Authors: Donna Runy & IngChang Tan

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Following the backlash from businesses on the impact of overly onerous legislation under the  European Green Deal, combined with a climate change-skeptical US administration, the EU has found itself under increasing pressure to rollback or suspend certain legislation, one of which under direct target by US companies being the Corporate Sustainability and Due Diligence Directive. US companies have lobbied against the CS3D’s extra-territorial coverage and low thresholds for compliance, arguing that the legislation will have an overreaching impact and a dampening on US investment sentiments in the EU and creating unnecessary trade reporting. 

This week, US Ambassador to the European Union Andrew Puzder unleashed a scathing assessment of the Corporate Sustainability Due Diligence Directive (CS3D) in the Financial Times, decrying the legislation’s unhealthy impact on the transatlantic relationship, and using energy security as his main point of argument.  

Positioning energy as the central fault line, the Ambassador argues that the success of Europe’s reindustrialisation hinges on access to reliable, affordable energy. Reflecting broader US views, Ambassador Puzder suggests that the collapse of Europe’s long-standing reliance on Russian energy, shifting global demand, and the realities of regional defense requirements, necessitate a paradigm shift back to the past to reinvigorate the continent’s economy, competitiveness, and energy security. He identifies US Liquefied Natural Gas (LNG) as a cornerstone of this transition, positing that the US and other partners can serve as long-term suppliers, but only provided that EU regulatory frameworks do not deter such cooperation.

This is where the Corporate Sustainability Due Diligence Directive becomes an obstruction, he argues. This legislative framework was initially designed, first and foremost, for companies to have a transition plan in place (which was later removed in late 2025) and address environmental and human rights impacts, such as forced labor, unsafe working conditions, and biodiversity loss across their global “chains of activities”. It establishes standardised due diligence systems with clear reporting requirements and civil liability provisions. 

Instead of endorsing the “virtuous cycle” – a positive feedback loop of the CS3D – the Ambassador contended that the directive’s expansive due-diligence requirements stretch too deep into global supply chains. He argued that these mandates impose climate-related obligations that are technically and financially unfeasible for large multinational energy producers under current business practices. These concerns have prompted warnings that key suppliers may scale back European operations. US oil majors like who would be directly impacted, have in recent months taken a more direct approach in the issue. For example, ExxonMobil recently announced significant workforce reductions in the region, citing regulatory overreach, while Qatari officials have signaled that LNG shipments could be curtailed unless the CS3D undergoes substantial revision.

Although the CS3D is created in Brussels, its reach extends far beyond the bloc, with both EU-based firms and non-EU firms with significant European turnover being targeted. For ASEAN companies, the CS3D applies indirectly through the requirements of EU buyers. Suppliers in sectors such as agriculture, palm oil, fisheries, textiles, electronics, and energy would face tighter contractual requirements and obligations, more stringent audits, and increased demands for traceability. Firms that demonstrate strong sustainability standards may secure a competitive advantage, while those unable to meet EU expectations risk losing market access. Furthermore, alignment with CS3D standards is increasingly viewed as an advantage to accessing green financing and sustainable investment capital.

Under intense lobbying, momentum for regulatory reform is increasing within the EU. German Chancellor Friedrich Merz and French President Emmanuel Macron have both advocated for the repeal of the Due Diligence Directive, citing concerns from major industrial firms that the legislation compromises economic competitiveness. This shift was underscored in November 2025, when a right-leaning parliamentary coalition voted to remove mandatory net-zero transition plan requirements and significantly raise threshold limits. Such changes have supporters of the regulation arguing these amendments effectively diluted and incapacitated the directive, transforming it from a landmark accountability tool into a simplified reporting exercise [1]. AmCham is preparing a joint statement on the CS3D, to highlight the growing concerns related to the CS3D among the EU’s partners. 

ASEANCham-EU is of the view that environmental and labour legislation such as the CS3D and CSRD should only be implemented in the EU, only if its impact on third countries are properly assessed, and mitigated, particularly for small and medium enterprises. However, rather than appealing and neutering the CS3D, the EU and its detractors should instead improve safeguards for long-term market sustainability, and not be implemented under the guise of unfair competition. ASEANcham maintains that policymaking & sustainability regulations must be future-oriented, incentivising positive corporate practices. Some of these actions include:

1. Access to green financing
   One of the key prerequisites for accessing green finance is the establishment of processes required under the CS3D and CSRD. By doing so, this framework creates a virtuous cycle in which access to finance enables further improvements in energy efficiency and industrial production. Research from the World Bank supports this view, finding that risk-proportional climate regulations reduce the cost of green due diligence and expands access to green financing for vulnerable sectors. This, in turn, fosters a more robust and climate-resilient economy, generating superior risk-adjusted returns for the financial sector [2]. Economic prosperity, social welfare and environmental sustainability are therefore not mutually exclusive. Moreover, robust reporting and environmental standards align with the Draghi Report’s vision of increased investment and deeper EU integration [3], an emphasis notably absent from Mr Puzder’s analysis.
2. Increased consumer confidence in products, creating an intangible yet notable competitive advantage
   The European Union retains a significant competitive advantage through its strong brand recognition, increasingly associated with high-quality products and ethical business practices. Compliance with the Due Diligence Directive reinforces this reputation by fostering long-term structural gains through innovation incentives, market certainty, and export competitiveness within a decarbonizing global economy. From a long-term perspective, a growing body of evidence suggests that ESG-aligned regulation results in lower capital costs, more stable supplier relationships, and reduced vulnerability to climate-related damages [4]. Collectively, these dynamics enhance the long-term profitability and resilience of businesses operating within the single market.

Consequently, ASEANCham-EU supports the stated intention of the CS3D in making the global transition toward net-zero, but the EU must remain forward-looking rather than reverting to an outdated economic model that risks unfairly penalising SMEs. It is imperative that both policymakers and corporations adopt long-term cost-benefit analyses, prioritising sustainable resilience over immediate short-term gains.

[1] EU: Deregulation deal on climate and human rights ‘betrays people and the planet’ – Amnesty International
[2] Driving a virtuous cycle of inclusive green finance
[3] The Draghi report on EU competitiveness
[4] Impact of ESG performance on the cost of capital in the energy, utilities, and basic materials sectors – ScienceDirect