Key takeaways
The draft bill prohibits U.S. entities deemed integral to national interests from complying with foreign sustainability due diligence regulations.
The draft bill particularly targets the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). At the moment, it is not yet clear whether other EU legal acts such as the EU Deforestation Regulation or the EU Battery Regulation are also affected.
It offers a hardship relief process for businesses that might suffer economic disadvantages from non-compliance.
The draft bill would block U.S. courts from enforcing foreign judgments related to sustainability regulations.
Violators could face penalties of up to USD 1 million and a three-year ban on federal contracts.
The U.S. Senate is currently reviewing a legislative proposal that could reshape corporate sustainability compliance for American businesses operating internationally. Introduced by Senator Bill Hagerty as the “Prevent Regulatory Overreach from Turning Essential Companies into Targets Act of 2025” (PROTECT USA Act of 2025), this draft bill aims to insulate certain U.S. entities from foreign sustainability due diligence regulations, particularly those implemented by the European Union (EU), which have extraterritorial effect. While the PROTECT USA Act of 2025 could create significant challenges for companies due to the conflict of laws, its adoption and timeline remain uncertain.
Understanding the Draft Bill’s impact
The draft bill defines “entities integral to national interests” as a very wide class of businesses including any doing business with the U.S. Federal Government and those involved in sectors such as extractives (mining, oil, and gas), agriculture, timber, manufacturing, and defense. This also includes certain foreign subsidiaries of any such entity. These businesses generate significant economic value and are seen as critical to U.S. prosperity and security. According to the proposed bill, foreign sustainability regulations impose undue burdens on these industries, potentially restricting market access and increasing compliance costs.
A conflict with Global Sustainability Laws
Global sustainability laws have been a fast growing area including the Corporate Sustainability Due Diligence Directive (CSDDD) which stipulates comprehensive due diligence obligations along the so-called “chain of activities” covering the own business, upstream business partners, and limited downstream activities regarding environmental and human rights impacts. These obligations would also apply to U.S. companies generating turnover in the EU (above certain thresholds).
However, the draft bill sees this as potentially penalizing American companies even if they have limited operations in Europe. The PROTECT USA Act of 2025 explicitly blocks compliance with such foreign laws unless they align with U.S. regulatory standards or are part of the ordinary course of business.
Hardship Exemptions and Legal Protections
The consequence of compliance with the act maybe either to place affected U.S. companies in breach of non US law and (potentially) to even force them to withdraw from overseas markets. Recognizing the potential economic disruption, the draft bill includes a hardship relief process where affected businesses can petition the President for an exemption. The decision-making criteria include:
- Economic consequences on U.S. employment and industry.
- National security interests tied to supply chains.
- International trade considerations.
Additionally, the draft bill provides some protection for U.S. companies by, inter alia, barring foreign court rulings from being enforced within the U.S.
What Comes Next?
As global sustainability policies evolve, this draft bill marks an attempt to take action against such laws applying to U.S. businesses. The PROTECT USA Act of 2025, if enacted, could have far-reaching implications for multinational businesses, compliance strategies, and transatlantic trade relations. However, to date, it cannot be foreseen whether and when the draft bill would reach the necessary majority in the U.S. Senate.
Tensions in the ESG and sustainability sphere have already risked putting companies between a rock and a hard place. With recent developments, and substantial litigation risks, steering the course could become even more challenging for companies and management boards.
It will be interesting to see how (or even if) the European Commission responds to the draft bill, particularly in light of its recent Omnibus Simplification Package, and whether the draft bill will have any influence on the positions taken by the co-,legislators during negotiations.
How Businesses Should Prepare
- Monitor legislative progress and assess exposure to foreign sustainability laws.
- Evaluate business strategy and compliance frameworks to ensure alignment with U.S. legal mandates.
- Engage with policymakers to understand industry-specific implications.
- Evaluate the full spectrum of litigation risk and impact of actions on consumer demand and market positioning/brand.
With ongoing debates, businesses should remain agile, anticipating potential regulatory shifts while balancing international market demands.
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