Transcript: This is David Daoud , principal analyst at Compliance Standards today I am addressing the transatlantic divide on ESG and sustainability. The European Union’s sustainability framework remains the most ambitious in the world, but by late 2025 it has entered a phase of recalibration and political compromise. Facing pressure from business groups, non-EU governments, and domestic industry, the European Commission has softened and delayed its rollout of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). These revisions reflect an effort to preserve the long-term objective of comprehensive sustainability governance while reducing near-term friction in trade and compliance.

Under the new schedule, most non-EU and SME entities will not begin CSRD reporting until between 2027 and 2029, while the first CSDDD obligations now take effect from July 2028—roughly a one-year delay. Both directives have also been narrowed in scope. CSRD’s applicability thresholds have been raised so that only larger firms will be captured, and CSDDD now primarily targets companies with more than 5,000 employees and €1.5 billion in turnover. This adjustment excludes many smaller and midsize U.S. firms that had expected to fall under the original text.

At the same time, the EU is simplifying reporting requirements by cutting redundant datapoints, clarifying the double-materiality test, and pursuing greater alignment with global standards such as the IFRS Sustainability Disclosure Standards. The Commission has presented these moves as pragmatic—aimed at ensuring high-quality disclosures rather than an unmanageable reporting burden.

These institutional adjustments unfold against a backdrop of intensifying trans-Atlantic tension over ESG policy. In the United States, a coalition of sixteen Republican state attorneys general recently wrote to Microsoft, Google, and Meta urging them not to comply with the CSRD or CSDDD, warning that doing so could violate U.S. law and expose them to antitrust and deceptive-practice litigation. The letters framed European sustainability directives as “foreign ESG mandates” incompatible with U.S. constitutional and commercial principles.

This episode captures the heart of the dilemma: U.S. companies operating globally are caught between a European legal order that mandates disclosure and due diligence, and a domestic political environment where ESG activity is increasingly treated as suspect. The resulting fragmentation has already altered corporate behavior. State Street Global Advisors, one of the world’s largest asset managers, withdrew its U.S. operations from the Net Zero Asset Managers initiative while keeping its European entities enrolled. Its reasoning was explicit: U.S. political pressure made participation untenable, whereas European clients continued to demand credible net-zero engagement and reporting. Peers such as BlackRock and Vanguard have taken similar steps, pulling back from climate coalitions in the U.S. while maintaining them abroad.

The divergence illustrates how regulatory geography now shapes institutional identity. In Europe, by contrast, sustainability oversight continues to deepen through enforcement and investment. The European Commission’s greenwashing investigation into airlines—including Air France, Lufthansa, and KLM—forced more than twenty carriers to withdraw misleading environmental claims and to cease advertising “carbon-neutral” flights based on offset purchases. The case demonstrates how European consumer protection, not just corporate reporting, is being mobilized to police sustainability integrity.

At the sovereign-investor level, Norway’s NBIM—the world’s largest sovereign wealth fund—has released its 2030 Climate Action Plan, tightening engagement expectations and voting against boards that fail to manage climate risk. Both developments reinforce the EU’s central narrative: sustainability performance is now a regulated component of market access, fiduciary duty, and brand credibility. Taken together, these events highlight a transitional moment.

The EU is moderating the administrative complexity of its sustainability regime but not retreating from its principles. Its aim is to secure durable compliance from large corporations, including foreign ones, while ensuring the first wave of reports under the CSRD sets a credible precedent. Delays in enforcement are therefore tactical, designed to maintain legitimacy and reduce resistance—not to dilute substance. For U.S. companies, the implications are twofold.

• First, the immediate compliance burden has eased. Many firms that feared near-term inclusion are now outside the threshold, and those that remain have gained two to three years of preparation time.
• Second, the direction of travel remains clear: doing business with European customers or investors will continue to require robust sustainability data and due-diligence systems. The regulatory pause offers breathing room, not exemption.

The strategic course for American sustainability executives is to treat this window as a readiness phase. Companies with significant European exposure should map which subsidiaries or value-chain links fall within CSRD or CSDDD scope, build internal ESG data systems compatible with the European Sustainability Reporting Standards, and prepare for third-party assurance. Even firms below the thresholds will need to supply sustainability data to European partners, as contractual flow-down requirements become common.

Politically, U.S. management teams must continue balancing two narratives. Domestically, ESG remains a polarized topic; internationally, it is an operational necessity. The safest posture is to frame sustainability as enterprise risk management—protecting assets, anticipating regulation, and meeting client expectations—rather than as a political or ideological position. The larger dynamic is now unmistakable. Europe is codifying sustainability as law, complete with penalties and enforcement, while the United States is fragmenting into competing jurisdictions.

The result is an asymmetric landscape where companies must be fluent in both regimes: compliant and transparent enough to satisfy European regulators and investors, yet cautious enough to navigate U.S. political scrutiny. The lesson from the recent cases is consistent. State Street’s bifurcated membership, the AG letters to U.S. tech firms, Norway’s fund tightening climate oversight, and the EU’s crackdown on airline marketing all point to the same conclusion: sustainability is becoming a matter of regulatory sovereignty. For global companies, the advantage will lie with those that use the current EU delays not as an excuse to pause, but as an opportunity to build credible, region-specific compliance and reporting systems that can withstand both Brussels’ precision and Washington’s volatility.