February 27, 2025

Scott, Colleagues Express Concerns with the European Union’s Corporate Sustainability Due Diligence Directive

Washington, D.C. – Senate Banking Committee Chairman Tim Scott (R-S.C.) joined House Financial Services Committee Chairman French Hill (R-Ark.), House Financial Services Subcommittee on Capital Markets Chairman Ann Wagner (R-Mo.), House Financial Services Subcommittee on Financial Institutions Chairman Andy Barr (R-Ky.), and Senate Banking Subcommittee on National Security and International Trade and Finance Chairman Bill Hagerty (R-Tenn.) in voicing concerns regarding the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD). In a letter to the Secretary of Department of Treasury, Scott Bessent, and the Director of the National Economic Council, Kevin Hassett, Scott and his colleagues laid out the significant risks CSDDD poses to the competitiveness of the United States.

In a letter the lawmakers wrote, “CSDDD imposes stringent due diligence requirements on in-scope companies, mandating the evaluation of supply chains to identify, mitigate, and eliminate human rights and environmental abuses as defined by United Nations (UN) and Organisation for Economic Cooperation and Development (OECD) principles. However, these principles have not been ratified by Congress, raising concerns about the legitimacy of EU enforcement against U.S. companies based on these principles. Additionally, small businesses that supply larger companies will also be affected, even if their operations are solely within the U.S. Compliance efforts will require significant resource allocation, diverting funds away from critical areas such as research and development, talent acquisition, and investment. Furthermore, U.S. firms will face increased litigation risks and potential enforcement actions from EU member states, with penalties under the Directive reaching up to five percent of a company’s global turnover.

The letter continues, “Beyond economic risks, CSDDD undermines U.S. jurisdictional sovereignty. U.S. corporate governance law distinguishes between publicly and privately held companies, with regulatory obligations calibrated accordingly.”

The letter urges the administration to:

  1. Support European calls to indefinitely pause CSDDD.
  2. Assert that CSDDD’s extraterritorial application is untenable and detrimental to global productivity. European firms listing in the U.S. could also face similar regulatory exposure, which may discourage transatlantic economic cooperation.
  3. While Europe is free to create a hostile business climate for companies in their own jurisdiction, to protect American companies, CSDDD’s Article 29 (civil liability) should be removed from the Directive and not replicated in future EU regulations.
  4. Clarify that U.S. companies are not bound by net zero transition plans akin to those imposed on EU firms. The U.S. has shifted its stance on climate commitments, and CSDDD’s Article 22 on mandatory transition plans should be abandoned.

To read the full letter, click here.

BACKGROUND:

The letter builds on Chairman Scott’s oversight efforts to prevent the application of burdensome European climate-related disclosure policies, as well as labor and social justice initiatives, on U.S. businesses.

In June of 2023, Scott and Representative James Comer (R-Ky.) sent letters to both the Department of the Treasury and the Securities and Exchange Commission (SEC) requesting information on the Biden administration’s activities taken in coordination with the European Union (E.U.) on environmental, social, and governance (“ESG”) and climate-related measures that significantly impact U.S businesses, including E.U. climate-related disclosure mandates. Scott outlined potential harm these measures would have on American industry and expressed his concern with Treasury and other federal agencies empowering European governments to impose onerous extra-territorial climate mandates on American businesses.

In the June 2023 letter, Scott asserted, “any such efforts to advance the E.U.’s ESG agenda over the interests of the U.S. and American companies would be contrary to Treasury’s role to promote and protect the economic success and well-being of U.S. firms and a significant deviation from historical practices. Furthermore, shifting to an E.U.-style climate regulatory regime in the U.S. would materially and unnecessarily harm our nation’s oil and gas sector, agriculture sector, and our preeminent capital markets.”

After receiving a lackluster response from the SEC, Scott and Comer requested transcribed interviews of SEC officials to understand the SEC’s role and activities in the development of E.U. climate related corporate disclosure directives.

In September 2024, Chairman Scott joined Senator Bill Hagerty (R-Tenn.), Representative Andy Barr (R-Ky.), and their colleagues in urging Treasury Secretary Janet Yellen and senior Biden-Harris administration officials to stand up for U.S. economic interests and engage with their European counterparts to delay CSDDD’s implementation and repeal or substantially modify the directive.

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