Clifford Chance

The EU Commission's Omnibus Proposal aims to streamline key sustainability laws. Meanwhile, US state and federal lawmakers take aim at those laws in an attempt to curb perceived regulatory capture.

On February 26, 2025, the EU Commission released its long-awaited Omnibus proposal ("the Proposal"), designed to, among other things, consolidate and simplify the EU's sustainability reporting and due diligence rules as reflected in the Corporate Sustainability Reporting Directive ("CSRD"), the Corporate Sustainability Due Diligence Directive ("CSDDD"), and the EU Taxonomy Regulation: see our blog post here.

In addition, the Proposal suggests changes to the EU Carbon Border Adjustment Mechanism ("CBAM"). While this blog focuses on the changes to the CSRD and the CSDDD, further information on the proposed changes to the CBAM can be found in our latest briefing.

The EU Commission has framed the Proposal as being driven by concerns to reduce the regulatory and compliance burden posed (or soon to be posed) by existing laws in the interests of competitiveness while continuing to meet the sustainability objectives of the European Green Deal.

The CSRD and CSDDD are extraterritorial in effect, requiring US and other non-EU companies with defined turnover in the EU to report on sustainability matters and to conduct human rights and environmental due diligence as well as adopt and put into effect a climate transition plan. Further information on the current CSDDD's impacts on US companies can be found here.

Implications of the Omnibus Proposal for US and other non-EU Companies

The Proposal would amend the threshold criteria for companies to fall within scope of the CSRD reporting requirements with the expected outcome of removing around 80 percent of companies that are currently in scope. It would raise the threshold for EU companies (including the EU-incorporated subsidiaries of non-EU parent companies) to those companies with more than 1,000 employees on average and either a net worldwide turnover above EUR 50 million or a balance sheet above EUR 25 million.

It is unclear whether and how the Proposal will affect the first wave of companies currently reporting under the CSRD for FY2024. If the Proposal is approved by the EU Parliament and Council, however, many EU subsidiaries of US and other non-EU companies that are required to report in "wave 2" (currently defined as "large undertakings") for FY2025 would fall out of scope. For those EU subsidiaries of US and non-EU companies that would remain in-scope, the Proposal postpones reporting for "wave 2" until 2028, i.e. reporting on FY2027 data. Under the Proposal, "wave 3" companies, listed small and medium-sized enterprises among other entities, would be rendered out of scope.

For US and non-EU ultimate parent companies (defined as "third country undertakings") currently in scope of CSRD as of FY 2028, i.e. reporting in 2029, the Proposal suggests raising the applicable threshold for the ultimate third country parent undertakings from EUR 150 million to EUR 450 million annual EU turnover (on either an individual or consolidated basis), which would remove some of those US and other non-EU companies from scope. In addition to meeting the EU turnover thresholds, these ultimate non-EU parent companies would also need to have:

• either an EU subsidiary qualifying as "large" (i.e. meeting two of three criteria: (i) turnover above EUR 50 million; (ii) a balance sheet exceeding EUR 25 million; or (iii) more than 250 annual employees on average); OR
• an EU branch with turnover exceeding EUR 50 million (currently EUR 40 million).

Significantly, while an EU subsidiary may itself be out of scope for not meeting the 1,000 employee threshold, its non-EU ultimate parent may nevertheless fall in scope.

For more information on the Proposal's other changes to CSRD and sustainability reporting requirements, see our blog. On the development of reporting standards for US and other non-EU parent companies under the CSRD, please see our previous post.

In contrast to CSRD, the CSDDD's definitions of in-scope companies would be unchanged under the Proposal. It is estimated that about 900 US and other non-EU companies are currently in scope. The Proposal would still require in-scope US and other non-EU companies to comply with the human rights and environmental due diligence obligations in the CSDDD. However, the scope of some of the relevant due diligence obligations would be tailored under the Proposal, as explained in our blog.

The Proposal would eliminate some features of the CSDDD about which some businesses had expressed concern. For example, it would eliminate the requirement for EU Member States to make provision for a civil cause of action where harm results from failures of certain of the CSDDD due diligence obligations (though the Proposal would not exclude civil liability consequences where national law allows for it). Although in-scope US and other non-EU companies would still be subject to supervision by and potential enforcement penalties from relevant EU member state authorities for non-compliance with the CSDDD, the requirement for EU Member States to link penalties for such non-compliance with the CSDDD to companies' turnover would be removed if the Proposal is adopted. Also, the requirement for in-scope companies to "adopt" a climate transition plan would remain, however the requirement to also "put into effect" the climate transition plan would be removed (although companies would still be required to report on implementation measures).

The Proposal would give companies more time to prepare to comply by delaying compliance by a year until July 26, 2028 for the largest in-scope companies. The deadline for the EU Commission to issue guidance and best practices on how to conduct due diligence in accordance with CSDDD has been brought forward by one year (to mid-2026).

US Lawmakers Urge Trump Administration Action Against CSRD and CSDDD

Even with the Proposal scaling back some of the CSRD and CSDDD's key provisions and scope, such claw backs are unlikely to be enough for the United States, which has been vocal under both the Biden Administration and now the Trump Administration, against CSRD and CSDDD imposing obligations on US companies. 

On the same day the EU Commission released the Proposal, a group of Republican Members of Congress sent a letter to Treasury Secretary Scott Bessent and Director of the National Economic Council Keven Hassett, urging the Trump Administration to take action on CSDDD.

The letter outlined various concerns with the CSDDD's extraterritorial scope, arguing that adopting European "stakeholder perspectives" into their business models may compel US corporate directors to violate their fiduciary duty to act in the best interest of their shareholders. The letter's authors include Senate Banking Chair Tim Scott and House Financial Services Chair French Hill, the latter repeating his call for the United States to treat the CSDDD as a "non-tariff trade barrier" when engaging with the EU on trade. The lawmakers made four requests to the administration in its engagements with EU counterparts:

1. Support calls to indefinitely pause CSDDD, including that recently made by France.
2. Assert that the CSDDD's extraterritorial effects are untenable in engagements with EU counterparts.
3. Call for the removal of CSDDD Article 29, which compels Member States to create a civil liability regime for in-scope companies (already reflected in the current Proposal).
4. Clarify that the United States is not bound by the CSDDD's climate commitments, including net zero transition plans outlined in CSDDD Article 22.

At the state level, on February 24, 2025, officials representing 26 states sent a letter to the White House, calling for the Office of the U.S. Trade Representative ("USTR") to open a Section 301 investigation into the EU on the basis of the CSDDD, CSRD and European Green Deal's "overreach" and undermining of "key American interests." Section 301 of the Trade Act of 1974 empowers the USTR to take certain responsive economic measures, including tariffs, to respond to "unjustified, unreasonable, or discriminatory" restrictions on US trade and commerce. 

Outlook on Trump Administration Response

On January 29, 2025, newly confirmed U.S. Secretary of Commerce, Howard Lutnick described the CSDDD as a "serious concern for American industry," and that he would "consider using all available trade tools at [the United States'] disposal" to "prevent overly burdensome regulations that negatively impact US companies."

The Trump Administration has already demonstrated a willingness to strategically deploy tariffs and Section 301 investigations. On February 27, President Trump announced his administration was preparing a new round of EU-wide tariffs. It will be important to track whether the CSDDD or other EU sustainability directives factor into any White House decision to ultimately impose such tariffs.

Our global team will continue to closely monitor developments.