What's Happening?
The European Union's Corporate Sustainability Due Diligence Directive (CSDDD), approved by the Council of the European Union in 2024, is set to impose significant regulatory burdens on U.S. manufacturers. The directive requires companies to identify and mitigate social and environmental risks throughout a product's lifecycle, from sourcing to disposal. This mandate extends to U.S. companies with more than 1.5 billion euros in net annual EU turnover, affecting their direct and indirect business partners. The directive's requirements could deeply impact manufacturers' supply chains, including small, privately held, and non-EU businesses. The directive is expected to introduce operational complexity, compliance costs, and potential bottlenecks in the global manufacturing supply chain. Additionally, it exposes manufacturers to legal liability, with penalties up to 5% of a company's global turnover.
Why It's Important?
The CSDDD poses a significant challenge to U.S. manufacturers by adding to the already substantial $350 billion annual regulatory costs they face domestically. The directive undermines U.S. sovereignty and the Trump administration's efforts on regulatory modernization, which the National Association of Manufacturers (NAM) has supported. The extraterritorial nature of the mandate could hinder manufacturing growth in the U.S. and complicate the trading relationship between the U.S. and the EU. The directive's sweeping due-diligence requirements could lead to increased operational costs and legal risks for U.S. companies, potentially affecting their competitiveness in the global market.
What's Next?
President Trump has identified the CSDDD as a threat to U.S.-EU trade relations, and the U.S.-EU framework agreement announced earlier this year aims to address concerns about the directive's impact on U.S. companies. The European Parliament is currently considering proposals to mitigate some of the directive's most damaging aspects. U.S. manufacturers, represented by NAM, are urging both American and European policymakers to protect U.S. companies from the burdensome requirements of the CSDDD.
Beyond the Headlines
The directive's implications extend beyond immediate regulatory costs and legal liabilities. It could lead to long-term shifts in how U.S. manufacturers engage with their supply chains, potentially driving changes in sourcing strategies and partnerships. The focus on sustainability and due diligence may also influence corporate governance practices and environmental policies within the manufacturing sector.
