EU’s ESG Cutbacks Spark Fresh US Tensions Amid Ongoing Discontent
The European Union’s ESG framework — a shadow of its former self after a year of deep cuts — is drawing renewed threats from the US.
At the heart of the matter are the extraterritorial aspects of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Recently, the EU reached an agreement to exempt over 80% of companies that were initially in scope. However, large foreign firms operating within the EU will still be subject to these regulations.
The US has expressed its dissatisfaction clearly. Jamieson Greer, President Donald Trump’s top trade negotiator, has labeled the EU’s ESG deal as insufficient. He warned that the trans-Atlantic tariff agreement established this year, which includes assurances from the EU that its ESG regulations won’t hinder trade, could be jeopardized if further concessions are not made.
Read more: Europe Agrees to Drastic ESG Cuts After US Pressure Intensifies
“They have to deliver on this,” Greer stated during a recent Senate hearing. “The reality is, if the Europeans don’t deliver on what they’ve committed, they won’t receive the benefit of the tariff relief they’ve been granted.”
This escalating tension adds to the existing friction between Washington and Brussels, which spans various issues from tech regulations to defense spending. The Trump administration has openly criticized environmental, social, and governance standards, with US Energy Secretary Chris Wright dismissing key initiatives like net-zero goals as “terrible” policy.
EU lawmakers interviewed by Bloomberg have indicated that there is little flexibility in the bloc’s revamped ESG framework to accommodate US demands. “This outcome was politically unavoidable,” remarked Jorgen Warborn, a lawmaker from the center-right European People’s Party who oversaw negotiations to reduce the CSRD and CSDDD in the EU Parliament.
“Options such as repealing the directive entirely or limiting it only to EU-based companies were never viable — both to preserve a level playing field and to secure a parliamentary majority,” Warborn explained. He emphasized that the CSDDD, which imposes significant financial penalties on companies failing to monitor their value chains for environmental and human rights violations, is inherently an extraterritorial instrument, thus maintaining its overall reach.
Proponents of ESG caution that not requiring companies operating in the EU to adhere to the bloc’s sustainability rules could have dire consequences, particularly as investors would struggle to assess where to allocate their capital.
Currently, there is scant evidence that investors are deterred by the potential risk of US companies lagging behind their European counterparts in ESG disclosures and due diligence. In fact, Europe-domiciled funds holding US equities attracted $56 billion in net new investments in the year leading up to October, according to Morningstar Direct. This figure is comparable to the amount that flowed into Europe-domiciled funds holding European equities.
A spokesperson for the European Commission stated that the bloc’s regulations ensure a level playing field for all companies, asserting that the EU will enforce these rules fairly and without discrimination. Engagement with the US will persist as Europe implements the EU-US joint trade agreement, the spokesperson added.
In July, the EU and US agreed to limit tariffs on most EU exports to 15%, which included a commitment from the EU to ensure that the CSDDD and CSRD do not obstruct trade. Since then, EU lawmakers and member states have addressed specific US concerns, including the removal of mandatory climate transition plan requirements.
Despite these adjustments, the legislation has “safeguarded” the core objectives of Europe’s ESG regulations, according to Pascal Canfin, a senior lawmaker negotiating for the EU’s centrist Renew Party. “The proof is that the Trump administration continues to oppose these laws,” Canfin stated after the December 16 vote. He noted that companies like Exxon Mobil Corp. could face fines of nearly $10 billion for non-compliance with the CSDDD.
US lawmakers have signaled their intent to push back strongly against these developments. During his remarks to the Senate appropriations committee, Greer responded to Republican Senator Bill Hagerty, who has previously stated he would use “every tool” at his disposal to block the CSDDD and introduced the Prevent Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA) Act of 2025.
“This is extremely egregious, this attempt to overreach as they have,” Hagerty remarked at the December 9 hearing, emphasizing that both chambers of Congress are actively pursuing legislation to counter the CSDDD. “Lawmakers remain very aggressively focused on maintaining United States sovereignty.”
Commerce Secretary Howard Lutnick has also indicated readiness to explore “trade tools” to retaliate against the EU’s ESG regulations.
EU lawmakers contend that concerns regarding extraterritoriality should be less pressing now that the bloc’s ESG rules have been significantly scaled back. Warborn noted that the revisions to the CSRD and CSDDD “substantially reduce the burden while keeping the rules workable for European companies and for non-EU companies operating in the EU market.”
An Exxon spokesperson acknowledged that while the EU has removed some of the more extreme provisions of the CSDDD, the bloc has not gone “nearly far enough.” The spokesperson stated, “The ability of Brussels to regulate a US company’s operations anywhere in the world remains, and this is completely unacceptable.” They added that the Trump administration has made it clear that this is a non-starter for trade discussions, expressing hope for a sensible resolution soon.
Photograph: The European Union (EU) flag at the European Parliament’s Louise Weiss building in Strasbourg, France. Photo credit: Stefan Wermuth/Bloomberg
The European Union’s ESG framework — a shadow of its former self after a year of deep cuts — is drawing renewed threats from the US.
At the heart of the matter are the extraterritorial aspects of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Recently, the EU reached an agreement to exempt over 80% of companies that were initially in scope. However, large foreign firms operating within the EU will still be subject to these regulations.
The US has expressed its dissatisfaction clearly. Jamieson Greer, President Donald Trump’s top trade negotiator, has labeled the EU’s ESG deal as insufficient. He warned that the trans-Atlantic tariff agreement established this year, which includes assurances from the EU that its ESG regulations won’t hinder trade, could be jeopardized if further concessions are not made.
Read more: Europe Agrees to Drastic ESG Cuts After US Pressure Intensifies
“They have to deliver on this,” Greer stated during a recent Senate hearing. “The reality is, if the Europeans don’t deliver on what they’ve committed, they won’t receive the benefit of the tariff relief they’ve been granted.”
This escalating tension adds to the existing friction between Washington and Brussels, which spans various issues from tech regulations to defense spending. The Trump administration has openly criticized environmental, social, and governance standards, with US Energy Secretary Chris Wright dismissing key initiatives like net-zero goals as “terrible” policy.
EU lawmakers interviewed by Bloomberg have indicated that there is little flexibility in the bloc’s revamped ESG framework to accommodate US demands. “This outcome was politically unavoidable,” remarked Jorgen Warborn, a lawmaker from the center-right European People’s Party who oversaw negotiations to reduce the CSRD and CSDDD in the EU Parliament.
“Options such as repealing the directive entirely or limiting it only to EU-based companies were never viable — both to preserve a level playing field and to secure a parliamentary majority,” Warborn explained. He emphasized that the CSDDD, which imposes significant financial penalties on companies failing to monitor their value chains for environmental and human rights violations, is inherently an extraterritorial instrument, thus maintaining its overall reach.
Proponents of ESG caution that not requiring companies operating in the EU to adhere to the bloc’s sustainability rules could have dire consequences, particularly as investors would struggle to assess where to allocate their capital.
Currently, there is scant evidence that investors are deterred by the potential risk of US companies lagging behind their European counterparts in ESG disclosures and due diligence. In fact, Europe-domiciled funds holding US equities attracted $56 billion in net new investments in the year leading up to October, according to Morningstar Direct. This figure is comparable to the amount that flowed into Europe-domiciled funds holding European equities.
A spokesperson for the European Commission stated that the bloc’s regulations ensure a level playing field for all companies, asserting that the EU will enforce these rules fairly and without discrimination. Engagement with the US will persist as Europe implements the EU-US joint trade agreement, the spokesperson added.
In July, the EU and US agreed to limit tariffs on most EU exports to 15%, which included a commitment from the EU to ensure that the CSDDD and CSRD do not obstruct trade. Since then, EU lawmakers and member states have addressed specific US concerns, including the removal of mandatory climate transition plan requirements.
Despite these adjustments, the legislation has “safeguarded” the core objectives of Europe’s ESG regulations, according to Pascal Canfin, a senior lawmaker negotiating for the EU’s centrist Renew Party. “The proof is that the Trump administration continues to oppose these laws,” Canfin stated after the December 16 vote. He noted that companies like Exxon Mobil Corp. could face fines of nearly $10 billion for non-compliance with the CSDDD.
US lawmakers have signaled their intent to push back strongly against these developments. During his remarks to the Senate appropriations committee, Greer responded to Republican Senator Bill Hagerty, who has previously stated he would use “every tool” at his disposal to block the CSDDD and introduced the Prevent Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA) Act of 2025.
“This is extremely egregious, this attempt to overreach as they have,” Hagerty remarked at the December 9 hearing, emphasizing that both chambers of Congress are actively pursuing legislation to counter the CSDDD. “Lawmakers remain very aggressively focused on maintaining United States sovereignty.”
Commerce Secretary Howard Lutnick has also indicated readiness to explore “trade tools” to retaliate against the EU’s ESG regulations.
EU lawmakers contend that concerns regarding extraterritoriality should be less pressing now that the bloc’s ESG rules have been significantly scaled back. Warborn noted that the revisions to the CSRD and CSDDD “substantially reduce the burden while keeping the rules workable for European companies and for non-EU companies operating in the EU market.”
An Exxon spokesperson acknowledged that while the EU has removed some of the more extreme provisions of the CSDDD, the bloc has not gone “nearly far enough.” The spokesperson stated, “The ability of Brussels to regulate a US company’s operations anywhere in the world remains, and this is completely unacceptable.” They added that the Trump administration has made it clear that this is a non-starter for trade discussions, expressing hope for a sensible resolution soon.
Photograph: The European Union (EU) flag at the European Parliament’s Louise Weiss building in Strasbourg, France. Photo credit: Stefan Wermuth/Bloomberg
