Basics
Europe’s Corporate Sustainability Due Diligence Directive
Climate & Sustainability Energy & Utilities
Published on April 7, 2025
Explore This BasicIn 2024, the European Parliament and Council of the European Union enacted broad legislation to enhance European competitiveness in global markets and impose standards on large multinational enterprises (MNEs) conducting business in the European Union (EU). This law, the Corporate Sustainability Due Diligence Directive (CS3D), aims to set a standard for companies to perform due diligence duties regarding impacts on human rights and the environment. This standard extends to a company’s subsidiaries and business partners in the value chain. The CS3D also establishes “an obligation for large companies to adopt and put into effect, through best efforts, a transition plan for climate change mitigation aligned with the 2050 climate neutrality objective of the Paris Agreement as well as intermediate targets under the European Climate Law.”
The CS3D effectively codifies an array of international conventions and associated obligations, many of which have not been ratified by the U.S. Other agreements made binding by the CS3D are the U.N. Guiding Principles on Business and Human Rights, OECD’s Guidelines for Multinational Enterprises on Responsible Business Conduct and Due Diligence Guidance for Responsible Business Conduct, the International Covenant on Civil and Political Rights, and the International Covenant on Economic, Social, and Cultural Rights.
U.S.-based MNEs with at least €450 million net turnover (revenue) in the EU are subject to CS3D’s requirements, regardless of corporate presence in Europe. Fines would be imposed on non-EU parent companies and subsidiaries if they fail to comply, with the maximum limit of penalties amounting to no less than 5% of companies’ net worldwide turnover (revenue).
Since its enactment, the CS3D has raised concerns among some industry stakeholders and policymakers. While Europe seeks to strengthen its competitiveness in global markets, the EU’s exertion of extraterritorial regulation over other nations’ businesses has caused consternation among some MNEs and national governments. Challenges around the workability of its requirements, potential for significant fines, and exposure to litigation in multiple European jurisdictions are among the key drivers for growing concern.
Links to Other Resources
- American Bar Association – The EU Due Diligence Directive: Implications for U.S. Companies
- American Council for Capital Formation – New EU directive puts global supply chains and sovereignty at risk
- American Council for Capital Formation – Chairman French Hill on the EU Corporate Sustainability Directive’s Impact on U.S. Businesses (webinar)
- CEEMET – Towards EU due diligence that works for all
- EuractivReuters – Obama shields US airlines from EU’s carbon scheme
- European Commission – Corporate sustainability due diligence
- European Commission – The future of European competitiveness: Report by Mario Draghi
- U.S. Chamber of Commerce – Coalition Letter to Congress Voicing Concerns Over EU Corporate Sustainability Due Diligence Directive
- U.S. Chamber of Commerce – What the EU’s Corporate Sustainability Due Diligence Directive Means for Business
- U.S. Chamber of Commerce – Europe’s Competitiveness Challenge: Pathways to Renewed Growth
- U.S. Congress – S.1956 – European Union Emissions Trading Scheme Prohibition Act of 2011
- Senator Bill Hagerty – “Hagerty Introduces Legislation to Protect U.S. Businesses from European Regulators’ Power Grab”