Is a Weakened CS3D Still Too Much?

The European Union has been grappling with its Corporate Sustainability Due Diligence Directive (CSDDD, or CS3D for short). The directive, which imposes significant obligations on companies doing business in the European Union, has run into a buzzsaw of resistance from European businesses, companies from other countries including the United States, and most recently, some of its own politicians. At the May 2025 Choose France business summit,” President Emmanuel Macron said, “CSDDD and some other regulations have to not just be postponed for one year, but to be put out of the table,” explicitly linking it to EU competitiveness. Earlier that same month, German Chancellor Friedrich Merz said, “We will revoke the national law in Germany. And I also expect the European Union to follow suit and really cancel this directive.” The result has been a set of proposed amendments to the directive—many of which are reflected in the Omnibus I agreement now set for formal adoption—although it remains to be seen whether these changes will be sufficient to calm the obviously troubled waters. The following questions and answers attempt to unpack the directive, the processes it creates, and where it might be heading.

Q1: What is the Corporate Sustainability Due Diligence Directive?

A1: The directive is an attempt to strengthen corporate responsibility in a wide variety of areas including human rights, child and forced labor, and climate issues such as emissions, pollution, and deforestation. It is intended to align with the goals of the Corporate Sustainability Reporting Directive (CSRD) and the European Green Deal agenda. It does so through a variety of requirements, including a detailed reporting process. The European Commission explains its purpose as “to foster sustainable and responsible corporate behavior in companies’ operations and across their global value chains. The new rules will ensure that companies in scope identify and address adverse human rights and environmental impacts of their actions inside and outside Europe.”

The directive went into effect on July 25, 2024, and gave member states two years to put it into their national laws. As originally enacted, large companies (over 5,000 employees and over €1.5 billion in turnover) had until July 26, 2027, to comply; companies with over 3,000 employees and over €900 million in turnover had an additional year, and companies with over 1,000 employees and over €450 million in turnover had an additional two years. Foreign companies were not covered if their EU-based operations or revenue met any of these levels.

Basic corporate obligations include:

• Integrate due diligence into policies/management systems.
• Identify and assess adverse human rights and environmental impacts.
• Prevent, cease, or mitigate actual or potential adverse impacts.
• Monitor effectiveness of measures.
• Publicly communicate on due diligence efforts.
• Provide remediation.

These corporate obligations apply to a business’s full “chain of activities,” including both downstream activities such as distribution, transportation, and storage, and upstream suppliers. Downstream activities related to the services a business provides are exempt, meaning financial institutions are not responsible for the actions of the firms they finance. In addition, companies were originally required to develop transition plans compatible with the Paris Agreement’s 1.5℃ temperature goal.

The directive is not mere rhetoric. Member states are required to create supervisory authorities which can impose penalties of at least 5 percent of a company’s global net turnover for noncompliance. They must also permit civil liability for intentional negligence in complying with the directive’s requirements.

Q2: What has been the reaction to the directive?

A2: As mentioned above, the initial directive drew a great deal of criticism which escalated into calls for its amendment or repeal. Support for it, aside from the Commission, has come from some large companies, including IKEA, Unilever, and Volkswagen, organized labor, and environmental and civil society organizations. Proponents argue that a common legal framework throughout the European Union will provide more legal certainty than individual national rules, enhance corporate accountability for human rights and the environment by moving away from purely voluntary measures, and bring EU business into greater alignment with internationally agreed-upon standards like the UN Guiding Principles on Business and Human Rights and the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises. Advocates have also rejected the claim that more stringent due-diligence obligations will undermine European competitiveness, noting that the rules apply equally to EU and non-EU firms and that the affected companies are large enough to absorb the associated compliance costs without significant financial impact.

Critics have focused on three major issues: (1) extraterritoriality, (2) compliance costs, and (3) civil liability and fines. The U.S. Chamber of Commerce has criticized the directive on those grounds, focusing on the potential fines the Commission could impose and on the right of private parties to sue companies for their alleged human rights or environmental failings, and on the directive’s application to non-EU companies that may not even have a physical presence in the European Union. For example, there has already been litigation in Germany under a similar German law against a German company’s labor activities in Alabama that are legal in the United States. A U.S. Chamber report from October 9, 2025, elaborated:

Through CS3D, the EU is in effect asserting regulatory primacy even across company operations with no territorial link to the EU. U.S.-headquartered companies must align their global operations with EU standards derived from international instruments that are not binding under U.S. law, and may be held liable in EU courts for U.S.-based conduct that is lawful in the U.S. . . . The U.S. Chamber of Commerce released a new report explaining how CS3D and CSRD would impose significant obligations on third-country companies and global supply chains.

Others have expressed concerns about the directive’s workability, since it requires companies to exert an unprecedented degree of oversight and control over their suppliers, many of which are in non-EU countries and not subject to EU laws.

Criticism has also come from the private sector inside the European Union. On October 6, 2025, 46 European CEOs, led by TotalEnergies and Siemens, wrote a two-page letter to President Macron and Chancellor Merz urging actions to make the European Union more competitive, including abolishing CSDDD.

The two compromise versions have produced predictable reactions, with supporters of the original proposal complaining that it is now too weak, and opponents welcoming the amendments but arguing that they do not go far enough. Richard Gardiner, interim head of EU policy at ShareAction, a charitable organization that focuses on responsible investment, said that the revised version

risks not only gutting the impact of landmark laws like the CSDDD and CSRD but drives a stake through the heart of Europe’s wider sustainability agenda. . . . What we’re witnessing isn’t just a watering down of ambition, but a public alliance of political forces fundamentally opposed to sustainability itself.

Q3: What did the European Commission propose in response to criticism of the initial directive?

A3: In response to widespread criticism of the directive’s expansive scope, the legal affairs committee of the European Parliament on October 13, 2025, proposed amendments based on the European Commission’s simplification proposals from February 2025 (which address other directives in addition to CSDDD) that would change the applicability requirements by eliminating the three-tier structure described above and instead create a single category covering firms of more than 5,000 employees and over €1.5 billion in turnover. The amendments would also weaken the transition plan requirement, limit in-depth due diligence to areas where adverse impacts are most likely, and cap the potential fines at 5 percent of turnover. The first change would significantly reduce the number of companies affected from the 6,900 estimated by the Commission (independent analysts put the original number closer to 4,280 if you treat corporate groups as single entities).

Q4: What has happened since then, and what comes next?

A4: On October 22, the European Parliament effectively rejected the amendments by voting 309-318 (with 34 abstentions) against giving the Parliament a mandate to open trilogue negotiations on the directive with the Commission and the European Council.

The vote was by secret ballot, so it is not possible to determine its actual makeup, but it appears that it was a case of the left and the right ganging up on the center—although it seems there were also defections from center-left parties. The left believes the compromise proposal watered down the directive, undermining its due diligence goals, and the reduction in the number of companies covered received considerable criticism. In contrast, the right believes the amendments did not go far enough in watering down the proposal, which most of them consider a grave threat to European commercial competitiveness.

As a result, the issue returned to the legal affairs committee, which produced a further revised version, which the Parliament approved on November 13, 2025, by a 382-249 vote. The revised version retained the higher eligibility thresholds of the earlier compromise and eliminated the requirement for companies to prepare a transition plan for compatibility with the Paris Agreement. In addition, it shifted liability for enforcing compliance from the Commission to the member states and simplified the reporting and supply chain information gathering requirements. This version reflects an alliance with center-right and far-right parties, in contrast to the earlier one.

On December 9, 2025, the European Council announced that a provisional agreement had been reached with the European Parliament’s negotiators regarding the CSDDD, sending the proposal to a vote at the December 16 plenary session. This version of the agreement aligns with November’s revised proposal in that it only applies to large corporations (5,000 employees and €1.5 billion turnover), limits due diligence to areas where actual and potential adverse events are most likely to occur, removes climate transition requirements, lowers the maximum penalty to 3 percent of global turnover, and postpones the compliance deadline to July 2029. The Parliament approved the agreement with 428 votes for, 218 against, and 17 abstentions. Once member states approve the agreement, the CSDDD will be formally adopted.

Q5: How does CSDDD fit into the European Union’s overall regulatory scheme?

A5: The European Union has long prided itself on being the world’s leader on a wide range of regulations dealing with how countries control and operate their societies. The EU privacy directive, numerous digital regulations including the Digital Markets Act (DMA) and the Digital Services Act (DSA), artificial intelligence regulations, its Climate Border Adjustment Mechanism (CBAM), and the deforestation regulation, among others, set up enforceable requirements for how companies must conduct themselves in a modern digital economy. These regulations have been controversial in the European Union, but they have also attracted foreign criticism since they apply to companies doing business in the bloc or exporting goods to it. Criticism from both U.S. political parties and several presidential administrations has been particularly pointed. U.S. critics make two main points in addition to numerous specific objections to details of the various regulations.

First, critics argue that many of the regulations, particularly in the digital sector, are aimed specifically at U.S. companies. The DMA and DSA, for example, overwhelmingly capture large U.S. digital service providers such as Alphabet, Apple, Meta, and Microsoft. During debate over the regulations, some European officials acknowledged their intent was to focus on U.S. companies while others denied it. In contrast, CSDDD, while clearly affecting U.S. companies (likely including those just mentioned) primarily affects EU companies.

Second, U.S. critics point out the difference in approach between the EU and U.S. regulatory models. The former can best be described as prescriptive and ex ante, the latter as descriptive and ex post. In other words, EU regulations tend to lay out a detailed set of instructions on how companies are supposed to behave, create enforcement authorities to monitor company behavior, and set up an enforcement structure involving large fines for those who do not comply. U.S. regulations tend to be more focused on the end objective than on the means of achieving it, and enforcement generally comes after a violation becomes evident. (These differences are the main reason why the European Union and the United States have had so much difficulty over the past 40 years in agreeing on common health, safety, and environmental regulations.)

CSDDD is the latest example of the EU approach. It imposes significant burdens on companies, including many from the United States, and threatens large fines for failure to comply. At this point, the impact is theoretical since the directive has not gone into effect, and compliance deadlines are a few years away. A timely analog, however, is the bloc’s CBAM, where reporting requirements have already begun, and import fee payments will begin in 2026. As the point of actual consequences nears, public opinion has begun to shift in the direction of greater skepticism.

William Reinsch is senior adviser and Scholl Chair emeritus with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, DC. Michael H. Gary is a former intern with the Economics Program and Scholl Chair in International Business at CSIS.