU enforcement against US companies based on these principles.
  • Small businesses that supply larger companies will be affected, even if their operations are solely within the US .
  • US firms will face increased litigation risks and potential enforcement actions from EU member states.
  • The CSDDD undermines US jurisdictional sovereignty. 
  • The implications of the CSDDD on US corporate governance are “profound.” The letter notes that a recent academic analysis suggests that US firms will face disproportionately higher legal risks under the CSDDD than their European counterparts. 
  • The CSDDD could violate US directors’ fiduciary duty by mandating that US companies incorporate European stakeholder perspectives into their business planning processes to address human rights and environmental risks that could expose the companies to US litigation risks and enforcement actions.

In the letter, the lawmakers urge the Trump Administration to take four steps:

  • Support European calls to indefinitely pause the CSDDD. As we noted in last week’s article, in a January public statement, France recommended that the CSDDD be put on indefinite hold. The European Commission instead is proposing to delay initial CSDDD compliance by one year, to July 26, 2028. 
  • Assert that the CSDDD’s extraterritorial application is untenable and detrimental to global productivity. The letter holds open the possibility that European firms listing in the US could also face similar regulatory exposure, which may discourage transatlantic economic cooperation.
  • The letter indicates that, “while Europe is free to create a hostile business climate for companies in their own jurisdiction,” to protect American companies, the CSDDD’s civil liability provision should be removed from the Directive and not replicated in future EU regulations. These provisions were scaled back, but not eliminated, in the omnibus proposal. 
  • Clarify that US companies are not bound by net zero transition plans akin to those imposed on EU firms. The letter notes that the US has shifted its stance on climate commitments and the CSDDD’s mandatory transition plan requirement should be abandoned. This requirement also was scaled back in the omnibus proposal, but not eliminated.

The State letter

On February 24, officials from 26 states sent a letter to President Trump asking him to direct the United States Trade Representative to open an investigation under Section 301 of the Trade Act of 1974. The officials are requesting this action because “the EU’s sustainability directives are so overreaching and undermine key American interests, including energy dominance and economic stability.” 

Section 301 allows interested parties to petition the Trade Representative to investigate a foreign government act, policy or practice, and subsequently take tariff- and non-tariff-based action to respond to that government’s action if it is determined to be an unreasonable or discriminatory act, policy or practice that burdens or restricts US commerce.

The state letter also asks the President to consider the impact of the CSRD and CSDDD as part of any overarching trade initiatives undertaken with respect to the EU.

The state letter makes many of the same arguments as the Congressional letter.

Michael R. Littenberg is a partner and is the global head of the firm’s ESG, CSR & Business and Human Rights compliance practice. Marc Rotter is in the Capital Markets group.

Link to article on Rope & Gray website.

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