The European Union is unlikely to enforce the new sustainability due diligence directive against US companies, though this could change as relationships between Brussels and Washington evolve, according to academics.

The view comes from academics in Milan, the US and Israel after reviewing reforms of the Corporate Sustainability Due Diligence Directive (CSDDD or CS3D), legislation that has prompted anger among Republic politicians in the White House and Congress.

Luca Enriques, Matteo Gatti and Roy Shapira, writing for the Oxford University business law blog, argue: “Ultimately, the political climate, influenced by both internal EU dynamics and external pressures from the US, make it difficult to envision EU regulators aggressively targeting US firms for CS3D non-compliance, though this could change rapidly with shifts in the political landscape.”

The legislation is currently undergoing reform as part of the EU’s “omnibus” project to streamline green reporting rules, including the Corporate Sustainability Reporting Directive (CSRD).

The move was launched after complaints from leading EU capital cities and a report published last year on EU competitiveness by former European Central Bank president Mario Draghi.

In the report, Draghi identified both CSDDD and CSRD as a “major source of regulatory burden”.

Competing pressures

The blog argues the impact of CSDDD may be affected by three factors: internal pressure for reform, which would dilute sanctions, among other things; pressure from the US where the CSDDD provokes anger; and reforms to Delaware Corporate Law that change the way company information is made available to litigants.

US politicians have reacted badly to the due diligence law. There were early hints this year that it might become a point of tension in trade negotiations. In January, Andy Barr, a House of Representatives member, told Politico that the EU directives were an “example of a foreign regulation that puts America last”.

Another US politician, senator Bill Hagerty, has introduced new legislation for consideration—the PROTECT USA Act—which would prohibit US companies from complying with “foreign” sustainability due diligence legislation.

In a statement, he said: “American companies should be governed by US laws, not unaccountable lawmakers in foreign capitals.

“The European Union’s ideologically motivated overreach is an affront to US sovereignty.”

Elsewhere, right-wing commentators have singled out the CSDDD for particular opprobrium. Writing for Fox News, Justin Haskins described it as “foreign tyranny disguised as climate activism”.

The final version of CSDDD is still to be determined. The EU may choose to limit its scope, or it may choose to ignore US non-compliance. Given the uncertainty of politics with America, predicting an outcome remains a difficult process.