The European Union's Corporate Sustainability Due Diligence Directive (CSDDD, also known as CS3D) has emerged as a significant regulatory hurdle for United States (U.S.)-headquartered companies, particularly those operating in the mechanical and manufacturing sectors. Approved by the Council of the European Union (E.U.) in 2024, CSDDD aims to foster sustainable and responsible corporate behavior by ensuring companies identify and address adverse human rights and environmental impacts throughout their global value chains. However, the Directive's expansive scope introduces profound operational and legal challenges, conflicts with U.S. governance principles, and threatens U.S. jurisdictional sovereignty.

The extraterritorial reach of CSDDD

CSDDD's fundamental challenge lies in its extraterritorial application, which critics argue violates traditional international law principles of territoriality and sovereignty. The Directive applies to non-E.U. companies generating revenue, referred to as net turnover by CSDDD, exceeding €450 million in the E.U. While E.U. lawmakers considered amendments to reduce the scope, even a later proposal targeting companies with more than €1.5 billion in net annual E.U. revenue still applies broadly to U.S. manufacturers.

Once a company is deemed "in scope," its mandatory due diligence obligations extend far beyond E.U. territory to cover its entire global chain of activities, encompassing both upstream and downstream business partners. U.S. entities must align their global operations with E.U. standards derived from international instruments that may not be binding under U.S. law, effectively asserting E.U. regulatory primacy over U.S.-based conduct that is lawful domestically.

Operational strain on supply chains

For U.S. companies, it is important to understand the impacts when selling into the E.U. or supplying companies that sell into the E.U.

CSDDD forces companies to identify and mitigate potential social and environmental risks across every stage of a product's life cycle, from sourcing raw materials to product disposal. Companies must conduct risk-based human rights and environmental due diligence, which involves mapping their operations and carrying out in-depth assessments in areas where adverse impacts are most likely to occur and be most severe.

The due diligence requirements necessitate a thorough examination of complex supply chains. Companies are responsible for the actions of their direct business partners and must assess risks posed by indirect business partners if there is a prospect of an adverse impact. This requirement extends deeply into manufacturers' supply chains, potentially implicating small, privately held and non-E.U. businesses that supply larger companies, even if those suppliers operate solely within the U.S.

This burdensome mandate introduces significant operational complexity, high compliance costs, and the potential for bottlenecks and delays throughout the global manufacturing supply chain.

The serious concerns raised by CSDDD's overreach have prompted direct opposition from U.S. policymakers. Congressional leaders have described CSDDD as an "unwarranted regulatory overreach" imposing significant legal and economic burdens.

Legal and governance conflicts

CSDDD requirements clash directly with fundamental principles of U.S. law and corporate governance. Companies would be required to integrate due diligence practices into their core business strategy, even where these obligations conflict with domestic laws.

1. Liability risks: CSDDD introduces significant legal liability exposure. Parent companies may be held responsible for failures committed by subsidiaries or suppliers. This framework conflicts with the U.S. system, which generally avoids imposing liability for third-party misconduct unless there is direct culpability. Furthermore, E.U. nations may impose penalties for non-compliance.
2. Corporate governance disruption: U.S. corporate governance is often built around managerial discretion and shareholder primacy. CSDDD, conversely, imposes prescriptive legal duties tied to sustainability objectives, requiring U.S. firms to incorporate E.U. perspectives into their business planning. This mandate could be seen as violating U.S. directors' fiduciary duty to act in the best interest of their shareholders, increasing litigation risks in the U.S.
3. Mandatory climate transition plans: The CSDDD requires large companies, including in-scope U.S. companies, to adopt and put into effect a transition plan for climate change mitigation aligned with the Paris Agreement and the E.U.'s climate neutrality objective. U.S. policymakers have urged the abandonment of this requirement, clarifying that U.S. companies are not bound by net-zero transition plans imposed on E.U. firms.

U.S. legislative counter-pressure

The serious concerns raised by CSDDD's overreach have prompted direct opposition from U.S. policymakers. Congressional leaders have described CSDDD as an "unwarranted regulatory overreach" imposing significant legal and economic burdens.

Specifically targeting foreign due diligence regulations, such as CSDDD, Senator Bill Hagerty (R-TN) introduced the Prevent Regulatory Overreach from Turning Essential Companies into Targets Act of 2025 (PROTECT USA Act of 2025). If enacted, this legislation would prohibit U.S. companies—including those in the manufacturing sector—from being forced to comply with CSDDD and would protect them from any enforcement action by the E.U. or its member states for non-compliance. This creates a high-stakes scenario in which U.S. companies may face a significant conflict in navigating compliance obligations if both CSDDD and the PROTECT USA Act apply.

In 2025, several proposals were made to amend and simplify the due diligence requirements, as well as reduce the overall regulatory burden of the CSDDD. The simplification effort is expected to continue throughout the year. The process of amending the CSDDD illustrates the dynamic tension between regulatory intent (fostering sustainable corporate behavior) and practical implementation, often resulting in complex legislative changes—such as an Omnibus package—to mitigate unintended consequences and burdens after the adoption of requirements.

The CSDDD places U.S. companies with significant E.U. revenue in a difficult position. They face sweeping due diligence requirements, vast compliance costs, legal exposure through extraterritorial liability provisions, and potential conflicts with U.S. corporate law, all while navigating domestic legislative pressure aimed at blocking compliance entirely. Policymakers from the U.S. continue to urge the E.U. to revise the scope of CSDDD by limiting its application to territorial jurisdiction, thereby protecting U.S. manufacturers from this costly and unworkable burden.