Europe’s Sustainability House Of Cards: The US-EU Deal In Motion

On August 21, 2025, the US and the EU unveiled their joint Framework on an Agreement on Reciprocal, Fair, and Balanced Trade. Buried under headlines about tariffs and energy deals is a quieter – but far more consequential – story: Europe’s once-ambitious sustainability regulatory regime is being hollowed out.

The EU agreed to slash tariffs on US industrial goods, expand market access for American agriculture and seafood, and spend $750 billion on US energy. In return, the US capped tariffs at 15% on key European exports. While this eases tensions around supply chain resilience in a volatile geopolitical climate, the political price is steep: Brussels is conceding ground on its flagship sustainability rules – the CSRD, CSDDD and CBAM.

Where the knife cuts deep:
Four of the deal’s 19 key terms directly target sustainability rules.

• EUDR: compliance may be delayed and simplified, easing pressure on US exporters of soy, timber and other high-risk commodities.
• CBAM: a broad de minimis exemption will remove 90% of importers from reporting obligations, sharply reducing its scope.
• CSRD and CSDDD: civil liability and climate transition obligations are being diluted, with reduced thresholds and value chain reporting – especially for non-EU firms.
• Forced labour: remains a token win, with both sides recommitting to banning products made with forced labour.

Meanwhile, Washington’s PROTECT USA Act looms, threatening penalties for US firms that comply with EU due diligence laws and deepening uncertainty for multinationals.

The impact for businesses and CSOs:
This trade deal cements a trajectory Brussels had already set in motion through the Omnibus package, easing compliance and stretching timelines. Now the political cover is in place for further retreat, with real consequences:

• Strategic uncertainty.
  Early movers on the CSRD and CSDDD face sunk costs and shifting expectations. Systems built for strict regimes may look like over-investment, but dismantling them risks leaving firms exposed if regulatory ambition rebounds.
  
• Competitive dynamics.
  Weaker obligations lower the bar, giving laggards short-term cost relief. But firms that sustain credible sustainability practices are more likely to win in markets where investors, customers and regulators still see it as a value driver.
  
• Energy dependence.
  Long-term commitment to US LNG risks locking businesses into fossil-fuel-heavy supply chains that may become stranded as the energy transition accelerates.
  
• Investor headwinds.
  Divergence is stark – 21 US states have warned asset managers against considering sustainability criteria, while in Europe, investors like Norges Bank still demand science-based targets and disclosures (see Behind The Backlash: The Quiet Resilience Of Sustainable Finance).

Is there hope?
Yes, but not in the negotiating room. Regulation alone will no longer carry sustainability forward. Europe has just reasserted its climate target of a 90% emissions cut by 2040 – yet its trade policy undercuts the tools needed to get there. That makes the role of businesses and CSOs more critical.

For businesses, the path forward is clear: embed sustainability in resilience, efficiency and long-term competitiveness rather than relying solely on regulation; double down on credible data, as transparency remains a differentiator; and build flexible compliance systems that can adapt to political and regulatory swings.

For CSOs, the focus should be on demonstrating sustainability as a driver of competitiveness, engaging investors and consumers where government ambition falters, and documenting the tangible risks of weaker standards – supply chain shocks, reputational crises and stranded assets.