PolicySphere and Baron Public Affairs are collaborating on a series of articles exploring the impacts of EU regulation on U.S. industry. This series is sponsored by Baron Public Affairs.

Starting in 2029, hundreds of American companies will fall under a sweeping European law that regulates not just their EU operations, but their entire global supply chains. This includes  business conducted entirely within the United States. With compliance costs potentially reaching 9% of revenue and penalties up to 5% of global revenue, CS3D represents an unprecedented expansion of extraterritorial regulation that every affected American business needs to understand now. An essential new report from the firm Baron Public Affairs digs deep into what CS3D is and what it means for American businesses and policymakers.

The Corporate Sustainability Due Diligence Directive, adopted by the EU in 2024, marks Brussels' boldest attempt yet at regulatory imperialism. Unlike traditional trade regulations that govern products entering European markets, CS3D reaches deep into the internal operations of American companies, dictating how they manage suppliers in Southeast Asia, contractors in Latin America, and even domestic partners in Kansas or Texas.

According to new economic research by Harold Furchtgott-Roth of Furchtgott-Roth Economic Enterprises and Hudson Institute, U.S. industry would face initial measurable costs in the trillion-dollar range. These costs would be in addition to tens to hundreds of billions annually in recurring reporting, assurance, and conduct-change costs. Yet these measurable costs would only be a fraction of total costs: immeasurable and uninsurable costs, including loss of corporate control to outside stakeholders, expanded civil liability, and long-term harm to innovation and competitiveness, would be far greater.  

Your writer is reminded of Ronald Reagan’s famous line that the government thinks “If it moves, tax it, if it keeps moving, regulate it, if it stops moving, subsidize it.” Except it’s the EU. With the recent news that of the top 25 companies in the world by market capitalization, exactly zero are European companies, it’s astonishing to watch the EU try to punish other blocs’ companies for being successful, rather than trying to make their own economies more competitive. 

The Six-Step Compliance Mandate

So: how does it work? At its core, CS3D imposes a mandatory six-step due diligence framework. This goes far beyond typical corporate compliance. Companies must first integrate due diligence into all policies and management systems. Second, they must identify and assess potential human rights and environmental impacts across their entire value chain; that is to say, not just their own operations, and not even direct suppliers, but also indirect partners multiple tiers removed.

The third step requires preventing, ceasing, or minimizing these impacts—effectively making companies responsible for behavior they don't directly control. Fourth, companies must continuously monitor and assess their measures' effectiveness. Fifth, they must communicate their efforts publicly. Finally, they must provide remediation when violations occur.

This isn't merely paperwork. Companies must develop detailed "transition plans for climate change mitigation" aligned with the Paris Agreement, a treaty which, you will recall, the United States isn't even a party to. These plans must include specific reduction goals for Scope 1, 2, and 3 emissions, with the notoriously difficult-to-quantify Scope 3 covering indirect emissions throughout the value chain. Companies must also assess exposure to "coal-, oil- and gas-related activities," essentially forcing American energy companies to justify their core business model to Brussels’ bureaucrats.

Who Falls Under Brussels' Jurisdiction

The directive casts a remarkably wide net. By July 2028, it captures EU companies with over 3,000 employees and €900 million in global revenue, plus non-EU companies generating more than €900 million in EU revenue. By 2029, the thresholds drop to 1,000 employees and €450 million for EU companies, while any non-EU company with €450 million in EU revenue gets swept in.

According to analysis by the Dutch Centre for Research on Multinational Corporations, at least 314 American companies will be subject to CS3D, including 172 Fortune 500 firms. The list reads like a who's who of American business: tech giants like Apple, Microsoft, and Google; industrial powerhouses like Boeing and Caterpillar; pharmaceutical leaders like Pfizer and Merck. Even companies with minimal EU physical presence fall under the directive if they meet revenue thresholds.

The reach extends beyond individual companies. CS3D's definition of "value chain" encompasses not just direct suppliers and subsidiaries, but upstream partners involved in production, sourcing, or development, and downstream partners handling distribution, transport, and storage. A construction equipment manufacturer in Illinois becomes liable for emissions from a steel producer in India it doesn't even have a direct contract with.

The True Cost of Compliance

The European Commission's official estimate suggests compliance will cost companies less than €1 million annually. If you’ve paid attention to the previous paragraphs, you can see this figure is clearly absurd. The Commission’s estimate conveniently excluded transition costs and based calculations on European companies with existing ESG infrastructure, not American firms starting from scratch.

A 2024 survey of 1,200 European C-suite executives by DWF law firm found respondents estimated CS3D compliance would cost approximately 9% of revenue. For American companies lacking Europe's pre-existing regulatory alignment, costs could run even higher. Applied to Fortune 500 companies subject to CS3D, we're potentially looking at cumulative compliance costs approaching $900 billion. Furchtgott-Roth’s estimates are in the trillions.

Penalties for non-compliance are equally severe. While the EU's February 2025 Omnibus proposal may modify the structure, current law sets the minimum ceiling for fines at 5% of global revenue. That's not a maximum—it's the floor below which member states cannot go. Spain or France could set penalties at 10% or higher.

Beyond direct costs lurk liability risks. CS3D creates civil liability in EU courts for failing to prevent human rights or environmental violations anywhere in the value chain. An American retailer could face lawsuits in European courts over safety violations at a Bangladeshi factory it doesn't own or directly manage.

This isn't merely regulatory overreach. It's an extraterritorial tax on American business. Given that the EU continues to free-ride on American defense spending, it’s unacceptable that they are trying to constrain our companies' ability to compete globally.

This article was developed in collaboration with Baron Public Affairs. For further information, please contact Baron Public Affairs.