US pressure mounts on EU corporate sustainability rules with extraterritorial reach

The European Union's attempt to set global standards for corporate sustainability is running into organised resistance from Washington. American officials have reportedly warned Brussels that further action could follow if outstanding concerns about the reach of EU sustainability directives are not resolved, according to statements released by the Heartland Institute, an Illinois-based free-market think tank that has been tracking the dispute.

The directives at the centre of the dispute

Two pieces of EU legislation are drawing fire. The Corporate Sustainability Due Diligence Directive, known as CSDDD, requires large companies to identify and address human-rights and environmental risks across their value chains, including those of suppliers and subsidiaries outside the EU. The Corporate Sustainability Reporting Directive, or CSRD, mandates detailed public disclosure of sustainability-related data. Both apply not only to companies based in the EU but also to qualifying foreign businesses that generate significant revenue within the bloc.

That extraterritorial application is the crux of the conflict. A company headquartered in Houston or New York that meets certain EU-revenue thresholds must comply with due-diligence and reporting obligations that extend well beyond its European operations. The logic, from Brussels' perspective, is straightforward: if a firm wants access to the EU's single market of 450 million consumers, it should meet the standards that market demands. The counter-argument, now being pressed with increasing force by Washington, is that the EU is using market access as leverage to impose its regulatory preferences on corporate behaviour worldwide.

Concessions already made by Brussels

European policymakers have not been deaf to the complaints. Since the CSDDD was first enacted, the Commission has narrowed its scope and pushed back implementation timelines. The number of companies directly covered by the directive has been reduced, and several of the original requirements have been stripped out. These modifications were intended to ease the burden on businesses and, in part, to address concerns raised by trading partners.

The concessions, however, have not resolved the underlying objection. Jack McPherrin, a senior policy analyst at the Heartland Institute, argued that even the scaled-back version of the directive retains its most contentious feature: the assertion that European regulators can impose substantive policy obligations on companies operating outside the EU's jurisdiction. The reforms trimmed the edges. The core principle, that a foreign company's global supply chain can be subject to European oversight, remains intact.

The 2025 transatlantic trade framework

The dispute has not been confined to public statements. The United States and the European Union agreed as part of their 2025 transatlantic trade framework that Brussels would work to ensure the CSDDD and CSRD do not impose undue restrictions on transatlantic commerce. The framework also committed the EU to addressing American concerns about applying the directives' requirements to companies based in non-EU countries.

That agreement was a diplomatic achievement, but its language was deliberately vague. What counts as an 'undue restriction' is open to interpretation. Brussels can argue that its sustainability requirements are proportionate and non-discriminatory, applying equally to European and foreign firms. Washington can counter that the practical effect is to force American companies to adopt European regulatory standards across their global operations, regardless of whether those operations touch EU territory. The framework papered over this disagreement without resolving it.

The Heartland Institute's campaign

The Heartland Institute, founded in 1984 and headquartered in Arlington Heights, Illinois, has positioned itself as one of the most vocal American opponents of the EU's extraterritorial regulatory push. In March 2025, it published a policy study titled 'CSDDD: The European Union's Corporate Sustainability Due Diligence Directive Is a Direct Threat to U.S. Sovereignty, Free Markets, and Individual Liberty,' which examined the directive's structure and its potential consequences for American businesses and policymaking.

Lois Perry, who leads Heartland's UK and Europe operations and previously led the UK Independence Party and founded the anti-net-zero group Car26, described the EU's approach in blunt terms. 'This is regulatory imperialism, not cooperation,' she said. 'The EU should stop using access to its market as a weapon to export its political agenda, and the UK and United States should make it very clear that foreign businesses will not accept Brussels dictating how they operate around the world.'

McPherrin struck a more measured tone but reached a similar conclusion. He acknowledged that the EU deserved some credit for scaling back the most burdensome elements of the CSDDD, but insisted that the jurisdictional problem had not disappeared. 'The United States has a legitimate interest in defending its businesses against foreign regulatory mandates that extend beyond reasonable conditions for operating within another country's market,' he said.

Why extraterritoriality divides the transatlantic relationship

The argument over the CSDDD and CSRD is not happening in a vacuum. The EU has form when it comes to regulations with global reach. The General Data Protection Regulation, which took effect in 2018, established the template: any company processing the personal data of EU residents must comply, regardless of where that company is based. GDPR's extraterritorial scope was widely copied, and its success gave Brussels confidence that it could set global standards through market leverage.

Sustainability regulation follows the same logic, but the stakes are higher. GDPR governs data handling. The CSDDD governs supply-chain due diligence across every sector and every jurisdiction where a covered company sources inputs. The compliance burden is heavier, the potential liability is greater, and the intrusion into corporate governance is more direct. A directive that requires a company to audit its suppliers in Vietnam or the Democratic Republic of Congo for human-rights violations goes well beyond requiring that company to protect the data of its European customers.

For European policymakers, this reach is a feature, not a bug. The whole point of due-diligence legislation is to prevent companies from outsourcing environmental damage and labour abuse to jurisdictions with weaker enforcement. If the rules only covered activity within the EU, companies could simply move the worst practices offshore. For American critics, the same reach represents an overreach: European regulators are effectively setting policy for corporate behaviour in countries where European voters and legislators have no democratic mandate.

The sovereignty question

The sovereignty dimension is what makes this dispute harder to resolve than a standard trade disagreement. When the EU imposes tariffs or product standards, the effect is confined to goods and services entering the European market. When it imposes due-diligence requirements that govern how a company sources raw materials in Africa or manufactures goods in Asia, it is making regulatory claims that extend far beyond its borders. The question is not whether the EU can set conditions for market access. It clearly can. The question is whether those conditions can dictate how a non-European company behaves in non-European markets.

The World Trade Organization's rules on technical barriers to trade allow members to set their own product standards, provided they are not disguised protectionism. But the CSDDD goes beyond product standards. It governs corporate conduct. There is no clear WTO precedent for resolving a dispute over a due-diligence mandate that applies to a company's global supply chain, and the organisation's dispute settlement system is itself barely functioning.

This legal uncertainty is one reason Washington has preferred bilateral negotiation to formal litigation. The 2025 trade framework was the first attempt to find a diplomatic off-ramp. Whether it succeeds depends on whether Brussels is willing to grant American companies meaningful exemptions, and whether Washington accepts anything short of a full carve-out for firms headquartered in the United States.

What the Trump administration may do next

The reported warning from US officials that further action could follow suggests that the 2025 trade framework has not settled the matter. The Trump administration has several tools at its disposal. It could open a formal WTO dispute, though the organisation's appellate body has been dysfunctional since 2019. It could impose retaliatory tariffs on European goods under domestic trade laws. It could also direct American regulators to issue guidance stating that compliance with EU due-diligence mandates does not shield companies from US legal requirements, creating conflicting obligations for firms caught between the two jurisdictions.

For European companies, the risk is that American retaliation could hit their own exports. For American companies, the risk is that non-compliance with the CSDDD could shut them out of the EU market or expose them to enforcement actions by national regulators in Germany, France and elsewhere. The Heartland Institute is pressing Washington to take a harder line. Whether the administration follows that advice will depend on how it weighs the economic cost of a transatlantic regulatory confrontation against the domestic political cost of appearing to let European regulators set rules for American firms.