Understanding the European Union’s Export of ESG through the CSDDD

Author: John Peluso, Policy Analyst

Plymouth Institute for Free Enterprise

TOPLINE: The European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) is an expansion of Environmental, Social, Governance (ESG) mandates on American companies despite U.S.-EU trade negotiations and the European Union’s recent Omnibus I amendments.

BACKGROUND: The European Union’s CSDDD (Directive 2024/1760) requires large companies doing business in the EU to identify and address actual and potential adverse human rights, including forced labor, and environmental impacts in their global operations, subsidiaries, and chains of activities.

Under the March 2026 Omnibus I amendments (Directive 2026/470), non-EU companies with more than €1.5 billion in EU net turnover (net revenue) will have to comply with duties that extend to their global activities. Fines are determined by member states with a cap of 3 percent of net worldwide turnover. The rule takes full effect in 2029 with implementation guidelines set to be issued in 2027.

Post Omnibus I, CSDDD Remains Globalized ESG Regulation

The directive concedes that EU turnover “creates a territorial connection between the third-country companies and the Union territory” (Recital 30). Yet it imposes fines on worldwide revenue and binds subsidiaries and chains of activities outside the EU.

In August 2026, the U.S. government asked the EU to confine the directive to EU-linked activities and to base fines on EU revenue only. While Omnibus I narrowed many requirements, the CSDDD still requires U.S. companies to:

• Engage stakeholders when identifying impacts, developing action plans, and designing remediation for the supposed harms the directive lists. Omnibus I removed the climate transition plan requirement.
• Identify and address harm to rights the directive draws from UN and International Labour Organization (ILO) instruments, including fair wages and an adequate living wage, and the right of communities to lands and resources.

The CSDDD Prevents American Decoupling from Domestic ESG Regulation

Whatever diligence American companies do voluntarily in supply chains or as a result of American law, the CSDDD remains an extra territorial burden. A company that must comply to sell in the EU cannot drop those practices when U.S. law changes. Thus, Europe, not Congress, sets the standard for its U.S. operations.

• The European Commission estimates administrative compliance costs at around €220 million. The long-term opportunity costs from CSDDD is uncertain.

BOTTOMLINE: Despite Omnibus I’s narrowing, the CSDDD remains extraterritorial and law Congress should address it. H.R. 9385, the PROTECT USA Act, would bar certain critical U.S. companies from complying with the CSDDD while exempting aspect of the law “substantively similar” to those adopted by Congress.