Culling CSRD, CSDDD: EU-US Trade Deal Poses Significant Sustainability Setback<\/p>\n
August 22, 2025<\/p>\n
By Jack Grogan-Fenn<\/a><\/p>\n The EU\u2019s Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD)\u00a0are set to suffer a significant hit due to the trade deal between the EU and the US.<\/p>\n The EU pledged<\/a> to \u201censure\u201d that the CSRD and CSDDD \u201cdo not pose undue restrictions on transatlantic trade\u201d as one of 19 key terms of the trade agreement with the US. The EU said that the agreement \u201crepresents a concrete demonstration of our commitment to fair, balanced, and mutually beneficial trade and investment\u201d and could be further expanded in future.<\/p>\n Under key term 12 of the agreement, the EU intends to undertake efforts to reduce perceived administrative burdens on businesses arising from CSDDD. This includes small- and medium-sized enterprises, and the EU has also proposed changes to the requirement for a harmonised civil liability regime for due diligence failures and to climate-transition-related obligations.<\/p>\n \u201cThe European Union commits to work to address US concerns regarding the imposition of CSDDD requirements on companies of non-EU countries with relevant high-quality regulations,\u201d the agreement read.<\/p>\n Aurore Lalucq, President of the European Parliament\u2019s Economic and Monetary Affairs Committee, branded<\/a> the agreement as a \u201cdisgrace\u201d. \u00a0\u201cWe didn\u2019t even sell Europe, we just gave it away,\u201d she said. \u201cWe are no longer sovereign and come with our money to serve the United States. You might as well be an American state at this point.\u201d\u00a0<\/p>\n Andreas Rasche, Professor at Copenhagen Business School added that<\/a> the statement shows that the EU is \u201cprepared to downscale relevant regulations to address US concerns\u201d. ShareAction\u2019s Interim Head of EU Policy Richard Gardiner also described<\/a> the news as \u201cvery worrying\u201d.<\/p>\n The CSDDD aims to promote sustainable and responsible corporate behaviour both in companies\u2019 operations and throughout their global value chains. Meanwhile, the CSRD looks to enhance the availability and reliability of sustainability information while fostering a culture of transparency regarding companies\u2019 impact on people and the environment.<\/p>\n Both the CSRD and CSDDD already look set to be significantly watered down the European Commission\u2019s Omnibus directive. As reported by Minerva Analytics<\/a>, the European Council\u00a0agreed<\/a>\u00a0on a negotiating mandate to \u201csimplify\u201d sustainability reporting and due diligence requirement as part of the European Commission\u2019s first omnibus package in June.<\/p>\n The Council\u2019s position most dramatically impacts CSDDD, proposing to increase the thresholds of the directive to\u00a05000 employees\u00a0and\u00a0\u20ac1.5 billion (U$1.7 billion) net turnover. This would mark a significant shift from the directive\u2019s original thresholds of companies with more than 1,000 employees and a worldwide turnover surpassing \u20ac450 million.<\/p>\n The omnibus is also looking to shift the scope of the CSRD, with mandatory reporting only apply to companies with more than 1,000 employees, as will be the case for the CSDDD in 2029 under current plans. Some estimates suggest this would represent a dramatic 85% reduction in the number of companies that fall within the scope of the CSRD.<\/p>\n Last week, the President of the European Central Bank Christine Lagarde warned against weakening the CSRD in a letter<\/a> sent to the European Parliament<\/p>\n She wrote that the proposed reduction in the scope of undertakings subject to sustainability reporting requirements under the CSRD \u201cwould limit the availability of firm-level data, thereby weakening the Eurosystem\u2019s ability to perform a granular assessment of climate-related financial risks on its balance sheet and within its collateral framework\u201d. <\/p>\n Lagarde also stressed that the omnibus must \u201cstrike the right balance between retaining the benefits of sustainability reporting for the European economy and the financial system while also ensuring that the requirements are proportionate\u201d.<\/p>\n Other sustainability-related pieces of legislation also look to be under threat from the agreement. One of these is the EU Deforestation Regulation, detailed in key point ten of the document. The agreement stated that the US \u201cposes negligible risk to global deforestation\u201d, with the EU committing to \u201cwork to address the concerns of US producers and exporters regarding the EU Deforestation Regulation, with a view to avoiding undue impact on US-EU trade\u201d.<\/p>\n The agreement also noted \u201cconcerns\u201d related to treatment of US small and medium-sized businesses (SMEs) under the EU\u2019s Carbon Border Adjustment Mechanism (CBAM). On top of the recently agreed<\/a> increase of the\u00a0de minimis\u00a0exception to reduce administrative burden for SMEs, the Commission has also committed to provide \u201cadditional flexibilities\u201d in the implementation of CBAM for US companies.<\/p>\n As part of the agreement\u2019s key terms, the\u00a0EU will purchase US liquified natural gas, oil, and nuclear energy products with an expected offtake valued at U$750 billion through 2028. The EU has additionally pledged to purchase at least U$40 billion worth of US AI chips for its computing centres.<\/p>\n European companies will be expected to invest an additional U$600 billion across strategic sectors in the United States through 2028, with the sectors benefitting from this investment yet to be specified.<\/p>\n The EU also looks set to water down food safety standards. As part of its commitment to address non-tariff barriers impacting food and agricultural products trade, the EU intends to streamline requirements for sanitary certificates for pork and dairy products.<\/p>\n