The European Union’s controversial Corporate Sustainability Due Diligence Directive (CS3D) and Corporate Sustainability Reporting Directive (CSRD) are both undergoing amendments to streamline and reduce the heavy burden both Directives place on companies to undertake sustainability reporting in the EU.
While the simplification process is a welcome step, none of the amendments proposed thus far adequately address the serious concerns about both Directives’ extraterritorial application. Both CS3D and CSRD apply to companies with annual EU revenue exceeding €450 million at the entity or group level, requiring such companies to publish reports on corporate social and environment plans and risks, and requiring them to report in detail how they will satisfy certain environmental and human rights goals. The wide-ranging nature of these Directives, however, could also impact companies with only minimal, indirect links to the EU market. Notably, both the CS3D and CSRD challenge traditional principles of territoriality and sovereignty in international law, where jurisdiction is typically tied to physical presence or conduct within a specific territory.
Through CS3D, the EU is in effect asserting regulatory primacy even across company operations with no territorial link to the EU. U.S.-headquartered companies must align their global operations with EU standards derived from international instruments that are not binding under U.S. law, and may be held liable in EU courts for U.S.-based conduct that is lawful in the U.S. To help policymakers and stakeholders better understand the implications of these broad new directives, the U.S. Chamber of Commerce released a new report explaining how CS3D and CSRD would impose significant obligations on third-country companies and global supply chains. The report details CS3D’s regulatory overreach and its extraterritorial impact, highlighting how application to non-EU companies may conflict with international legal principles and the sovereignty of third countries. It also explores CS3D’s tension with U.S. law and operational challenges for U.S.-parented companies.
Impact on Non-EU Companies
While CS3D expressly applies to non-EU companies generating more than €450 million in the EU at entity or group level, its due diligence obligations extend well beyond EU territory. Once a company is considered “in scope,” it must conduct due diligence not only in its own operations but across its entire global chain of activities, covering both upstream and downstream business partners. Companies must also integrate due diligence practices as defined by CS3D into their core business strategy, even in cases where such obligations conflict with domestic laws.
Due in no small part to such unreasonable burdens imposed on their companies, countries including Brazil, Argentina, Australia, the GCC, India, South Africa, and the UK have all expressed concerns about CS3D’s extraterritorial impacts.
Conflict with U.S. Law
U.S. law generally avoids imposing liability on boards of directors for the misconduct of third parties absent direct culpability. Yet under CS3D, parent companies may be held responsible for failures in subsidiaries or suppliers. This results in a direct conflict of governance philosophies—one system built around managerial discretion and shareholder primacy and the other around prescriptive legal duties tied to sustainability objectives.
The EU Should Change Course on CS3D
The U.S. Chamber has raised several concerns about CS3D and CSRD, particularly on provisions related to climate transition plans and liability. On the question of extraterritoriality, we urge the EU to revise CS3D’s scope, limiting its application to companies incorporated or headquartered within the EU and to activities conducted within EU territory. By removing the extraterritorial provisions and focusing on territorial jurisdiction, the EU can still pursue its sustainability goals without undermining international law or alienating key trading partners.
2025 Review of the EU Corporate Sustainability Due Diligence Directive’s Conflict of LawAbout the author