HFS Warns that EC Legislation on Corporate Sustainability Threatens U.S. Companies

In a letter addressed to Treasury Secretary Janet L. Yellen, House Financial Services ("HFS") Committee Chair French Hill (R-AR) expressed "serious concern" that the Biden Administration’s engagement with the European Union and the European Commission’s proposed Corporate Sustainability Due Diligence Directive would result in significant financial and legal implications for U.S. companies.

The letter, signed by a number of HFS members, warned that the proposal would (i) require American companies with a revenue of more than €150 million in the EU to address ESG issues, (ii) require American companies active in Europe to end business relationships in the United States and (iii) allow non-government stakeholders to sue U.S. companies for failing to comply with EU requirements. The legislators emphasized that the "most concerning" impact of the proposal will be the effect on U.S. multinational companies to source from or sell to U.S. businesses, including small businesses.

In noting the potential impacts on U.S. companies of these ESG policies, the legislators highlighted comments received regarding the SEC's own proposed regulations on corporate sustainability requirements. The legislators pointed to significant pushback on the SEC's proposal to require Scope 3 emissions reporting. Further, the legislators continued to emphasize that U.S. regulators should not circumvent this comment and response process simply by imposing international regulations on domestic companies after collaborating with international regulators.

The legislators requested that Treasury provide responses to the following request for information on the proposal no later than June 30, 2023:

• the Biden Administration’s formal position on the proposal;
• a list of all U.S. companies expected to be subject to the proposal;
• a cost estimate to the U.S. economy and businesses;
• a list of existing regulatory authority available to the Biden Administration that could mitigate the impact of the proposal, if adopted;
• steps taken or plans to prevent the proposal from applying to U.S.-based companies; and
• plans by the Biden Administration to assist U.S. small businesses in addressing the impact of the proposal, if adopted.