The EU’s December 2025 Changes to CS3D: Quantifying Costs to US Industry

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 1. Introduction and Executive Summary

Most Americans have never heard of the Corporate Sustainability Due Diligence Directive (CS3D or CSDDD), let alone grasped the enormous threat that it poses to the American economy. The CS3D is a new European Union (EU) regulation that mandates detailed reporting from companies on their environmental and human rights impacts. The directive requires companies to report on their operations not only within the EU but globally—up their supply chains and down their distribution chains, including in the United States.

In December 2025 the EU modified the CS3D. According to the EU Parliament, the change “delivers historic cost reductions.” The EU did not, however, provide any data on how this modification to the CS3D would affect global or US industry. This study seeks to provide the first-ever quantification of the costs of the latest version of the CS3D to US industry. This study finds that the recent changes to the CS3D still result in substantial costs to US companies and the American economy and will only reduce measurable initial compliance costs to US companies by between 27 and 35 percent, leading to measurable initial compliance costs of between $637 billion and $1.093 trillion. These costs on American firms are comparable to the combined regulatory costs of all existing American environmental and financial regulations.

The costs of future regulations that have not yet been fully implemented are difficult to predict. Initial estimates necessarily focus on direct costs of compliance but do not fully capture the costs of changes in corporate behavior and reduced productivity. Nor do initial estimates measure the losses consumers bear in the forms of higher costs and fewer choices.

Most conservative estimates below put the initial cost of compliance with the CS3D at more than $600 billion with annual recurring costs of several billion dollars. Other estimated costs are much greater with initial costs of compliance at over $1 trillion and annual recurring costs in the hundreds of billions of dollars. These cost estimates, and those presented throughout the report, are approximate nominal costs without adjustments for inflation.

Crucially, these costs do not happen in a vacuum; indeed, the EU and the United States share the largest and most complex trade relationship in the world. The massive cost will create considerable ripple effects for the American consumer, including higher prices, lower quality of products and services, and a reduced range of available products and services. American workers will also bear the costs of the CS3D. Hundreds of thousands of American jobs and many billions of dollars of payroll are at risk. The potential losses from the CS3D are not limited to one or to a handful of US states: every state is vulnerable to these EU regulations. So too are small businesses. For many, the regulations could pose an existential threat.

History

The CS3D is not the first EU corporate environmental and social reporting regulation. It replaces the Non-Financial Reporting Directive (NFRD), which member states adopted in 2016.

NFRD mandated that 11,700 large “public interest entities” report regularly on the social and environmental risks and impacts of their business models. But the legislative superstructure that led up to the CS3D goes back to at least 2006, when the EU adopted Directive 2006/43/EC.

Directive 2006/43/EC sets up a framework for auditing in the EU, with a clear goal of ensuring that the auditors of all EU companies, whether in Malta or France, are held to the same rigorous standard. Seven years later, 2013/34/EU prescribed the content (and layout) of yearly financial reports that companies must prepare for these auditors, again with the goal of a homogenized EU financial reporting landscape. This directive, over the next 10 years, became the legislative foundation for increased corporate reporting demands. Amendments in 2014 created the above-mentioned NFRD, and 2022 brought 2022/2464, the Corporate Sustainability Reporting Directive (CSRD). The CSRD expands the number of companies that need to provide nonfinancial reporting, specifies the details of what this reporting consists of, requires third-party auditing for this nonfinancial reporting, and defines punishments for companies that fail to comply. In 2024 came the CS3D, a separate directive that requires covered companies to plan and report in detail how they will meet certain environmental and human rights goals and to engage in “due diligence” with “stakeholders.” The CS3D also expands corporate liability and damages for noncompliance.

In parallel to these directives targeted at corporate reporting and compliance, the EU released a series of environmental roadmaps to provide targets for companies. The 2018 Sustainable Finance Action Plan and the 2019 European Green Deal are the most prominent of these in the last decade. The latest iteration is the EU Climate Law, provisionally agreed upon in December 2025, which sets 2040 as a goal for reducing 90 percent of greenhouse gas emissions compared to 1990 levels and targets a net negative carbon footprint for post-2050. In the context of the CSRD and CS3D, tens of thousands of companies need to create extensive reports and will be subject to yearly third-party audits on the impact of their operations and those in their “value chain.” Through this process, firms must show that they are orienting their operations toward the political goals dictated by the latest EU climate laws.

I have previously prepared reports on the costs to American businesses of the CSRD and CS3D. Since then, the Council of Europe and the European Parliament accepted amendments to the CS3D in the Omnibus I package in December 2025. The analysis below incorporates the changes proposed in the December 2025 amendments, particularly in terms of which firms the EU will require to report. The CS3D imposes substantial costs on businesses operating in the EU. But much of the cost of the directives will fall outside of the EU, and particularly in the United States.

Most of, if not all, the costs documented in this report are direct costs to American businesses. This analysis does not measure the substantial loss in consumer welfare, both in the United States and abroad, caused by higher prices, lower quality of products and services, and a reduced range of available products and services.

Summary of costs

Exhibit 1.1 summarizes the results of the report, presenting the minimum and maximum range of both fixed and recurring costs to American firms from the CS3D. Measurable one-time costs of implementation of supply chain compliance for the CS3D range from $637 billion to more than $1 trillion.

Directly measurable annual recurring costs of implementation for the CS3D range from $57 million to $8 billion. If the implicit costs of change in conduct are included, the recurring annual costs range from $6 billion to $453 billion. These costs are large but less than the expected costs of CS3D compliance before the December 2025 amendments. The amendments reduced the estimated one-time setup costs by between 27 and 35 percent.

The CS3D will also impose costs on American workers. Hundreds of thousands of Americans could lose their jobs, encompassing many billions of dollars of payroll.

The potential losses from the CS3D are not limited to one or a handful of states. Every state is vulnerable to these EU regulations. So too are small businesses. Complying with new regulations such as the CS3D will likely be much more difficult for small businesses than for large corporations.

The CS3D’s qualitative costs to American businesses and American consumers are far more harmful to the American economy than the measurable costs listed in Exhibit 1.1. These qualitative costs include (1) a decrease in consumer choice and higher prices, (2) the imposition of uninsurable risks on businesses, (3) changes in market conditions, (4) changes in corporate responsibilities and objectives, (5) changes in corporate control, (6) changes in corporate liability, (7) changes in relative regulation across different industries, and (8) the loss of American sovereignty over regulation.

Under the CS3D American corporations will lose substantial control over corporations to ubiquitous “stakeholders” and constant requirements for “due diligence” consultations. The costs of the loss of corporate control are unknown and unknowable. The American consumer will pay for much of this regulation in terms of higher prices, fewer choices, and less consumer sovereignty.

The costs of the CS3D alone to American firms can be measured in terms of orders of magnitude of trillions of dollars, as shown in exhibit 1.2. The estimated one-time setup costs are at least in the hundreds of billions of dollars and potentially in the trillions of dollars. The estimated annual recurring costs range from billions to hundreds of billions of dollars. The net present value of those annual recurring costs at a 10 percent discount rate ranges from tens of billions of dollars to trillions of dollars. The magnitude of immeasurable costs, which could be more damaging than the measurable costs, is unknown.

The analysis below is organized as follows:

1. Many American firms will be subject to the CSRD;
2. The CSRD’s quantifiable harm to American businesses is large;
3. Many American firms will be subject to the CS3D;
4. The CS3D’s quantifiable harm to American businesses is large;
5. The CS3D will impose significant costs on US states; and
6. The qualitative costs of the CSRD and CS3D are substantial and likely overshadow the measurable costs.

2. Many American firms will be subject to the CSRD

The CSRD is already in effect. In 2025, it required so-called public interest companies in the EU with more than 500 employees to make sustainability reports for 2024. Other firms have phased-in reporting requirements over time, including non-EU firms in 2029 for the financial year 2028. One of the purposes of the December 2025 amendments is “to reduce the burden on undertakings from the CSRD.” One method of reducing the burden is to increase the threshold for reporting requirements to firms with more than €450 million in annual EU revenue. That provision will substantially reduce the number of firms that must report. But the CSRD’s impact on the American economy will still be substantial.

The CSRD creates reporting and audit requirements for “reporting undertakings,” or companies above the revenue threshold for the directive’s reporting requirement. To complete these reporting requirements, companies ideally would rely on information provided by a large number of firms in their value chain. Although the December 2025 amendments clarify that the reporting undertakings cannot insist on information from other firms in the value chain, these firms still must prepare reports based on estimates as if information from the firms in the value chain were available.

Many firms in the United States will be affected by the CSRD. I divide these into four categories:

A. American firms that exceed the €450 million revenue threshold in the EU;

B. International firms that exceed the €450 million revenue threshold in the EU and also operate in the United States;

C. American firms that will be part of the value chain of CSRD reporting firms and that will likely be asked for information related to the directive; and

D. American firms that may not be asked for information related to the CSRD but will be affected by higher prices and reduced competition in markets around the world.

A. American firms that exceed the €450 million threshold in the EU

The revenue threshold for CSRD compliance is €450 million. The EU in early 2025 estimated that approximately 900 non-EU companies would be covered by the CSRD at a €450 million threshold, no doubt several hundred of which would be US companies. Exact lists of affected American firms under either regulation are not available for several reasons, including the following:

• The deadlines for reporting by US firms have not occurred;
• Some of the detailed threshold requirements for reporting are still in flux; and
• Many of the affected companies under the CSRD are privately held companies that are not required to disclose in advance their coverage.

Although the number of covered firms with €450 million in annual revenue in the EU is finite and limited, the number of firms that may be indirectly affected by the CSRD is large.

To estimate the number of American firms that would be directly affected by the CSRD, this paper draws on three main sources. The Centre for Research on Multinational Corporations (SOMO) list and the S&P 500 provide good estimates of the number of firms that would be required to report under the CSRD and their associated revenue. A third set, a collection of federal governmental data for five vulnerable sectors in the CSRD value chain—agriculture, mining, manufacturing, information, and finance—provides estimates of the effects of the CSRD for both large reporting undertakings and for smaller companies with limited reporting obligations known as “protected undertakings.”

1. The SOMO list

SOMO has assembled a list of American companies that likely would be reporting undertakings under the CSRD in its CSDDD Datahub. Some of the analysis below uses that list as a reference. SOMO’s CSDDD Datahub identifies 315 firms that unambiguously qualified for CSRD requirements with at least €450 million in EU revenue.

This list includes 172 Fortune 500 firms, which had a combined global revenue of $9.97 trillion in 2024. These 172 firms would be covered by the new CSRD threshold of €450 million in revenue in the EU.

But these 172 firms are only a subset of the US firms known to be reporting undertakings under the CSRD. The revenue estimate of $9.97 trillion is underestimated for at least two reasons. First, among the 315 American corporations in the SOMO database, Baron looked at the revenue of only the 172 Fortune 500 companies on the list. This analysis does not include the revenues of the other 143 firms, essentially assuming that those revenues are zero. Therefore, the below cost ranges substantially underestimate the revenue of all 315 American firms.

Even more telling is that many large American firms that almost certainly have European operations are not on the SOMO list. Electronic manufacturing companies NVIDIA, Broadcom, AMD, and Micron Technology are not listed. Some defense contractors such as Palantir, Boeing, Raytheon, and Lockheed Martin are not mentioned. Nor are healthcare manufacturing companies such as Abbott Laboratories, Thermo Fisher Scientific, Merck, and Intuitive Surgical. Nor are some American technology companies such as Salesforce, AppLovin, Lam Research, Intuit, Amphenol, KLA Corporation, CrowdStrike Holdings, and Automatic Data Processing. Some American financial firms such as BlackRock are not listed. Other American firms such as Coca-Cola are listed, but not as American firms. Each of the companies mentioned above has a market capitalization of at least $100 billion; NVIDIA alone has a market capitalization of more than $4.5 trillion.

The list’s revenue measure of $9.97 trillion therefore underestimates the CSRD’s effect on the global revenues of reporting undertakings operating in America. Another glaring reason for this is that the SOMO list excludes international firms affected by the CSRD that have major operations in the United States, another massive category of firms. These firms are discussed below.

2. The S&P 500

The S&P 500 is a standard measure of the largest US corporations. Many of these firms would have direct reporting requirements under the CSRD, likely as reporting undertakings. In addition, many of, if not all, large protected undertakings—major firms not directly covered by the CSRD—would be in the supply and distribution chains of reporting undertakings. These large entities would have substantial pressures not to abandon the EU and would consequently be induced to provide information under Directive 2013/34/EU and Commission Recommendation (EU) 2025/1710, the EU standard under which protected undertakings report.

In 2024 the S&P 500 corporations had global revenue of more than $17 trillion. The S&P 500 also underestimates the effect of the CSRD on business in America. The S&P 500 list does not include large international firms that must report under the CSRD with operations in the United States, nor does it include large privately held US companies or US companies waiting for S&P 500 listing, some of which would have CSRD obligations.

B. International firms that exceed the €450 million threshold in the EU with operations in the United States

Many large non-US corporations have substantial economic activity in the United States. For example, the vast majority of firms on the SOMO list, whether American or not, have operations in the United States. These include automotive companies such as Honda, Toyota, Nissan, Hyundai, Mercedes, BMW, and Volkswagen; energy companies such as Shell and BP; and industrial conglomerates such as Samsung and Mitsubishi. These and other large international corporations have substantial investments in the United States that are not reflected in either the SOMO list or the S&P 500. Because these firms fall under the global reach of the CSRD, their American operations would be affected accordingly.

C. American firms that will be part of the value chain of CSRD reporting firms and that will likely be asked for information related to the directive

Most American firms do not have €450 million in EU revenue and will not report directly under the CSRD. But many American firms may be asked under the CSRD for information due to their participation within the CSRD value chain.

1. Reporting requirements of reporting undertakings

Reporting undertakings are firms with €450 million in annual revenue in the EU that are required to report directly to the EU under the CSRD. In contrast, protected undertakings are firms that have fewer than 1,000 employees but still may be in the value chain of a reporting undertaking.

2. Firms in the value chain are affected by CSRD reporting

The value chain, discussed for the first time in Directive 2013/34/EU (19a) and amended in 2022, is a broad term, encompassing a firm’s upstream suppliers, direct operations, and downstream distribution channels. The 2022 directive states (emphasis added):

2013/34/EU should therefore specify that the sustainability information reported is to include forward-looking and retrospective information and both qualitative and quantitative information. Information should be based on conclusive scientific evidence where appropriate. Information should also be harmonized, comparable and based on uniform indicators where appropriate, while allowing for reporting that is specific to individual undertakings and does not endanger the commercial position of the undertaking. Reported sustainability information should also take into account short-, medium- and long-term time horizons and contain information about the undertaking’s whole value chain, including its own operations, its products and services, its business relationships and its supply chain, as appropriate. Information about the undertaking’s whole value chain would include information related to its value chain within the Union and information that covers third countries if the undertaking’s value chain extends outside the Union. For the first three years of the application of the measures to be adopted by the Member States in accordance with this amending Directive, in the event that not all the necessary information regarding the value chain is available, the undertaking should explain the efforts made to obtain the information about its value chain, the reasons why that information could not be obtained, and the plans of the undertaking to obtain such information in the future.

In other words, a firm required to report to the EU (a reporting undertaking) may have hundreds or thousands of other firms in its value chain. Other firms in the value chain may also be reporting undertakings. But many more firms are likely to be protected undertakings that are not on their own required to report to the EU. Moreover, many of these protected undertakings are likely to operate outside the EU, particularly within the United States.

Directive 2013/34/EU, and article 19 in particular, places substantial reporting requirements on reporting undertakings. Article 19a(2)(f) of Directive 2013/34/EU states:

The information referred to in paragraph (1) of Article 19 shall contain a description of:
. . .
(iii) the principal actual or potential adverse impacts connected with the undertaking’s own operations and with its value chain, including its products and services, its business relationships and its supply chain, actions taken to identify and monitor those impacts, and other adverse impacts which the undertaking is required to identify pursuant to other Union requirements on undertakings to conduct a due diligence process;

The December 2025 amendments do not ease this requirement. Each reporting undertaking is still required to report on “adverse impacts” and “business relationships” in its supply chain. The number of firms in the value chain likely varies substantially by firm but can easily contain hundreds or even thousands of other firms.

3. The CSRD gives protected undertakings very few options to avoid reporting

The December 2025 amendments to article 19a of 2013/34/EU state that the directive neither “imposes or implies any obligation on any undertaking in the value chain to provide sustainability information.” But this statement is at odds with an earlier statement in the same document:

Protected undertakings have the right to decline to provide information exceeding the information specified in the voluntary standards in response to a request made for the purpose of sustainability reporting as required by this Directive.

The “voluntary standards” are referenced but not specified in the new article 29ca. Instead, article 29ca refers to Commission Recommendation (EU) 2025/1710 on the “voluntary sustainability reporting standard.” This is a 65-page document filled with detailed reporting requirements, likely more burdensome and intrusive than the CSRD reporting requirements under Directive 2013/34/EU. It is difficult to see how a reporting undertaking under Directive 2013/34/EU would find the reporting under the voluntary standards insufficient to meet the requirements of article 19 of Directive 2013/34/EU.

Neither the December 2025 amendments to article 19a of the Directive 2013/34/EU nor the prior article 19 language gives protected undertakings a reporting alternative short of the standards of voluntary reporting. Directive 2013/34/EU does not address a situation where one “protected firm” in the value chain—much less several thousand protected undertakings in the value chain—refuses to provide any information to the reporting undertaking.

The EU may have the authority to compel protected undertakings operating in the EU to provide certain information under Directive 2013/34/EU or Commission Recommendation (EU) 2025/1710. The EU has no authority, however, to compel businesses with no direct presence in the EU, including many American firms, to abide by these provisions. 

Nevertheless, protected undertakings in the value chain that decline to report information may cause the EU, under the CSRD’s provisions, to impose costs on reporting undertakings that otherwise seek to comply:

The undertaking shall explain the efforts made to obtain the necessary information about its value chain, the reasons why not all of the necessary information could be obtained, and its plans to obtain the necessary information in the future. After that three-year transition period, the undertaking shall meet the reporting requirements for value chain information by using information directly obtained from undertakings in its value chain or estimates for that information as appropriate.

Non-EU protected undertakings, including American firms, will face an unpleasant choice:

1. At substantial expense, provide some or all of the requested information under Directive 2013/34/EU or Commission Recommendation (EU) 2025/1710; or
2. Provide little or no information, and risk:
3. Having reporting undertakings transfer business to firms more willing and able to comply with Directive 2013/34/EU or Commission Recommendation (EU) 2025/1710. Liability for failure to comply with the CSRD falls on the reporting undertakings, and those undertakings would reasonably take steps to reduce their costs of compliance and risk of penalties.
4. Losing some or all access to EU markets. The CSRD is a substantial barrier to EU markets, not just for large corporations that are or would be reporting undertakings, but also for small and midsize businesses that would be protected undertakings. For American firms of any size that are not already doing business in the EU, the CSRD creates a costly barrier to enter the EU market. For American firms of any size that are already doing business in the EU, the CSRD imposes additional costs to remain in the EU.

All these options impose substantial losses and costs on American firms, despite their classification as protected undertakings. These costs are outside the control of the US government. Simultaneously, the CSRD imposes significant costs on reporting undertakings, many of which are American firms as well.

Though exact counts are impossible, the next section explains various ways of estimating the number of American firms affected by the CSRD.

D. American firms that are not directly affected by the CSRD may still suffer due to higher prices and reduced competition in markets around the world

Some American firms may never be asked for information related to the CSRD. Some may not be part of a direct value chain for a reporting undertaking. Others may be part of value chains but may simply never be asked.

But as section 7 explains, the CSRD will have substantial but unquantifiable effects on markets around the world. American firms, both large and small, will be affected, mostly negatively, by those market effects.

E. Certain American industrial sectors are particularly vulnerable to the CSRD

Exhibit 2.1 presents a list of all American private businesses by industrial sector in 2023. Five sectors are the most vulnerable to the CSRD value chain concept: (1) agriculture and fisheries, (2) mining, (3) manufacturing, (4) information, and (5) finance. In the United States in 2023, these sectors included more than 2.2 million firms, which in turn employed more than 24 million workers. The sectors, including American subsidiaries of EU companies, amassed revenues in excess of $20 trillion just in the United States.

Some firms in exhibit 2.1 are vulnerable to the CSRD. Earlier papers by the author have estimated 50 percent of US firms are most at risk of harm by the CSRD. This report operates on the same assumption.

Revenues of these at-risk sectors total slightly more than $10 trillion. The amount of revenue at risk would increase if the share of these sectors most vulnerable to the CSRD were to increase. The American industries most at risk include large firms with EU operations (mainly reporting undertakings) and countless thousands of smaller firms (likely considered protected undertakings).

Exhibit 2.2 summarizes the revenues of these three measures of American firms possibly affected by the CSRD. For the SOMO list and S&P 500, the revenues reflect those of large firms that are likely reporting undertakings as well as large protected undertakings. The figures for American industrial sectors most at risk include firms of all sizes.

3. The CSRD’s quantifiable harm on American businesses is large

The CSRD will affect many firms in the United States. These costs fit into two categories: quantifiable costs, which this section addresses, and unquantifiable costs, which are addressed in section 7. The quantifiable costs of the CSRD fit into two categories: one-time costs of preparing for compliance and recurring annual costs of continued compliance.

A. One-time costs of preparing for CSRD compliance

Most American firms, unlike European firms, are not focused on coming into compliance with the reporting requirements for the CSRD. Some estimates of the costs of setting up a reporting system for the CSRD are available. The European Financial Reporting Advisory Group (EFRAG)—consultants retained by the EU—estimated in 2022 that setting up the reporting system would cost between 0.007 and 0.014 percent of corporate revenue. Ecobio estimates that CSRD setup would cost between 0.5 and 1 percent of revenue.

Exhibit 3.1 applies the percentage factors from EFRAG and Ecobio to the three different measures of affected American businesses in exhibit 3.1. The estimated cost of setting up CSRD reporting ranges from $700 million (the low EFRAG estimate of 0.007 percent of revenue applied to the list of American companies that appear to be covered by the CS3D) to $175 billion (the high Ecobio estimate of 1 percent of revenue applied to the S&P 500).

B. Annual recurring costs of CSRD compliance

1. Recurring costs of reporting compliance

Once a firm has set up its reporting system to comply with the CSRD, it will incur annual recurring costs to continue reporting. EFRAG estimates that these annual recurring costs are between 0.008 and 0.015 percent of revenue. Karl Burkhart estimates these annual costs at 0.066 percent of revenue. Exhibit 3.2 displays the estimated range of annual recurring costs for CSRD reporting. EFRAG estimates range from the low rate of $800 million annually for American firms on the SOMO list to the high rate of $2.62 billion annually for the firms on the S&P 500 list. The Burkhart estimates range from $6.58 billion annually for American firms on the SOMO list to $11.54 billion annually for firms on the S&P 500 list.

The Burkhart estimates of annual recurring costs for the CSRD and CS3D are both based on costs for reporting requirements for the European Sustainability Reporting Standards (ESRS). To avoid double counting of these costs later in the report, I have separated the overlapping costs as presented in exhibit 3.2. The annual recurring costs for the CS3D based on the Burkhart estimates are presented later in this report in exhibit 5.2. Subtracting those estimates from the $6.73 billion total estimate for CSRD annual compliance yields the last row of exhibit 5.2.

2. Recurring costs of auditing compliance

The CSRD has substantial auditing requirements. EFRAG estimated auditing costs just for the CSRD under two scenarios: a “limited assurance” condition and a “reasonable assurance” condition.

Limited assurance “implies a reduction in assurance engagement risk to a level that is acceptable in the circumstances of the engagement.” Reasonable assurance is a higher level of assurance that will be applied later at more than twice the cost of limited assurance. The December 2025 amendments indicate that the CSRD will focus on limited assurance for the foreseeable future.

Exhibit 3.3 presents estimates of annual assurance costs for US firms for limited assurance under the CSRD. The annual limited assurance cost ranges from $40 million (the low EFRAG cost rate is applied to just the American companies on the SOMO list) to $4.55 billion (the EFRAG high-cost rate applied to the S&P 500). The Burkhart estimates range from $3.29 billion annually for American firms on the SOMO list to $5.77 billion annually for firms on the S&P 500 list.

Exhibit 3.4 presents low and high cases for the total recurring costs of reporting and audits for the CSRD based on exhibits 3.2 and 3.3 in both a limited assurance and a reasonable assurance scenario. The lowest EFRAG cost estimate is $840 million annually for limited assurance for the American firms in the SOMO list under the low EFRAG assumptions. The highest EFRAG cost estimate is $7.17 billion annually for the S&P 500 under the high EFRAG assumptions. The total Burkhart cost estimates range from $9.87 billion annually for American firms on the SOMO list to $17.32 billion annually for firms in the S&P 500 list. Excluding the CS3D’s overlap, the Burkhart cost estimates range from $4.08 billion for American firms on the SOMO list to $9.31 billion annually for firms in the S&P 500 list.

C. Total measurable costs of the CSRD

Exhibit 3.5 presents the range of estimates of the measurable costs of the CSRD for the three categories of industry revenue: the 50 percent of industry most at risk, the SOMO list, and the S&P 500. Both initial one-time costs and recurring costs are included. Estimates of one-time setup costs range from approximately $1 billion to more than $100 billion, a substantial range. Estimates of annual recurring costs range from approximately $1 billion to nearly $10 billion. It appears that one-time setup costs for the CSRD could be as much as 10 times greater than annual recurring costs. The exhibit also shows the net present value of the annual recurring costs at a 10 percent discount rate, and the resulting value is comparable to that of the one-time setup costs.

4. Many American firms will be subject to the CS3D

Following 99 paragraphs of policy statements, including more than a dozen references to the United Nations, the CS3D authorizes EU regulations related to human rights and the environment with few if any tangible limits. Other than small measurements of the costs of reporting and audit requirements, the EU does not appear to have conducted a comprehensive measurement of the costs of the directives.

Whereas the CSRD imposes costly reporting and auditing obligations on firms, the CS3D imposes substantial responsibilities on firms to identify and reduce environmental harms and requires corporate leaders to cede control of their firms to third parties for the sake of due diligence or negotiations with various so-called stakeholders on a wide range of topics. As article 1 states:

1. This Directive lays down rules on:

(a) obligations for companies regarding actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies;

(b) liability for violations of the obligations as referred to in point (a);

Articles 5–7 and 13 describe due diligence. Articles 8–12 and 22 address corporations’ responsibility to identify, assess, and eliminate potential environmental and human rights risks. Articles 14 and 15 describe complaint procedures against companies and monitoring obligations under the CS3D.

The CS3D repeatedly refers to a “chain of activities,” which the directive defines as:

(i) activities of a company’s upstream business partners related to the production of goods or the provision of services by that company, including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of products and the development of the product or the service; and

(ii) activities of a company’s downstream business partners related to the distribution, transport and storage of a product of that company, where the business partners carry out those activities for the company or on behalf of the company, and excluding the distribution, transport and storage of a product that is subject to export controls under Regulation (EU) 2021/821 or to the export controls relating to weapons, munitions or war materials, once the export of the product is authorized.

The CS3D has reporting, due diligence, auditing, and compliance requirements, separate from those of the CSRD, which require far more than disclosure. It requires covered companies to identify and address actual and potential adverse human rights and environmental effects within their own operations, their subsidiaries, and their so-called chains of activities. Chains of activities include a business’s own activities, those of its subsidiaries, and those of business partners in upstream and downstream chains of activities. CS3D duties are backed not only by the threat of revenue-related fines but also by civil liability for intentional or negligent breaches of CS3D obligations.

With the December 2025 amendments the EU sought to reduce the burden on reporting undertakings. The amendments raise the CS3D’s reporting threshold for non-EU firms that operate in the EU from €450 million to €1.5 billion in annual revenue. Notably the original CS3D threshold of €450 million is the current CSRD threshold.

Many firms in the United States will be affected by the CS3D. These fall into four categories:

• American firms that exceed the €1.5 billion threshold in the EU;
• International firms that exceed the €1.5 billion threshold in the EU with operations in the United States as well;
• American firms that will be part of the value chains of CSRD reporting firms and that will likely be asked for information related to the CSRD; and
• American firms that may not be asked for information related to the CSRD but will be affected by higher prices and reduced competition in markets around the world.

A. American firms that exceed the €1.5 billion threshold in the EU

The number of American firms affected by the CS3D will be fewer than for the CSRD. But the costs for each of the affected firms will likely be much higher under the CS3D. One of the motivations for the December 2025 amendments was to reduce the number of firms required to report directly to the EU. At least one report identifies the objective as reducing the number of reporting firms by 70 percent. Reducing the number of reporting firms by 70 percent, or a similar percentage amount, does not lead to a 70 percent reduction in revenue of reporting firms. That is because the firms with the greatest revenue are still required to report under and comply with the CS3D.

1. The SOMO list

As noted above, the CSDDD Datahub, maintained by SOMO, includes 172 firms from the Fortune 500list that unambiguously qualified for CSRD reporting with at least €450 million revenue in the EU. These 172 firms had a combined global revenue of $9.97 trillion in 2024. To translate the SOMO list into the new CS3D threshold of €1.5 billion, I first examine the revenue of Howmet Aerospace, the smallest of the 172 American firms that qualify under the SOMO and Fortune 500lists. Howmet’s global revenue in 2024 was $7.43 billion. The ratio of €1.5 billion to €450 million is 3.33. If one multiplies $7.43 billion by 3.33 one obtains $24.77 billion. At that threshold, 87 firms would qualify for the new CS3D threshold, with a combined global revenue of $8.77 trillion, or 88 percent of $9.97 trillion.

The result is robust compared to the selection of other firms in the SOMO list; firms ranked 165 through 172 all have global revenues between $7.4 billion and $8.0 billion. Moreover, as discussed above, 143 American firms on the SOMO list have revenues of less than $7.4 billion and do not appear on the Fortune 500 list. If one multiplied the smallest revenue by 3.33, one would obtain a smaller threshold than $24.77 billion, and the resulting ratio of CS3D-covered firms to the list of 172 firms would be greater than 88 percent.

2. The S&P 150 list

As noted above, some estimate that the December 2025 amendments were intended to reduce the number of directly reporting firms by 70 percent. If the 500 companies on the S&P 500 need to report directly under the CSRD, only 150 firms should need to report after the 70 percent reduction factor. To measure that effect, I compiled a list of revenues for the 150 largest companies on the S&P 500 index by market cap. I find that the 150 largest corporations had a combined revenue of $12.539 trillion, or 69 percent of the S&P 500 revenue. Thus, reducing the number of reporting American corporations by 70 percent under CS3D results in only a 31 percent reduction in revenue. The S&P 150 list excludes large non-American companies.

Exhibit 4.1 replicates for the CS3D the three sets of firms in exhibit 2.2: the American industries most at risk, the SOMO list, and the S&P 150. The paragraph above describes the estimate of the revenues of firms directly reporting under the CS3D. To estimate the revenues of the vulnerable American industry sectors, I estimate a low value based on the 69 percent from the ratio of S&P 150 to S&P 500 index and then multiplied by the industry sector revenue in exhibit 2.2. The high value is based on the 88 percent ratio of American firms on the SOMO list that will be required to comply with the CS3D.

As exhibit 4.1 shows, the total revenue of American firms directly responsible for reporting under the CS3D ranges from a low estimate of $7.1 trillion to a high estimate of $12.1 trillion.

B. International firms that exceed the €1.5 billion CS3D threshold in the EU with operations in the United States

Many large non-US corporations have substantial economic activity in the United States. The vast majority of the firms on the SOMO list, for example, have operations in the United States, whether American or not. This includes automotive companies such as Honda, Toyota, Nissan, Hyundai, Mercedes, BMW, and Volkswagen; energy companies such as Shell and BP; and industrial conglomerates such as Samsung and Mitsubishi. These and other large international corporations have substantial investments in the United States that are not counted as American firms under either the SOMO list or the S&P 500 list but that would fall under the global reach of the CS3D and whose American operations would be affected accordingly.

C. American firms that will be part of the chain of activities of CS3D reporting firms and that will likely be asked for information related to the directive

Most American firms do not have €1.5 billion in revenue in the EU and will not report directly under the amended CS3D. But many American firms may be asked for information under the CS3D’s definition of the chain of activities.

D. American firms that may not be asked for information related to the CS3D but will be affected by higher prices and reduced competition in markets around the world

Some American firms may never be asked for information related to the CS3D. Some may not be part of a direct chain of activities for a reporting undertaking. Others may be part of a chain of activities but may simply never be asked.

But as I explain in more detail in section 7, the CS3D will have substantial but unquantifiable effects on markets around the world. American firms, both large and small, will be affected, mostly negatively, by those market disruptions.

E. American firms will be less likely to enter EU markets

The CS3D will limit the range of business activities for many firms, including many American firms. The overall effect of the regulations will be to increase the cost of production and economic activity in the EU and elsewhere. Those costs and those limitations on economic activity will be felt not only in the EU but also in other countries including the United States in the form of higher cost of living and lower economic opportunities.

5. The CS3D’s quantifiable harm to American businesses is large

In response to Senate questions for the record prior to his confirmation, Commerce Secretary Howard Lutnick stated that “the CS3D imposes a significant burden on American corporations. I will consider using all available trade tools at the department’s disposal, as appropriate, to respond to any actions by foreign governments, including the EU, that harm the American economy and impose unreasonable burdens on our companies.” Other countries likely have a similar view of the EU imposing substantial costs on their citizens through the CS3D. If all countries, including the United States, resort to trade tools such as tariffs, the result would be a global trade war with substantial harm to American consumers.

Many firms in the United States will have new costs as a result of the CS3D. These costs fall into two categories: quantifiable costs, which this section addresses, and unquantifiable costs, which are addressed in section 7. The quantifiable costs of the CS3D fall into two categories: one-time costs of preparing for compliance and annual recurring costs.

A. One-time costs of preparing for compliance with the CS3D

The executive vice president of the European Commission offered an extremely low estimate of €220 million for the combined one-time costs for all EU firms to come into compliance with the CS3D and €1.7 billion in one-time costs for EU firms to come into compliance with the related ESRS. CS3D reporting relies on ESRS.

Fewer American firms than EU firms must comply with either the CS3D or ESRS, and consequently one might assume that one-time costs for American firms would be less than for EU firms. On the other hand, American firms, unlike European firms, are not focused on coming into compliance with the reporting requirements for the CS3D or ESRS. Consequently, an approximation based on EU information of the one-time costs of American firms coming into compliance with the CS3D is €220 million plus €1.7 billion, or €1.92 billion ($2.26 billion). The European Commission estimate is substantially less than other estimates.

The CS3D’s requirements are substantial, not only for the reporting corporations but also for their supply chains, which will require substantial changes to come into regulatory compliance. The law firm DWF surveyed 1,200 C-suite executives in EU countries in 2024. Among the questions asked was the cost to bring their company’s supply chain into regulatory compliance. DWF found, “On average, C-suite leaders estimate that 9 percent of their revenue will be required to achieve a fully CS3D compliant value chain in the next two years.”

Exhibit 5.1 presents these estimates of one-time costs to come into compliance with the CS3D. This paper’s estimate applies the DWF factor to the various measures of revenue for American firms covered directly by the CS3D, with one-time cost estimates ranging from $637 billion to $1.093 trillion. Outside estimates are substantially greater than the $2.26 billion estimate based on the European Commission information.

To put these costs estimates in some context, one estimate of the annual costs of all US federal regulations was $3.079 trillion in 2022. Even omitting all other costs of the CS3D, the cost to bring supply chains into compliance with the directive would, on an annual basis, account for a large portion of total regulatory costs for American firms.

B. The measurable recurring costs of the CS3D

The CS3D will create substantial ongoing costs both for covered firms and for firms that are part of the chains of activities for covered firms. The CS3D institutes substantial reporting requirements for covered companies, both on an annual basis and regarding ongoing due diligence and new contracts.

Although the CS3D requires no new formal audit procedures, it creates substantial new monitoring requirements for covered companies.

The executive vice president of the European Commission offered a small estimate of €760 million for the recurring costs of all EU firms for the CS3D and €1.7 billion in recurring costs for EU firms related to ESRS. CS3D reporting relies on ESRS. As with the one-time costs discussed above, more EU firms will encounter recurring costs, but fewer American firms are prepared for them. Consequently, an approximation for the recurring cost of the CS3D for American firms based on the recurring costs of the CS3D for EU firms is €760 million plus €1.7 billion, or €2.46 billion ($2.90 billion).

Another method to estimate the recurring costs of the CS3D is based on the recurring reporting costs of the CSRD. The recurring costs of the CS3D and CSRD are derived partly from the costs of complying with ESRS. The reporting costs of the CS3D should be at least as large as those for the CSRD and will likely be substantially larger. Exhibit 3.2 presents estimates of the annual reporting costs of the CSRD, which range from $820 million to $11.54 billion. Exhibit 5.2 presents estimates of the total annual recurring costs of the CS3D, which range from $570 million to $8.02 billion. The European Commission estimate of annual recurring costs, $2.90 billion, falls in that range.

C. Estimating the costs of changing conduct under the CS3D

Annual reporting costs are usually just a small part of the total annual costs of regulation. But the CS3D requires due diligence, the drafting of plans to reduce harms to the environment and human rights, and penalties for failure to meet targets. There are also additional costs of changing corporate conduct, some of which are measurable and some of which are not. Measurable change-of-conduct costs include pollution abatement and other direct costs, besides reporting, to comply with regulations.

Several studies measure the ratio of administrative costs to abatement and compliance costs. A study by Joshi, Krishnan, and Lave finds that every dollar of visible spending on regulation reflects $10 of spending in less visible accounts. Exhibit 5.3 applies this ratio to the recurring costs for the CS3D in exhibit 5.2 to estimate annual costs of change in conduct. Estimates range from $5.67 billion (the low estimate for limited assurance applied to the low estimate of the 50 percent of industry most at risk) to $80.18 billion (Burkhart’s estimates applied to the revenue of the S&P 150).

Pizer and Kopp examine various cost categories for pollution abatement. The average ratio of administrative costs to pollution abatement by businesses and consumers ranged from 4.9 to 5.7 percent over three years, and averaged 5.3 percent. Applying that ratio to exhibit 5.2, exhibit 5.4 estimates the annual costs of change in conduct from Pizer and Kopp. Estimates range from $10.7 billion (the low-cost estimate for limited assurance applied to the low estimate of the 50 percent of industry most at risk) to $151.28 billion (the Burkhart factor applied to the revenue of the S&P 150).

In yet another study, Christine Volgan, using data from the Bureau of Economic Analysis, finds that administrative costs account for 1.8 percent of pollution abatement control costs. With that ratio, exhibit 5.5 presents estimates of annual costs of change in conduct. Estimates range from $31.5 billion (the low cost estimate for limited assurance applied to the low estimate of the 50 percent of industry most at risk) to $445.43 billion (the Burkhart factor applied to the revenue of the S&P 150).

These results, based on the costs to business in the five sectors—agriculture, mining, manufacturing, information, and finance—are consistent with economic studies on costs of environmental regulation for just the manufacturing sector. Writing in 2012, Greenstone, List, and Syverson found that environmental regulations led to a 2.6 percent decline in total factor productivity and an annual $21 billion cost (in 2010 dollars) to manufacturing plants, or 8.8 percent of manufacturing profits. In 2025 dollars, those annual costs correspond to $30.5 billion, consistent with the range of estimates for all five industrial sectors.

D. Total measurable costs of the CS3D

Exhibit 5.6 presents the range of estimates of the measurable costs of the CS3D for the three categories of industry revenue: the 50 percent of US companies that are in at-risk industries, the SOMO list, and the S&P 500. Both initial one-time costs and recurring costs are included. Estimates of one-time setup costs range from approximately $637 billion to more than $1 trillion, a substantial range. Estimates of total annual recurring costs, in both directly measurable expenditures and implicit conduct changes, range from approximately $6.25 billion to more than $450 billion, also a substantial range. The exhibit also presents the net present value of the annual recurring costs at a 10 percent discount rate, and the resulting value is similar to that of the one-time setup costs.

6. Analysis of quantifiable costs of the CS3D by state

A. Costs of the CS3D by state

The American industries most at risk from the new EU regulations have revenues not only in Europe but also in every US state. This section reviews the possible effects of the CS3D for each state. Based on available information, this analysis projects state-level revenue in quarter 2 of 2025 for the five industry sectors: agriculture, mining, manufacturing, information, and finance.

The first five columns of exhibit 6.1 present the estimated 2025 revenue for agriculture, mining, manufacturing, information, and finance for each state and the District of Columbia. In most states, the manufacturing or finance sectors have the largest revenues. Exceptions are Alaska (mining), New Mexico (mining), North Dakota (mining), Washington (information), and Wyoming (mining).

The last two columns of exhibit 6.1 present the sum of revenues for the five industry sectors as well as 50 percent of that amount. Consistent with my previous report, I also present 50 percent of the industry revenue by state. The total revenue in the five sectors in quarter 2 of 2025 was $21.754 trillion, and 50 percent of that amount, the revenues from the industries most affected by the CS3D, is $10.877 trillion.

Not surprisingly, the state with the most industry revenue at risk is California, followed by Texas, New York, and Illinois. Each state has substantial revenue at risk of loss or reduction. As noted above, many businesses in other industry sectors are also at risk. The salient point is that the EU directives put a substantial amount of industry revenue in each state at risk. Because all subsequent state-level exhibits are derived from the last column of exhibit 6.1, the relative ranking of the costs in each exhibit is the same as in exhibit 6.1. Obviously, analyses based on other sectors or other assumptions could lead to different relative rankings.

Exhibit 6.2 presents the one-time setup costs as well as annual recurring costs for compliance with the CS3D based just on the 50 percent of American industries most affected by the CS3D. The total one-time setup costs for CS3D compliance range from $637 billion to $807 billion. The one-time setup costs are estimated to be between 5.863 and 7.419 percent of revenue. The direct annual recurring costs from compliance with the CS3D, including implicit costs, range from $6.2 billion to $334.9 billion. The annual recurring costs are estimated to range from 0.057 to 3.079 percent of revenue.

The cost estimates in exhibit 6.2 are nationwide costs, spread across each state and across all core industries. Exhibit 6.3 and subsequent exhibits assume that costs the CS3D imposes in each industry and each state can be estimated based on the same revenue shares as at the national level. These detailed estimates by state and by industry are approximations. But the sum of the estimates across states should equal the total industry estimate.

Exhibit 6.3 presents the range of setup costs for the CS3D in each core industry and in each state based on the information from exhibits 6.1 and 6.2. Total minimum setup costs exceed $1 billion in all but two states. Setup costs in California exceed $80 billion. Maximum setup costs exceed $1 billion in each state and total more than $100 billion in California.

Exhibit 6.4 presents the range of estimated direct and implicit recurring annual costs for the CS3D in each state based on the information from exhibits 6.1 and 6.2. Minimum estimates of annual direct and implicit recurring costs exceed $10 million in all but one state. For all states and industries, the total minimum estimate of recurring costs is more than $6.2 billion.

In 44 states plus the District of Columbia, estimated maximum annual recurring costs of CS3D compliance exceed $1 billion. In seven states, the estimated maximum annual recurring costs exceed $10 billion. In California alone, the maximum estimate of annual recurring costs exceeds $42 billion. For all states and industries, the total maximum estimate of recurring costs is more than $334 billion.

B. Employment and payroll put at risk by the CS3D on a state-by-state and industry-by-industry basis

The CS3D’s costs to American businesses reported above are substantial, both on a one-time basis and on a recurring annual basis. These costs would likely translate into substantial risk of losses for employment and labor payroll as well.

The incremental costs of the CS3D presented in exhibit 6.2 were based on certain percentages of revenue. Costs to a business or to an industry do not translate directly into changes in employment or payroll. Some firms may pay for new regulations and still retain—or even expand—employment. Other firms, confronted with new regulations, may simply go out of business, eliminating all employment and payroll. Many of those workers may find employment at other firms, but presumably under less favorable terms than they would without the CS3D. If employees could have found better positions, they would have done so already. The exhibits below make a simple assumption that the CS3D’s employment effects on US firms in the five most at-risk sectors will be proportional to a change in costs.

1. Employment at risk

Exhibit 6.5 presents the employment of each of the five sectors in each state as of 2022 based on Census Bureau data. Each sector has some employment in each geographic area, with the exception of mining, which is not present in the District of Columbia. Manufacturing is the largest employer among the five sectors in each state, with a few exceptions: Arizona (finance), Delaware (finance), the District of Columbia (finance), Florida (finance), Hawaii (finance), New York (finance), and Wyoming (mining). For the combination of the five sectors, presented in the last two columns of exhibit 6.5, California has the largest number of employees (more than 2.6 million), followed by Texas, New York, Ohio, and Illinois, each with more than one million employees.

Exhibit 6.6, based on exhibits 6.2 and 6.5, presents estimates of the minimum and maximum employment at risk by industry and by state associated with the one-time costs for firms to come into compliance with the CS3D, as discussed above. The nationwide range of employment at risk is estimated between 680,000 and 865,000 employees. This is a substantial risk for total employment, and possible losses (of approximately 0.4–0.6 percent) would be significant in a civilian labor force of approximately 170 million. The greatest possible employment losses are in California, which are estimated between 78,000 and 98,000 employees. Each state is estimated to have employment at risk of at least 1,000.

Employment at risk and losses are not one-time events. Exhibit 6.7 estimates how the annual recurring costs of complying with the CS3D will put employment at continued risk. Nationwide, the number of employees at risk ranges between 6,700 and 359,000. The estimated minimum employment at risk from the recurring costs is small, but the maximum estimates are substantial. The latter figure represents approximately 0.2 percent of the civilian labor force.

2. Payroll at risk

Exhibit 6.8 displays the estimated 2025 annual payroll for the five industrial sectors in each state. In most states, either the manufacturing or the finance sector has the largest payroll.

Exceptions are Alaska, North Dakota, and Wyoming (all mining). The state with the largest payroll is California, with an annual total of $430 billion. Other states with payrolls in excess of $100 billion are New York, Texas, and Illinois. The final column of exhibit 6.8 reflects 50 percent of the payroll for the core industries.

Exhibit 6.9 presents the expected 2025 payroll at risk based on the one-time costs of bringing firms into compliance with the CS3D. The estimates are based on the minimum and maximum revenue factors from exhibit 6.2 and the payroll values from exhibit 6.8. Total nationwide payroll at risk and potential losses would range from $75 billion to $95 billion. Even with the minimum setup costs, 22 states would have payroll at risk in excess of $1 billion. California alone would have one-time payroll at risk of between $12.5 billion and $16 billion. These payroll losses will apply to small businesses as well as large businesses.

Exhibit 6.10 presents the expected payroll at risk based on the estimated direct and implicit recurring costs for firms in compliance with the CS3D. The estimates are based on the minimum and maximum revenue factors from exhibit 6.2 and the payroll values from exhibit 6.8. Total nationwide recurring payroll at risk would range from $700 million to more than $39 billion annually. Twelve states would have payroll at risk of more than $1 billion at the maximum range.

C. Small businesses are vulnerable to the CSRD and CS3D

The vulnerable industry measures above include many small businesses. But many small businesses outside of these five sectors are at risk of repercussions as well. Small businesses are perhaps more vulnerable than large businesses to the CSRD and CS3D even though large businesses are more likely to be reporting undertakings. Usually, large businesses have the resources to pay for compliance with costly regulations; small businesses often do not. Moreover, small businesses generally do not have the organizational structure and experience to address new and challenging regulations. For large corporations, addressing new regulations is just a cost of doing business. For small businesses, these new regulations may pose an existential threat.

EU regulations such as the CSRD ultimately have no effective limitation on the size of companies that will ultimately comply. In economically integrated markets, all firms even remotely involved in EU commerce ultimately comply. A good example of this phenomenon is the EU’s General Data Protection Regulation (GDPR) privacy law. Many if not most American businesses now have GDPR-compliant consent forms on their website homepages, asking users for consent to use various forms of personal information. Similarly, American accounting and audit firms will likely develop forms seeking information about clients’ compliance with the CSRD, and as discussed below, the CS3D. Any firm actually—or potentially—selling products or services directly or indirectly in the EU will likely need documentation proving compliance with CSRD reporting requirements or Commission Recommendation (EU) 2025/1710. Firms may decline to provide information, but such refusals threaten their access to the EU market.

Even the EU’s thresholds for which firms are reporting undertakings can change. Current limitations on firm size can easily be modified, as the EU has done with the December 2025 amendments. There is no guarantee that firms below the EU threshold today will remain below the EU threshold in the future.

The industries most at risk include small businesses in every state. Appendix A presents for small businesses the number of firms, employment, and revenues for the most at-risk industries. Although I have not calculated the specific effects of either the CSRD or CS3D on small business in each state, the effects would be substantial. Revenue, employment, and payroll for the small businesses in each state presented in appendix A are a substantial share of all businesses reflected in exhibits 6.1, 6.5, and 6.8.

7. The qualitative costs of the CSRD and CS3D are substantial and likely overshadow the measurable costs

There are many costs of the CSRD and CS3D that cannot yet be quantified but are important to describe and will most likely overshadow previously discussed quantifiable costs. By way of introduction to these costs, it must be noted that practically all firms in the United States are likely to be affected by the CSRD and CS3D. Large firms required to report directly under the CSRD or CS3D do business with hundreds if not thousands of firms either in their value chain or in their chain of activities. A firm of any size is likely to do business with one of these directly reporting firms or is likely to do business with a firm that is in the value chain or chain of activities of a reporting firm.

Below are some of these qualitative costs.

A. Costs to American consumers from higher prices and loss of consumer choices

The measurable costs of the regulation described above are substantial and would almost certainly increase prices for American consumers. This is because some of the basic building blocks of the economy, specifically energy, metals, food, and materials that are transported long distances, are all likely to increase in price as a result of the new CSRD and CS3D rules. The resulting price increases would diminish the welfare of American consumers who will have to pay them.

Beyond a general increase in consumer prices, specific industries targeted by EU rules will result in fewer choices and higher prices for American consumers. Let’s consider the car industry: the latest EU climate directives mandate a reduction of 90 percent of CO2 emissions in EU cars and vans by 2035 compared to 2021 levels. These mandates will shape the US automotive industry as well. Although there are substantial differences between the US and the EU car markets, certain models such as Toyota’s RAV4 and Honda’s CR-V are very strong sellers in both. Toyota’s and Honda’s strategies to adapt to EU regulations will affect American consumers’ choices.

The resulting market is very costly to American consumers: the Environmental Protection Agency recently released a study finding that the costs to American consumers of a 50 percent electric fleet rule “must exceed $100 billion annually and likely near $300 billion.” That would be the cost of a milder version of just one part of CS3D regulations. The total costs to American consumers—in the form of higher prices, lower quality products and services, prohibition from purchasing some goods and services altogether, and the loss of innovation, is immeasurable.

B. Costs to American consumers from corporate risk: noncompliance and civil liability are new uninsurable threats

The CSRD and CS3D bring additional costs to firms operating in the EU that are due to increased risk of noncompliance and civil liability. The EU threatens that it can assess penalties of as much as 3 percent of global revenue for noncompliance with the CS3D. Potentially more costly than the penalties for noncompliance is the imposition of civil liability for failure to comply with a wide range of provisions under the CS3D.

For example, the CS3D stipulates that:

Member States shall ensure that a company can be held liable for damage caused to a natural or legal person, provided that:

(a) the company intentionally or negligently failed to comply with the obligations laid down in Articles 10 and 11, when the right, prohibition or obligation listed in the Annex to this Directive is aimed at protecting the natural or legal person; and

(b) as a result of the failure referred to in point (a), damage to the natural or legal person’s legal interests that are protected under national law was caused.

Previously, it was possible for citizens to sue companies for environment-related damages, but it was not necessarily possible for an EU-operating company to be sued for the actions of a non-EU subsidiary or firm operating in its value chain. The CS3D changes this: a firm operating in the EU can now by default be brought to court for actions anywhere in its value chain by people anywhere in the world, or even by a trade union or nongovernmental organization. This presents a fresh and untested legal exposure that could be very costly to businesses.

American firms face great uncertainty from the CSRD and CS3D. Academic research finds higher regulatory exposure results in slower sales and asset growth, lower leverage, and reduced profitability. The harms from regulatory uncertainty fall disproportionately on small businesses.

Not only is a company at risk for both penalties and civil liability for noncompliance with a wide range of rules, but these risks cannot be insured against. Businesses can insure against various types of risk that are predictable and for which there are large samples of prior events from which to measure the risk. For at least the following reasons, the uncertainty surrounding the EU initiatives is not amenable to insurance:

• Final regulations are in flux;
• Even when final regulations are promulgated, the extent and the potential effects of the rules are practically unbounded. The extent of regulation is so vast that any cost estimate would be a rough approximation at best;
• Even if a precise estimate of the effect of the final rules were possible, the enforcement of those rules, particularly with respect to American firms or to any firms operating in the United States, is an unknowable risk; and
• Even if enforcement were known with certainty, the EU can modify underlying rules—and enforcement policies—rapidly. In 2025 alone, implementation rules have been modified and additional proposed amendments have been considered several times.

The overall cost of this added risk and the lack of insurability will be felt by American consumers. Because of the inherent unknowns, this cost cannot yet be quantified.

C. Costs to American consumers from harm to the market: information sharing

Certain types of information, particularly information necessary for a transaction, are commonly exchanged in markets (for example, prices, quantities of products, qualities of products, ability to pay, and ability to fulfill an order). But buyers and sellers are understandably reluctant to share information that is unnecessary for a transaction, especially information that reveals their specific position in their market. Release of certain market-specific information may result in competitive harm to market participants. Release of other types of information may harm the reputation of a firm or expose it to legal liability.

Both the CSRD and CS3D, which rely on ESRS standards, require undertakings to report detailed information far beyond what would normally be exchanged for market purposes. Because competing firms are under the same reporting requirements, firms operating primarily in the EU face little competitive disadvantage in fully complying with ESRS. But firms with substantial operations outside the EU are understandably reluctant to disclose information on operations outside the EU that at least some of their competitors may not be required to disclose.

Sustainability information of the type required by the EU is not usually collected by firms outside the EU, much less shared with the general public. The mere asking for information that businesses do not usually share with one another would have a chilling effect on commerce in both directions: non-EU companies would be more reluctant to go to Europe for business, and EU firms would find it harder to make relationships with non-EU firms. Existing commercial partnerships between reporting firms and non-EU firms are sure to be scrutinized as the cost of maintaining the relationship increases.

D. Costs to the American consumer from changes in corporate responsibilities and objectives

Most American businesses seek to make profits within the bounds of the law. They generally are not responsible for implementing government objectives. The CS3D changes that and makes corporations primary agents of EU political decrees. For example, the CS3D requires companies to take the following steps:

(1) integrating due diligence into policies and management systems; (2) identifying and assessing adverse human rights and environmental impacts; (3) preventing, ceasing or minimising actual and potential adverse human rights and environmental impacts; (4) monitoring and assessing the effectiveness of measures; (5) communicating and (6) providing remediation.

The very first article of the law, article 1, states the following:

This Directive lays down rules on:

(a) obligations for companies regarding actual and potential human rights adverse impacts and environmental adverse impacts, with respect to their own operations, the operations of their subsidiaries, and the operations carried out by their business partners in the chains of activities of those companies;

(b) liability for violations of the obligations as referred to in point (a).

To a casual reader, this language might seem rather benign, or even benevolent. Companies need to make sure that their operations do not cause human rights to be violated—where’s the harm in that? But these CS3D stipulations fundamentally shift the conception of what a company is. Corporations are no longer responsible to just their shareholders and their governmental bodies while they pursue profit within the bounds of the law; corporations are now legally responsible for advancing an extraordinarily vague and expansive set of non-business objectives through their own operations and those of other companies with which they have business relations. In this new world, companies have an expansive and unprecedented new set of concerns that expands even beyond their immediate operations and management structure.

E. Diminution of corporate control

Under American corporate law, only corporate owners and duly appointed corporate officers have control of the corporation and can make decisions on its behalf. Government agencies can, through laws and regulations, limit corporate conduct. Third parties can influence corporate conduct through contracts. Remarkably, the CS3D shifts corporate control and decision-making away from the shareholders and management of the company toward governments and vaguely defined stakeholders. Stakeholders are mentioned 61 times, and the term appears to encompass everyone in the world except the management and shareholders of the corporation in question.[87] Corporations appear to cede substantial control to these ubiquitous stakeholders who must be consulted about practically all corporate decisions. For example, article 13 of the CS3D states that corporations must consult so-called stakeholders:

1. when gathering the necessary information on actual or potential adverse impacts, in order to identify, assess and prioritise adverse impacts pursuant to Articles 8 and 9;

2. when developing prevention and corrective action plans pursuant to Article 10 and Article 11, and developing enhanced prevention and corrective action plans pursuant to Article 10 and Article 11;

3. when deciding to terminate or suspend a business relationship pursuant to Article 10 and Article 11;

4. when adopting appropriate measures to remediate adverse impacts pursuant to Article 12;

5. as appropriate, when developing qualitative and quantitative indicators for the monitoring required under Article 15.

Simply stated, an American corporation under the CS3D must consult with stakeholders for many if not all important corporate decisions. No doubt, failure to implement the stakeholder consultation process in article 15 could lead to corporate liability in disputes with stakeholders. Meaningful control of the corporation is lost.

Troubling also is the emphasis on due diligence in the stakeholder consultation process. As mentioned above, due diligence is mentioned 138 times in the 58-page directive, and at each instance of due diligence, the stakeholder consultation process of article 13 could, and likely would, be invoked. The corporation, rather than running an efficient business, is required to engage in more than 100 forms of due diligence and consult with an exhaustive list of stakeholders in each of these instances. Although the December 2025 amendments narrow the list of specific stakeholders that require consultation, such consultations are still required.

American companies, and international firms operating in the United States, are not immune to the regulations under the CSRD and CS3D. The directives transfer corporate control to the EU and stakeholders not only for corporate conduct in the EU but also for corporate conduct in other countries, including the United States. Indeed, recent academic research finds that American corporate board members will become increasingly responsible individually for corporate compliance with the CS3D.

The author has found no discussion, much less cost estimates, of the dramatic shift in corporate control under the CSRD and CS3D. Those effects are large but currently unmeasured.

F. Changes in business liability

The CS3D is not merely about shifting corporate control but also about shifting liability, particularly civil liability, from shareholder interests to corporations. Civil liability, damages, and remediation are frequently mentioned in the CS3D. Not only does the directive assign liability to corporations, it also frequently requires damages and remediation.

Independent of the formal EU governmental enforcement of the rules, American corporations are vulnerable to shareholder lawsuits for failure to disclose relevant information that might affect the value of securities. As discussed in the previous section, the directives create seemingly unbounded obligations to engage in vague forms of due diligence and to consult with countless stakeholders. Each of these activities is potentially a reportable event. Efforts to comply with the directives may reduce legal exposure to EU governmental oversight and penalties but may paradoxically create substantial legal liability in the United States. For example, boards of American corporations have duties to safeguard the interests of shareholders, not outside parties. Yet the CS3D creates duties of boards to outside parties, likely in conflict with American corporate law. The author has found no discussion, much less cost estimates, of the dramatic shift in corporate liability under the CSRD and CS3D. Those effects are large but currently unmeasured.

The likely result is that American firms will choose to comply with the CSRD and CS3D to avoid potential liability. At first glance, the costs of the CS3D to an American business could be avoided by simply shunning the EU market. But much as the EU’s GDPR rules have resulted in compliance from American businesses far removed from the EU market, so too the CSRD and CS3D will likely lead American firms to comply. The reality of global supply chains means that the CSRD and CS3D will ultimately require many firms that do not directly sell in the EU to document their compliance with the CS3D. Firms specializing in compliance with the CSRD and CS3D will advise American businesses that, to avoid potential liability, it is simpler to comply.

G. Changes in the relative regulation of different industries

Not all industries will be identically affected. Some activities, although not specifically excluded, may be substantially curtailed or even eliminated as a result of environmental regulatory objectives independent of costs. Some industries are more likely to be affected than others, including manufacturing and distribution of textiles, leather goods, agriculture, forestry, fisheries, food and beverage manufacturing, and extractive industries. American businesses in certain industries, notably Internet-related sectors, have been frequent targets of EU regulation in the past, and CSRD and CS3D regulations may provide new avenues for EU oversight of these companies.

Many reviews of CSRD and CS3D regulations focus on the distinction between the “covered” companies—large companies that will have substantial reporting requirements and face potential liability and penalties—and smaller companies that do not have the same reporting requirements or face direct liability. But the changes in business activity in the EU as a result of CSRD and CS3D regulations are likely to affect all American companies, large and small, operating in the EU.

H. Loss of American sovereignty over regulation of business

These enormous losses to American businesses and consumers from the CSRD and CS3D beg the question of where American businesses and consumers can go to seek relief. Ordinarily, American businesses and consumers can go to their elected officials and government agencies to seek review of regulations. But the American government has no control over the CSRD and CS3D, despite their substantial effect on American markets and American consumers.

I. Conclusion: The CSRD and CS3D dramatically change market conditions, with untold qualitative costs

The CSRD and CS3D substantially alter global market conditions. Some firms will simply go out of business. Others will be dramatically affected and exit certain lines of business. The measurable costs above are for the firms that remain in business and remain in the same sectors, not for the many firms that will exit certain markets or dramatically change their focus.

The regulations will affect market structures not only in the EU but around the world. The costs of complying with the CSRD and CS3D are substantial. Because new regulatory costs can more easily be borne by larger firms, these new and costly regulations will benefit major firms at the expense of smaller businesses. As the efficient size of a firm to enter a market increases, fewer firms will be able to enter and compete in those markets. Fewer market participants will reduce competition and therefore stifle innovation and raise prices in that market.

The nearly unlimited scope and scale of the CSRD and CS3D mean that these effects will be felt worldwide.