The Costs of CSRD and CS3D to the European Union

View PDF with tables

Executive Summary

Conceived with well-intentioned goals, the Corporate Sustainability Due Diligence Directive (CS3D) and the Corporate Sustainability Reporting Directive (CSRD) aim to reduce labor and environmental risks arising from global corporate activity. Yet the directives prove harmful to businesses in the European Union, deepening the continent’s economic stagnation and threatening labor employment in many industries.

The EU has taken several steps to reduce the costs of these regulations. Their core burdens, above all the mandatory climate transition plan, persist even after the February 2026 Omnibus I revisions, and they will continue to aggravate the very factors the Draghi Report identifies as corrosive to European competitiveness.

This report reviews various estimates of the costs of CSRD and CS3D based on information through early June 2026.^[1] CSRD will impose heavy costs on in-scope EU firms: One-time costs could approach €100 billion, and the net present value of recurring costs is similar. Estimates of CS3D’s costs are scarce, but they could be as large or larger.

Beyond these figures lie qualitative costs that are likely more damaging still. The directives will distort markets and raise prices for EU consumers. Their exposure to civil liability, likely uninsurable, and private rights of action for corporate activities anywhere in the world will erode business confidence within the European Union. They will also push energy suppliers to raise prices or exit the EU, worsening the continent’s energy crisis. Even small EU businesses will suffer.

1. Introduction

The Corporate Sustainability Reporting Directive (CSRD)^[2] and the Corporate Sustainability Due Diligence Directive (CS3D)^[3] are among the most consequential pieces of regulatory legislation the European Union has adopted in decades, aiming to curb human rights abuses and environmental harms across the globe. These are admirable goals to which every nation should aspire. Together, however, the two directives threaten to impose substantial costs on the European Union.

Legislators agreed to amend both directives in December 2025. Although the EU has billed the revised law as far less costly and burdensome, the core obligations of CSRD and CS3D remain. The amendments raised the thresholds and cut the number of firms directly subject to the reporting, due diligence, and compliance obligations. But they do not change the core obligations, including the requirement to prepare and report “transition plans” toward Net Zero in line with the 2015 Paris Agreement, despite official statements to the contrary. Even though lawmakers deleted it from CS3D, the duty to develop a climate transition plan survives within CSRD.^[4]

CS3D is EU law and has entered into force. It will enter into application in 2029. The research for this report ended in early June 2026, and subsequent regulatory changes have not been incorporated in the report.

The directives’ requirements are extensive. CSRD requires large companies operating in the EU to prepare detailed annual sustainability reports on their environmental and human rights effects, covering not only their own operations but their entire value chains, upstream to suppliers and downstream to distributors worldwide. CS3D goes further, requiring covered companies to identify, prevent, and remediate adverse environmental and human rights effects across their “chains of activities” and to consult a broadly defined set of “stakeholders” at virtually every stage of major decision-making. It also exposes them to substantial civil penalties and unlimited legal liability for noncompliance. Both directives, already in force, fundamentally alter the legal and economic environment in which European businesses operate.

The scope of both directives is broad. Under CSRD, EU companies above the threshold, those with more than 1,000 employees and over €450 million in global annual revenue, must prepare detailed sustainability reports for auditing by a third party.^[5] For non-EU companies, the requirements are different. If the parent company reported more than €450 million in EU revenue in the past two years, and if one branch or subsidiary earned more than €150 million, CSRD requires the parent company to prepare reports.^[6] These “reporting undertakings” must detail the sustainability effects of their entire value chains, even where the smaller “protected undertakings” within those chains need not report themselves.

CS3D applies to EU companies with more than 5,000 employees and over €1.5 billion in average global net revenue, and to non-EU companies, regardless of employee count, with over €1.5 billion in EU revenue for two consecutive years.^[7] Its obligations are especially heavy: Covered companies face fines of up to 3 percent of global revenue for noncompliance and, more significantly, civil liability under private rights of action in national law if any entity anywhere in their chains of activities causes environmental or human rights harms.

Despite the directives’ scale and ambition, the official EU cost-benefit analyses are strikingly thin and likely flawed. The EU-commissioned European Financial Reporting Advisory Group (EFRAG) produced such analyses in both 2022 and 2025, each resting on small, self-selected samples of stakeholder interviews and surveys but no systematic data on actual firm costs. The EFRAG confined both analyses to administrative reporting and auditing costs. It omitted what are almost certainly the far larger costs of changing corporate behavior: liability risks as well as the costs firms incur when environmental and human rights mandates force them to restructure their operations, supply chains, and investment strategies. By leaving out these conduct-change costs, likely the single largest component, the EU’s estimates understate the true total.

The EU’s own 2022 Staff Working Document on CS3D likewise left conduct-change and due diligence costs out of its quantitative analysis, treating the due diligence process as a benefit rather than a cost. Despite these omissions, Executive Vice President Valdis Dombrovskis claimed in 2024 that CS3D’s net benefits came to €7.3 billion. He never explained this figure, and absent any systematic cost measurement, it has no clear basis. In the end, the official EU analyses offer no credible or complete accounting of the costs and benefits of CSRD and CS3D.

This report seeks to fill that gap with a fuller, more accurate assessment of what CSRD and CS3D cost the European Union’s economy. It develops independent estimates of the quantifiable costs, drawing on lists the consulting firm SOMO has compiled of affected firms across three categories: EU firms, European firms, and all firms doing business in the EU. Applying cost factors from EFRAG, independent analysts, and industry sources to these revenue bases yields a wide range of estimates.

Yet they converge on one point: The costs are large. Estimated one-time setup costs for CSRD and CS3D can exceed €100 billion, and recurring costs can run into the tens of billions of euros annually.

These costs would harm every EU member state, though unevenly. Germany bears the largest absolute burden, with more than €2.7 trillion in industry revenue at risk, while France and Italy each face more than €1 trillion. Manufacturing is the most exposed sector in nearly every country, reflecting its central place in EU supply chains. About 65 million Europeans, nearly a third of the EU workforce, work in the seven core industrial sectors that the law most directly affects, so even a modest, compliance-driven drop in employment would reach hundreds of thousands of workers.

Beyond these quantifiable costs, CSRD and CS3D impose substantial qualitative ones that are hard to measure but likely larger in aggregate. For European consumers, compliance costs will raise prices of many goods and services, especially energy, metals, food, and materials. Higher costs of doing business in the EU will deter new entrants and weaken competition, gradually dimming the prospect of innovation and pushing consumer prices up over time. CS3D’s civil-liability regime is especially significant: For the first time, EU member states can hold companies operating within their borders liable in national courts for environmental or human rights harms caused by any entity anywhere in their global chains of activities, including subsidiaries or suppliers in third countries. This liability is, in this report’s assessment, essentially uninsurable since the risks are novel and heterogeneous and lack the historical loss data actuarial pricing depends on. Nor can companies predict its magnitude in advance, and that uncertainty will itself cost European businesses as they try to manage an open-ended legal exposure.

CS3D also forces a profound change in corporate governance. Covered companies must consult “stakeholders,” a term covering employees, trade unions, communities, and effectively anyone else whose interests their activities could affect, at virtually every step of the due diligence process. This mandatory consultation shifts meaningful control over corporate decisions away from shareholders and management toward a diffuse and potentially hostile set of outsiders. Analysts have not estimated the resulting costs, from delayed decisions to leaked information, lost opportunities, and litigation, but they are likely very large. This report finds no existing estimate of the cost of this shift in control and treats the omission as a significant gap in the policy debate.

Among CS3D’s most harmful features are the substantial civil penalties that member states may impose for noncompliance and the apparently unlimited liability to private rights of action brought by parties claiming to have been harmed.

The 2024 Draghi report, commissioned by European Commission President Ursula von der Leyen, identified regulatory burden and high energy costs resulting partly from EU environmental regulation as primary causes of European underperformance relative to the United States and China. EU press releases described the December 2025 amendments as simplifications meant to “boost EU competitiveness.” Yet even the revised directives will almost certainly raise EU energy costs, harming competitiveness rather than helping it.

The core climate transition and due diligence obligations of both directives, moreover, remain in place. They cover fewer firms directly, but exposed revenue has not fallen proportionately because the highest-revenue firms remain in scope. For these large companies, and for the thousands of smaller firms in their value and supply chains, the costs documented here are real, large, and badly underappreciated in official discourse. Policymakers weighing the future of CSRD and CS3D would benefit from an accurate accounting of what the directives cost, which is the aim of this report.

The extraterritorial provisions of CSRD and CS3D are already under attack. China, one of the comparators in the Draghi Report, has passed rules that bar foreign authorities from exercising extraterritorial jurisdiction over companies operating in China and prohibit those companies from disclosing the kind of information CSRD and CS3D require.^[8] Although the EU’s investigation of Nuctech is testing the new Chinese rules,^[9] businesses operating in both jurisdictions face conflicting legal requirements under many laws, CSRD and CS3D among them. This conflict may prove especially hard for EU companies to navigate.

The analysis in this report begins with background on CSRD and CS3D and subsequently demonstrates the following:

• The EU’s official cost-benefit analyses of the regulations are incomplete and understated.
• The EU estimates pale in comparison to independent estimates of the costs of CSRD compliance, and even more so to the costs of CS3D compliance, to EU firms.
• The costs of complying with the regulations vary substantially across EU member states.
• The qualitative costs of compliance are substantial and likely overshadow the measurable costs.

2. Background: CSRD, CS3D, and Their Requirements

CSRD and CS3D Within Broader EU Environmental Law and Policy

CSRD and CS3D are not the EU’s first corporate environmental and social reporting rules. They replace the Non-Financial Reporting Directive (NFRD) that member states adopted by 2016, which required 11,700 large “public-interest entities” to report regularly on the social and environmental risks and effects of their business models.^[10] But the legislative superstructure behind CSRD and CS3D dates to at least 2006, when the EU adopted Directive 2006/43/EC.^[11]

Directive 2006/43/EC established an auditing framework ensuring that the auditors of EU companies, whether in Malta or France, meet the same rigorous standard. Seven years later, Directive 2013/34/EU prescribed the content and layout of the yearly financial reports that EU companies prepare for those auditors, again seeking a homogenized EU reporting landscape.^[12] Over the next decade, that directive became the foundation for steadily expanding reporting demands. Amendments in 2014 created the NFRD, and in 2022, Directive (EU) 2022/2464, the CSRD, began requiring a wider set of companies to report non-financial information. It specified what they must report, mandated third-party auditing of it, and set penalties for noncompliance.

CS3D, a separate directive adopted in 2024, requires covered companies to plan and report in detail how they will meet specified environmental and human rights goals. It also requires them to conduct supply-chain “due diligence” alongside “stakeholders,” a group that includes workers, trade unions, and anyone with an interest in the firm’s activities. It obliges businesses to coordinate that planning and reporting with these stakeholders, and it extends liability and damages for noncompliance to violations anywhere in a firm’s value chain, from upstream suppliers to downstream distributors.

In parallel to these directives, a series of environmental road maps provide targets for companies: the Sustainable Finance Action Plan^[13] in 2018 and the European Green Deal^[14] in 2019. The latest iteration is the EU Climate Law, which member states provisionally agreed to in December 2025. It targets a 90 percent cut in greenhouse gas emissions by 2040 relative to 1990 levels and net negative emissions after 2050.^[15]

Before December 2025, CSRD required tens of thousands of companies to produce annual third-party-audited reports on the effects of their own operations and those of their “value chain.” A stated purpose of Directive (EU) 2026/470 was “to reduce the reporting burden on undertakings.”^[16] One method of doing so was to increase the threshold reporting requirement under CSRD for EU firms to 1,000 employees and €450 million in net annual revenue.^[17] That change sharply reduced the number of firms that must report directly, yet CSRD’s effect on the EU economy remains substantial.

CSRD imposes reporting and audit requirements on “reporting undertakings.” To meet them, in-scope companies would ideally draw on information from every firm in their value chain.^[18] Although the December 2025 amendments clarified that reporting undertakings cannot compel value-chain firms to supply that information, they must still prepare their reports using estimates, as if the information were available.^[19]

Each EU member state has separate environmental laws. One possible counterfactual is that the EU had not adopted CSRD and CS3D, and the costs of each member state enforcing its own environmental rules might have been large, perhaps as large as the costs of the EU’s CSRD and CS3D. Enforcement of CSRD and CS3D is by the individual member states, not by the EU. Part of the implementation of CSRD and CS3D is EU “harmonization,” bringing uniformity to national standards and enforcement under CSRD and CS3D.

Effects on Firms in the Value Chain

Most EU firms fall below the €450 million revenue threshold and will not report directly under CSRD. Yet many out-of-scope firms may still be asked to supply information because they sit within a reporting company’s “value chain.” These “protected undertakings” are firms with fewer than 1,000 employees that fall within the value chain of a reporting undertaking.^[20]

The Broad Scope of the Value Chain

The “value chain,” which Directive 2013/34/EU (19a) discusses for the first time and legislators amended in 2022, is broad, encompassing a firm’s upstream suppliers, direct operations, and downstream distribution channels. The 2022 Directive states:

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.^[21]

A single reporting undertaking may thus have hundreds or even thousands of firms in its value chain. Some may themselves be reporting undertakings, but most are likely to be protected undertakings that need not report to the EU, and many of these operate outside the EU altogether.

Directive 2013/34/EU, and article 19 in particular, place 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.^[22]

The December 2025 amendments leave this requirement intact. Each reporting undertaking must still report on the “adverse impacts” of its “business relationships,” presumably with every firm in its supply chain. The number of value-chain firms varies widely but can easily run into the hundreds or thousands.

Limited Rights to Avoid Reporting

Regulatory changes reveal that the EU is sensitive to the concerns of small and mid-sized enterprises, but the regulatory changes likely still leave these businesses exposed to the costs of CSRD and CS3D. The December 2025 amendments to article 19a state that the directive neither “imposes [nor] implies any obligation on any undertaking in the value chain to provide sustainability information.”^[23] Yet this is at odds with an earlier passage in the same amendments: “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.”^[24]

The new article 29ca refers to the voluntary standards but does not specify them. Instead, it refers to Commission Recommendation (EU) 2025/1710 on the “voluntary sustainability reporting standard.”^[25] That recommendation is a 65-page document of detailed reporting requirements, likely more burdensome and intrusive than the CSRD requirements under Directive 2013/34/EU itself.

Neither the amended article 19a nor the prior article 19 language offers protected undertakings any reporting alternative short of the voluntary standards. And the directive is silent on what happens when one protected firm, let alone several thousand, simply refuses to provide any information to the reporting undertaking.

The EU may be able to compel protected undertakings operating within its member states to provide certain information under Directive 2013/34/EU or Commission Recommendation (EU) 2025/1710. It has no authority, however, over firms with no direct EU presence. China, indeed, has recently adopted rules barring companies operating there from reporting such information at all, directly undermining CSRD and CS3D compliance.^[26]

Nevertheless, failure to report value chain information by protected undertakings may impose costs on the reporting undertakings: “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.”^[27]

Ultimately, the interests of reporting companies and protected companies are at odds.

Obligations of Reporting Companies

After 99 recitals of policy statements, including more than a dozen references to the United Nations, CS3D authorizes EU regulation of human rights and the environment with few tangible limits.^[28] Other than small measurements of the costs of reporting and audit requirements,^[29] the EU does not appear to have measured the full costs of CS3D.

Where CSRD imposes costly reporting and auditing, CS3D goes further: It obliges firms to identify and reduce environmental harms and to cede a measure of corporate control to third parties through “due diligence” and negotiation with “stakeholders” across a wide range of topics. As article 1 states,

This Directive lays down rules on:

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;

liability for violations of the obligations as referred to in point (a).^[30]

Articles 5–7 and 13 set out “due diligence”; articles 8–12 and 22 govern the identification, assessment, and cessation of potential adverse environmental and human rights effects; and articles 14–15 establish complaint procedures and monitoring obligations.

CS3D repeatedly refers to a term, chain of activities, which it defines as follows:

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

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 authorised.^[31]

A chain of activities thus spans a firm’s own operations, those of its subsidiaries, and those of its upstream and downstream business partners. CS3D imposes reporting, due diligence, and compliance requirements separate from CSRD’s, and it demands far more than disclosure: In-scope companies have an affirmative duty to identify and address actual and potential adverse human rights and environmental effects throughout that chain. The EU will enforce these duties not only by revenue-based fines but by civil liability for intentional or negligent breaches.

Legal Penalties for Noncompliance

Article 27 sets the maximum penalties national authorities may impose for “infringements of the provisions of national law adopted pursuant to this Directive.”^[32] Moreover, “the penalties provided for shall be effective, proportionate and dissuasive.”^[33]

The December 2025 amendments cut the maximum penalty from 5 percent to 3 percent of global revenue. The exposure is still enormous: A firm with €1.5 billion in global revenue faces penalties of up to €45 million. Until the EU issues detailed guidance, it remains unclear whether multiple member states can penalize a company for the same infringement or whether a single authority can penalize it repeatedly for the same infraction. Article 27 also permits member states to impose non-pecuniary penalties, including public shaming.^[34]

Under article 29, companies face civil liability through private rights of action and, if found liable, must pay full compensation without limit.^[35] This liability is separate from and additional to the article 27 penalties. Injured parties are entitled to “full compensation,” which member states must ensure the liable company provides, though the law bars over-compensation.^[36] Even companies that have operated in good faith via multi-stakeholder initiatives or used independent third-party verification or contractual clauses to meet their due diligence obligations could still be held liable. 

The statute of limitations to bring a claim is no less than five years.^[37] National authorities must ensure that “the cost of proceedings is not prohibitively expensive for claimants to seek justice,”^[38] and claimants may seek injunctive relief.^[39]

Economic Penalties

The EU may never ask some firms within its borders for CSRD or CS3D information, either because they fall outside any reporting undertaking’s value chain or because, though within one, they never respond. Though it may not require others to report, they will face market pressure to conform in order to keep doing business with their largest clients.

As explained below, CSRD and CS3D will have substantial but unquantifiable effects on markets worldwide. These regulations will mostly harm EU firms, large and small. Compliance costs will raise prices for businesses and consumers alike; as the cost of operating in the EU rises, fewer firms will enter to compete, and some already there may choose to exit.

3. Deficiencies of the Official EU Cost-Benefit Analyses

2022 EFRAG Analysis

Few EU-sponsored studies of the costs and benefits of CSRD and CS3D exist, and those that do are narrow in scope. This is surprising, given that both directives are already in force. In 2022 the EU asked EFRAG to prepare a cost-benefit analysis of the Non-Financial Reporting Directive (NFRD) and CSRD; EFRAG, in turn, contracted with the Centre for European Policy Studies (CEPS) and Milieu, which delivered an initial report in November 2022. CS3D is EU law and has entered into force. It will enter into application in 2029. 

EFRAG based its 2022 report on responses from more than 2,000 “stakeholders.” The response rate was weak: “In total, 115 preparers, undertakings in their value chains, assurance networks, sustainability standard setters, rating agencies and users of sustainability information participated by either completing the survey and/or participating in an interview.”^[40] This description gives no way to know how the respondents were broken down by type.

The results are also hard to weigh because respondents’ interests diverge. Preparers and assurance networks, which stand to earn fees, have reason to understate costs. Firms that would bear those costs have reason to overstate them. And standard-setters, rating agencies, and users of sustainability information, who favor the regulations, have reason to suggest large benefits and low costs.

Compounding the small sample, EFRAG appears not to have collected actual cost or benefit data; participants merely completed a survey or interview. The point is not that EFRAG should have done otherwise but that analysts can give little weight to what are, at best, informed opinions.

The report’s figures and tables all draw on these surveys and interviews, and an outside reader cannot test them, let alone replicate them. As explained below, such limited evidence will not support strong inferences, which EFRAG appropriately does not attempt to draw.

Costs of CSRD in 2022

The 2022 EFRAG report listed direct and indirect costs. The direct costs were administrative costs and assurance (audit) costs.^[41] The report estimated administrative costs for an average firm at €320,000 annually and €287,000 one-time setup costs for NFRD-listed companies. It estimated assurance costs at €360,000 for NFRD-listed firms and 30 percent higher in the first year.^[42] The report calculated that 47,676 firms would be in scope and required to report under CSRD.^[43] Because some costs would arise regardless of CSRD, it estimated the incremental direct costs of CSRD at €1.9 billion in recurring costs and €1.7 billion in one-time setup costs.^[44] These costs are substantially lower than those in other reports.^[45] CEPS and Milieu reported no other direct costs.

EFRAG identified three indirect costs in 2022: a trickle-down effect on value-chain firms, litigation costs, and an “impact on international competitiveness” that it claimed could actually benefit the EU.^[46] EFRAG assumed small and medium-sized enterprises (SMEs) would bear much of the cost of the trickle-down effect, estimating those costs between €0.2 billion and €1.5 billion.^[47] It did not estimate litigation costs.^[48] Interestingly, most surveyed respondents reported that they do not believe CSRD would lead to a loss of international competitiveness.^[49] Many EU member states already have national environmental laws similar to CSRD and CS3D, so EU companies may have some existing processes and personnel for compliance. 

Likely because its remit was confined to reporting costs, the report neither mentioned nor estimated the cost of preparing the Paris Agreement transition plans that articles 19a and 29a require, nor the cost to firms of shifting production toward more sustainable activities. The omission matters: The legal compliance firm DWF found that C-suite executives expected compliance with CS3D to cost, on average, 9 percent of revenue by 2026.^[50]

In short, the 2022 EFRAG report examined only reporting costs, ignoring the behavioral changes the regulation would induce, which almost certainly cost far more than reporting itself.

Benefits of CSRD in 2022

In 2022, EFRAG stated that its discussion of the benefits of CSRD is qualitative rather than quantitative.^[51] The direct benefits are “cost savings” and “possible synergies and efficiencies.” The indirect benefits are “behavioural changes” and “improved sustainability.”^[52] The report placed no monetary value on any of these benefits and did not acknowledge that every category except “improved sustainability” may in fact impose substantial costs on firms rather than confer benefits.

Importantly, the report did not examine whether companies could obtain the benefits of CSRD by alternative means. For example, both the EU and its member states are signatories to the Paris Agreement. The EU has many laws that require compliance with this agreement, including the European Climate Law;^[53] Fit for 55 Package;^[54] EU Emissions Trading System;^[55] Effort Sharing Regulation;^[56] Land Use, Land Use Change, and Forestry (LULUCF) Regulation;^[57] Carbon Border Adjustment Mechanism;^[58] EU Taxonomy Regulation;^[59] and Sustainable Finance Disclosure Regulation.^[60] These are only the EU-level measures; each member state adds its own. Against this dense backdrop, the incremental benefit of CSRD is hard to describe, let alone measure, yet the 2022 report neither discussed these other laws nor attempted to isolate CSRD’s marginal contribution.

Weighing the Costs and Benefits of CSRD in 2022

In summarizing the costs and benefits, EFRAG was cautious in its 2022 assessment, particularly given the qualitative nature of all benefits and many costs. EFRAG appropriately refrained from suggesting that the benefits unambiguously outweigh the costs. Instead, it states, “Overall, the costs are much more visible, tangible and measurable in the short term, while the benefits of the ESRS [European Sustainability Reporting Standards] are mostly intangible and non-measurable, dependent on other legislative and nonlegislative developments, and will only become evident in the medium to long term. Moreover, the benefits will increase significantly when standards equivalent to the ESRS are adopted. Therefore, the conclusions concerning measurable costs and benefits need to be treated with caution, as the benefits are described qualitatively but not estimated quantitatively.”^[61]

EFRAG’s caution here is well-founded. The 2022 report does not meaningfully weigh CSRD’s costs against its benefits, whether in total or at the margin.

2022 European Commission Staff Working Document Analysis

In February 2022, the EU Commission considered a proposal for CS3D but ultimately tabled it.^[62] Annex 2 of the staff working document listed the benefits and costs of the CS3D. Every benefit was qualitative, as were most costs. The only exceptions were one-off adjustment costs (€220 million for EU companies) and recurring costs (€760 million), both of which it filed under “Direct Adjustment Costs.”

Surprisingly, the staff working document claims CS3D imposes no incremental administrative costs on EU companies at all: “No substantial additional administrative costs will be incurred by EU companies as all of the companies covered by the scope of the revised preferred option are also under the CSRD proposal, and as such their costs related to reporting and the necessary data collection, data analysis, documentation etc. costs have already been counted as direct compliance costs under that proposal.”^[63]

Also surprising is the treatment of firms in the value chain of companies reporting under CS3D. The paper offers no quantification of costs for value chain firms: “While part of such indirect costs are included in the qualitative estimations of direct costs (which cover the cost of due diligence through the entire value chain and in subsidiaries), some compliance costs could still trickle down to companies (including SMEs) which are not under the scope but belong to the value chain of companies which are themselves covered. The proposal includes safeguards to minimise such impacts on SMEs.”^[64]

EU Commission staff specifically omitted the cost of “transition to sustainability” from the quantified costs.^[65] For a company already near its sustainability targets, transition costs may be small; for one far from them, they could be very large. And firms in sectors such as energy, mining, agriculture, manufacturing, utilities, transportation, and even finance and information remain far from those targets. Also surprising is that the staff paper describes no costs for changes in corporate behavior, even for firms that are on a path to sustainability.

The cost-benefit analysis in annex 2 treats the due diligence process that CS3D prescribes as a “benefit” to stakeholders but not as a cost to companies. Yet due diligence imposes real costs: notifying stakeholders before every major decision, delaying decisions while consultations run their course, leaking sensitive information during those consultations, forgoing profitable projects as a result, and litigating the disputes and mistrust that arise whenever a firm fails to meet stakeholder expectations. The analysis also offers no estimate of the cost of the diminished corporate control that due diligence entails. Nor does it assign any cost to liability for the inevitable failures of the due diligence process, whether through state-imposed penalties or private rights of action.

Although every benefit and most costs in the staff working document are qualitative, Executive Vice President Dombrovskis nonetheless claimed in 2024, on the European Commission’s behalf, that net benefits totaled €7.3 billion.^[66] It is not obvious how they derived this number. The Commission presented no additional cost-benefit analysis when CS3D was adopted in 2024.

Draghi Report

Concerned about flagging European competitiveness, European Commission President Ursula von der Leyen commissioned Mario Draghi, the respected former president of the European Central Bank, to prepare a report, which the Commission released in September 2024.^[67]

The report identified the EU’s much higher energy prices, relative to the United States and China, as a primary competitive disadvantage. It named environmental regulation and energy taxes among the causes of both those prices and Europe’s broader decline in competitiveness.

The obvious remedy would be to cut EU environmental regulation and energy taxes substantially, CSRD and CS3D among them. But the report reflected an EU more committed to decarbonization than to growth, and its attempt to reconcile the two yields a muddled compromise: Trim the worst regulations while coordinating the rest more carefully.

The report had an immediate effect. In February 2025, Draghi’s warnings about lost competitiveness led the EU to delay, and recommend modifications to, the final forms of CSRD and CS3D.^[68] With much fanfare, the EU Council and the EU Parliament agreed to adopt revised versions of CSRD and CS3D in December 2025 “to boost EU competitiveness.” The accompanying press release hailed the agreement’s deregulatory virtues: “The agreement simplifies the directives on corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CS3D) by reducing the reporting burden and limiting the trickle-down effect of obligations on smaller companies.”^[69] A casual reader of that release, which the press widely echoed, would conclude that the EU had embraced deregulation.

Yet even after the amendments, CSRD and CS3D remain instruments of regulation and decarbonization, not growth. Articles 19a and 29a still require every reporting company to prepare “transition plans” showing how it, and the firms in its value chain, will cut greenhouse gas emissions toward Net Zero by 2050 in line with the 2015 Paris Agreement. Penalties for noncompliance vary by member state.

The value chain spans suppliers, distributors, and other business partners. Thousands of EU companies meet the CSRD threshold of €450 million in global revenue and 1,000 employees, and each likely has thousands of suppliers and distributors. The total number of value-chain firms is, in effect, uncountable.

For an initial three years, CSRD limits the obligation of value-chain firms to supply information to companies with more than 1,000 employees; thereafter, reporting companies must cover their value chain using whatever information is available. Predictably, they will favor value-chain partners that readily supply CSRD-compliant data over those that do not.

CS3D imposes even greater burdens on businesses. Under article 5, covered companies (for EU firms, those with €1.5 billion of global net turnover and 5,000 employees, and for non-EU firms, those with €1.5 billion of EU turnover) must engage in eight separate forms of due diligence. These include, but are not limited to, “identifying and assessing actual or potential adverse [environmental and human rights] impacts,” “preventing and mitigating potential adverse impacts, and bringing actual adverse impacts to an end,” and “publicly communicating on due diligence.”

Even more troubling is article 13 on “stakeholders.” At every possible stage of due diligence, reporting companies must consult with stakeholders and share with them a seemingly unlimited range of information. Stakeholders include the “company’s employees, the employees of its subsidiaries and of its business partners, and their trade unions and workers’ representatives, or communities whose rights or interests are or could be directly affected by the products, services and operations of the company, its subsidiaries and its business partners.”^[70] In effect, stakeholders can include almost anyone with an interest in a company’s activities, even parties seeking to harm it. And each of these entities gains a measure of influence over corporate governance under CS3D.

Noncompliance can expose reporting companies to substantial damages. Harmed individuals have a private right of action, and under article 29, “Member States shall ensure that those persons have a right to full compensation.” Separately, article 27 lets member states impose penalties of up to 3 percent of global revenue.

2025 EFRAG Analysis

In December 2025, the European Council and the European Parliament reached a political agreement to modify CSRD and CS3D. Importantly, the agreement raised the CSRD threshold for EU companies required to report to €450 million in global net turnover and 1,000 employees. It raised the CS3D threshold for EU companies required to report to €1.5 billion in global net turnover and 5,000 employees.^[71]

Also in December 2025, EFRAG presented a cost-benefit analysis of the proposed revisions to CSRD, but not CS3D.^[72] CEPS and Milieu conducted the analysis again, assuming both a smaller population of reporting firms and fewer mandatory data points.^[73]

They based the 2025 analysis on 34 semi-structured interviews and an online survey of 170 entities, including businesses operating in Europe.^[74] That is nearly twice the 2022 sample, yet the report again withheld any breakdown of respondent types, and, as in 2022, much of what it gathered was qualitative.

One difference stands out: The 2025 report measured the reduction in certain costs relative to the 2022 CSRD, not the total cost level of either. Unsurprisingly, it found that the amendments would lower some CSRD costs but never established what those costs are. Its focus throughout is on the cost of preparing and auditing reports.

The 2025 EFRAG report assumed that several provisions of the preexisting CSRD rules would remain unchanged. Specifically, these include the definition of value chains for financial institutions, the exemption of financial holding companies from consolidation of subsidiaries, the exemption of confidential/sensitive information and provisions on phased implementation, and the clarification of the meaning of “1.5-degree compatibility” for the disclosure of transition plans under the climate change standard.^[75]

In practice, the amendments appear to have relaxed the rules for financial institutions.^[76] But crucially, consistent with these assumptions, they did not alter the requirements under articles 19a and 29a of CSRD to prepare Paris Agreement transition plans.

The 2025 EFRAG report focused almost exclusively on reporting costs. It estimated that the reduction in the number of covered firms would reduce the number of reporting firms by approximately 80 percent,^[77] consistent with other estimates.^[78] It further found that the 2025 amendments would reduce reporting costs by 34–44 percent.^[79] This estimated percentage reduction is similar to my finding of a 31 percent reduction just for American firms.^[80]

Applying these percentages to the 2022 EFRAG baseline estimates of €1.9 billion in recurring costs and €1.7 billion in one-time setup costs, a 34 percent reduction would yield approximately €1.12 billion in one-time setup costs and €1.25 billion in recurring costs. A 44 percent reduction would yield approximately €0.95 billion in one-time setup costs and €1.06 billion in recurring costs.

Like its predecessor, the 2025 report examined only reporting costs, ignoring the behavioral changes the regulation induces, which are almost certainly far costlier than the reporting burden alone. Nowhere does it stress that reporting is only one of CSRD’s many costs, and it did not recompute the directive’s qualitative costs or benefits under the amendments. Like the 2022 version, it does not meaningfully weigh costs against benefits, total or incremental.

4. Independent Estimates vs. EU Estimates of CSRD Costs

CSRD will affect many EU firms. I divide these into three categories:

• EU firms with global revenue above the €0.45 billion threshold and more than 1,000 employees
• EU firms in the value chain of direct CSRD reporting firms that will likely be asked for information related to CSRD
• EU firms that may not be asked for information related to CSRD but will be affected by higher prices and reduced competition in global markets

Most analyses look only at the first category, firms directly in scope. But far more EU firms, perhaps all of them, fall into the other two. This section likewise concentrates on in-scope firms, but the costs borne by the other two categories are likely as large or larger.

The previous chapter examined estimates prepared by the EU or by consultants reporting to it. CSRD and CS3D, however, generate extensive demand for specialized accounting, reporting, legal services, and supporting software, and the private firms that supply these services have produced their own cost estimates, which they typically scale to firm or industry revenue. This section presents those independent estimates of CSRD’s costs to firms in the EU and, in places, across Europe. The next chapter does the same for CS3D.

Global Industry Revenue at Risk Under CSRD

Several independent parties have estimated CSRD’s corporate costs as a share of global revenue. I do not vouch for these methods, and no one knows CSRD’s future costs, but applying a compliance-cost factor to a firm’s revenue or turnover is a common approach and one that scales readily to any business or industry.

I begin with the number of firms likely in scope for CSRD. In January 2025, before the December 2025 amendments to CSRD and CS3D, the organization SOMO estimated that 7,000 undertakings and 4,282 corporate groups met the threshold of €450 million in revenue and 1,000 employees that applied to CS3D at the time.^[81] These are the new CSRD standards. I placed the list of 4,282 corporate groups into three categories: EU-headquartered firms, European but non-EU firms,^[82] and rest-of-world firms. Table 4.1 presents the number of firms in scope for CSRD by geographic area.

Next, I estimate in table 4.2 the global revenue of the 674 non-European corporate groups that SOMO identified as in scope, which totals at least €18.4 trillion. This is almost certainly an underestimate as it attributes only €450 million in global revenue to each of the 439 non-European companies in scope but with no directly calculated revenue. This is equivalent to attributing to each of these firms no revenue outside the EU, an implausible assumption since each firm is headquartered outside the EU.

This list of non-European firms is almost certainly understated since many large corporations active in the EU are missing. Absent, for example, are major electronics manufacturers (NVIDIA, Broadcom, AMD, Micron), defense contractors (Palantir, Boeing, Raytheon, Lockheed Martin), healthcare manufacturers (Abbott Laboratories, Thermo Fisher Scientific, Merck, Intuitive Surgical), technology firms (Salesforce, AppLovin, Lam Research, Intuit, Amphenol, KLA, CrowdStrike, Automatic Data Processing), and financial firms such as BlackRock. Coca-Cola appears, but not as an American firm. Each of these companies has a market capitalization of at least $100 billion.

Table 4.3 presents the number of in-scope firms and their estimated global revenue across three categories: (1) EU firms, (2) European firms, including EU firms, and (3) all firms in scope. I use these categories throughout this section.

Fortune magazine publishes a list of the 500 largest European corporations by global revenue.^[83] I excluded five corporations that do not meet the CSRD threshold of 1,000 employees.^[84] Of the remaining firms, 331 are EU firms with a total global revenue of €8.55 trillion, as shown in the first column of table 4.3.

I attribute only €450 million in global revenue to each of the 3,035 EU companies in scope but not in the Fortune 500 Europe list. This is equivalent to attributing to each of these firms no revenue outside the EU. The first category has an estimated global revenue of €9.92 trillion, but the actual value is certainly much greater.

The second category includes non-EU European firms, as shown in the second column of table 4.3. I included 123 from non-EU western European countries, particularly the United Kingdom, Switzerland, and Norway. I took a small sample of these firms and found that they refer to regional revenue as “European” but do not break out EU revenue.^[85] Adding the 2025 revenues of the remaining 454 EU and Western European corporations yields a total of €11.73 trillion in global revenue.^[86] The 3,154 firms absent from the Fortune 500 Europe list are again assigned the minimum €450 million in global revenue, implausibly implying no revenue outside the EU. Combined European revenue thus totals €13.15 trillion.

The third category adds firms from the rest of the world, with revenue estimated in table 4.2. Summing €13.15 trillion from column 2 and €18.42 trillion from table 4.2 gives €31.57 trillion, again an underestimate since it assigns no revenue to 3,593 firms outside the EU.

Non-European firms account for the vast majority of in-scope global revenue. That does not mean most of CSRD’s costs fall outside Europe or the EU, but it does mean those costs are global, reaching businesses around the world.

CSRD Harms to Businesses Based on Global Revenues

Many firms in the EU and beyond will bear CSRD’s costs directly. I divide them into quantifiable costs, addressed here, and unquantifiable costs, addressed in chapter 7. In turn, the quantifiable costs are divided into one-time setup costs and annual recurring costs.

One-Time Setup Costs

Some estimates of the costs of setting up a reporting system for companies in scope for CSRD are available. EFRAG estimated in 2022 that setting up the reporting system would cost 0.007–0.014 percent of global corporate revenue.^[87] Overall, it estimated one-time setup costs of €1.7 billion.^[88] EFRAG also estimated a one-time setup cost of assurance of 0.004–0.008 percent, but I have not included those estimates in the setup costs.^[89] Ecobio estimated setup costs of 0.5–1.0 percent of revenue.^[90]

In table 4.4, I apply the percentage factors from EFRAG and Ecobio to the Fortune 500 Europe companies and the SOMO measures of global revenue in table 4.3.^[91] The estimated costs of setting up CSRD reporting range from

• €0.69 billion, based on the low-end 2022 EFRAG estimate of 0.007 percent of revenue applied to just the EU firm on the SOMO list, to
• €315.7 billion, based on the high-end Ecobio estimate of 1 percent of revenue applied to the estimated total revenue of all companies on the SOMO list.

In 2025, as noted above, EFRAG estimated total setup costs for CSRD of €0.95 billion to €1.12 billion, placing the official estimate at the low end of the range in table 4.4.

DWF estimated that achieving compliance with CS3D would cost, on average, 9 percent of revenue, portions of which may overlap with CSRD costs, particularly provisions requiring preparation of Net Zero climate transition plans.^[92] I include the DWF setup cost estimates in the CS3D discussion below, but some of these costs may be applicable to CSRD as well.

Measurable Recurring Costs for Firms

Recurring costs of reporting compliance. Once a firm has built its reporting system, it incurs annual recurring reporting costs, which EFRAG estimates at 0.008–0.015 percent of revenue. Table 4.5 shows the range: The 2022 EFRAG estimates run from €0.79 billion (low rate, EU firms) to €4.74 billion annually (high rate, all firms on the SOMO list). EFRAG’s 2022 total estimate for EU recurring costs was €1.9 billion.^[93]

In 2025, as noted above, EFRAG estimated total annual recurring costs for CSRD of €1.06 billion to €1.25 billion, roughly in the same range as the 2022 EFRAG rate.

Karl Burkart puts the annual recurring cost of environmental reporting and auditing at 0.1 percent of revenue, basing his CSRD and CS3D figures alike on the reporting requirements of the ESRS.^[94] To avoid double-counting, I separate the overlapping costs in table 4.5 and defer the Burkart-based CS3D recurring costs to chapter 6, splitting his factor into 0.066 percent of revenue for CSRD reporting and 0.033 percent for CSRD auditing.^[95] As shown in table 4.5, the Burkart estimates for CSRD reporting range from €6.6 billion annually for the EU firms on the SOMO list to €21.03 billion annually for all firms on the SOMO list.

Writing in July 2025, Burkart estimated the total annual CSRD reporting costs for all covered firms at €39 billion, roughly twice the estimates I find in table 4.5.

Recurring costs for auditing compliance. CSRD imposes substantial auditing requirements. EFRAG estimated auditing costs in 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.”^[96] Reasonable assurance is far more intensive, more than twice the cost of limited assurance, and is scheduled to apply only in later years.^[97] The December 2025 amendments indicate that CSRD will focus on limited assurance for the foreseeable future.^[98]

Table 4.6 presents estimates of annual assurance costs to EU firms for limited assurance under CSRD. These range from €1.29 billion annually, based on the low EFRAG cost rate for EU firms, to €8.21 billion annually, based on the high EFRAG rate for all firms on the SOMO list. The Burkart estimates for auditing range from €3.27 billion annually for firms in the EU to €10.42 billion annually for all firms on the SOMO list.

Table 4.7 presents low and high estimates for the total recurring costs of both reporting and audits for CSRD in a limited assurance scenario. The lowest EFRAG cost estimate is €0.83 billion annually for limited assurance applied to the EU firms under the low EFRAG assumptions. The highest EFRAG cost estimate is €12.94 billion annually for all firms on the SOMO list under the high EFRAG assumptions. Following the Burkart methodology, total recurring cost estimates range from €9.88 billion annually for EU firms to €31.44 billion annually for all firms on the SOMO list.

Total Measurable Costs of CSRD

Table 4.8 presents the full range of measurable CSRD costs across the three categories—EU, European, and all firms—including both one-time setup and recurring costs. One-time setup costs span roughly €0.69 billion to more than €98 billion for EU firms, €0.92 billion to more than €131 billion for European firms, and €2 billion to more than €314 billion for all firms, wide ranges in every case.

Table 4.8 also reports the net present value of recurring costs. At the high end, it roughly equals the maximum setup cost, so the maximum present value of all costs is about twice the maximum setup cost; at the low end, it is roughly 10 times the minimum setup cost.

Interpreting the Results

These quantitative costs of CSRD for in-scope companies can be interpreted in several ways:

• EFRAG’s one-time setup estimate of well under €2 billion for all EU companies and Ecobio’s estimate of €50–€100 billion differ by more than an order of magnitude.
• One-time setup costs range from tiny fractions of a percent of revenue up to 0.1 percent. Because they are largely fixed, that percentage should be smaller for large firms than for small ones.
• The global revenue estimates are almost certainly understated since I assigned the €450 million minimum wherever data were missing; higher revenue would imply higher costs.
• CSRD’s costs fall not only in the EU but wherever an in-scope company’s supply and distribution chains reach; conversely, the law imposes costs on non-EU companies that economies feel worldwide, including inside the EU. A firm’s headquarters does not fix where its CSRD costs land.
• Most in-scope global revenue belongs to non-European firms.
• Within the EU, CSRD’s costs fall not only on in-scope companies but also on the small businesses in their value chains, which are examined further in chapter 7.
• The quantitative costs here exclude many others, such as enforcement and litigation. As chapter 7 explains, these qualitative costs of CSRD are substantial.

5. Independent Estimates vs. EU Estimates of CS3D Costs

CS3D will affect many EU firms. I divide these into three categories:

• EU firms with global revenue above the €1.5 billion threshold and more than 5,000 employees
• EU firms in the value chain of direct CS3D reporting firms that will likely be asked for information related to CS3D
• EU firms that may not be asked for information related to CS3D but will be affected by higher prices and reduced competition in global markets

In-Scope EU Firms

CS3D sets a reporting threshold of €1.5 billion and 5,000 employees globally. Far fewer EU firms fall under CS3D than under CSRD, but the cost per firm is likely much higher. One aim of the December 2025 amendments was to cut the number of firms reporting directly to the EU by 70 percent, according to at least one report.^[99] Yet this cut in the number of firms does not cut CS3D costs by 70 percent because the highest-revenue firms remain in scope.

Several independent parties have estimated CS3D’s corporate costs as a share of global revenue, an approach that scales to any industry.

I begin with the number of firms likely in scope for CS3D. I also estimate in-scope revenue based on an updated SOMO list.^[100] As shown in table 5.1, the list includes 1,449 in-scope firms: 972 EU firms, 133 non-EU European firms, and 344 non-European firms, the three categories I use throughout this section. While at least one source put the intended reduction in directly reporting firms at 70 percent, the SOMO list reflects a cut of roughly 80 percent.^[101]

Table 5.2 estimates the global revenue of the 674 non-European corporate groups SOMO identifies as in scope at no less than €14.6 trillion. This almost certainly understates the total since it assigns the €1.5 billion minimum to each of the 209 such firms lacking directly calculated revenue. It implausibly implies that firms headquartered outside the EU earn nothing outside it.

This list, too, is almost certainly understated: As noted in chapter 4, many large corporations missing from the CSRD list are likewise absent here.

Table 5.3 presents the number of firms and estimated revenue for the companies in scope for CS3D. Of the 972 EU firms, 322 of the Fortune 500 Europe list would qualify.^[102] Their global revenue is estimated at €8.46 trillion. The other 650 EU firms are each assigned the €1.5 billion minimum, again implying no revenue outside the EU, and again an understatement. Adding 133 non-EU European firms contributes more than €3 trillion, and adding the non-European firms from table 5.2 brings the total to €27.2 trillion, most of it from the 344 firms headquartered outside the EU.

Vulnerability of Small Businesses

As noted above, the EU has taken some steps in CSRD and CS3D to mitigate costs for small businesses, but small businesses still face regulatory burdens. Most EU firms fall below €1.5 billion in revenue and will not report directly under CS3D, yet its “chain of activities” will lead to requests for many to do so. Reporting firms cannot compel the information, but they will tend to favor partners who cooperate, a powerful de facto incentive for compliance throughout the supply chain.

These firms include many small businesses in the core industries above and likely many outside them as well. Although large firms are more often the reporting undertakings, small firms may be more exposed. Large firms can usually absorb the cost of complex regulation, while small ones often cannot, and they typically lack the structure and experience to navigate it. For some, CS3D may pose an existential threat.

CS3D effectively places no limit on the size of firms it reaches; in an integrated market, any firm even remotely involved in EU commerce will ultimately have to comply. EU accounting and audit firms will likely develop standard forms probing clients’ CSRD and CS3D compliance. As a result, any firm selling, actually or potentially, directly or indirectly, into the EU will likely need documentation of its compliance under Directive (EU) 2025/1710 and the CS3D due diligence obligations under Directive (EU) 2026/470.

Quantifiable Costs to EU Businesses

Many EU firms will incur new costs under CS3D. As with CSRD, I divide them into quantifiable costs, treated here, and unquantifiable costs, treated in chapter 7, and divide the quantifiable costs into one-time setup and annual recurring costs. As noted below, estimates of CS3D’s costs are remarkably scarce.

One-Time Costs of Preparing for CS3D Compliance

In 2024, the European Commission’s executive vice president offered a strikingly low estimate: €220 million in one-time costs for all EU firms to comply with CS3D, plus €1.7 billion to adopt the related ESRS on which CS3D reporting depends.^[103]

CS3D’s compliance demands are substantial, encompassing not only reporting but the supply-chain changes firms must make. In 2024 the law firm DWF surveyed 1,200 C-suite executives across EU countries about the cost of bringing their supply chains into compliance. It found that “on average, C-suite leaders estimate that 9% of their revenue will be required to achieve a fully CS3D compliant value chain in the next two years.”^[104] Some of this may belong more properly under CSRD articles 19a and 29a, but I follow DWF’s framing and attribute it to CS3D. Table 5.4 presents these one-time compliance estimates. Applying the DWF factor to the revenue measures for European firms directly covered by CS3D yields a range of €849 billion to €2.449 trillion.

It is possible that the 9-percent cost estimate, based on CS3D requirements in 2024, is too high for at least two reasons: DWF surveyed businesses with at least €150 million in turnover rather than the more recent threshold of €1.5 billion, and DWF surveyed firms when CS3D requirements were burdensome than today. Even if DWF overstated the figure tenfold—and I have no basis to assume it did—the one-time compliance cost would still be €85 billion to €245 billion, more than 400 times the Commission’s €220 million estimate.^[105]

Measurable Recurring Costs of CS3D

CS3D will impose substantial ongoing costs on covered firms and on those in their chain of activities. It requires extensive annual reporting plus ongoing due diligence and new contracts, and while it adds no formal audit procedures, it imposes significant new monitoring obligations.^[106]

The Commission’s executive vice president put annual recurring costs at a modest €760 million for all EU firms under CS3D, plus €1.7 billion in ESRS-related recurring costs on which CS3D reporting depends.^[107] SOMO estimates that recurring costs are approximately 0.01 percent of turnover.^[108] A Dutch government study estimates the incremental annual recurring cost at €273,460 per reporting firm.^[109]

Table 5.5 presents total annual recurring costs across the revenue measures used above. For EU firms in scope, they range from €0.27 billion applying the Dutch government factor to 849 firms to €0.94 billion under the SOMO estimate.

Case Studies: CS3D’s Disruptive Effects on Small Businesses

A hypothetical illustrates CS3D’s danger to small firms. Consider a family-owned dairy in Normandy, a region famed for the cheese it has produced for generations. Its 10 employees and the owner, whose great-grandfather founded the business, have honed their craft over decades, selling to a large supermarket chain that operates across France and other European countries.

That retailer falls within CS3D’s scope. To comply, it demands from the dairy not only information but operational changes. It requires documentation that the dairy’s artisanal practices meet stringent environmental and labor standards. The artisans, unsure how to audit their cheesemaking for carbon emissions, waste, water use, and labor practices, produce documentation that falls short.

A competing dairy factory supplying the same retailer fares far better. With 5,000 employees and an attentive CEO, it quickly assembles a compliance team and produces a thorough report meeting every requirement.

To avoid CS3D’s penalties and civil liability, the retailer drops the small dairy and shifts its cheese sourcing to the factory. The artisanal dairy loses its primary customer and an essential source of revenue.

A second hypothetical makes the same point. A family-owned firm in Germany’s famed Mittelstand makes sealant technology essential to the country’s high-end automobiles. It has thrived for decades but now feels the strain as German carmakers face fierce overseas, often Chinese, competition. The firm depends on those automakers, which are struggling with both falling demand and the new demands of CS3D.

CS3D requires those carmakers to vet their supply-chain partners, pressuring firms like the sealant producer to supply detailed reporting and perhaps to change the way they manufacture. To meet these demands, the producer sinks most of its profits into greener machinery and assembles a sustainability report. However, its report pales beside those of larger competitors, some based in Asia, that can afford professional environmental auditors.

The carmaker would prefer to keep the sealant firm as a supplier. But its executives know that under CS3D, third parties can sue over a supplier’s conduct, and the relationship is simply too risky to continue. They decide to sever it.

Both cases reveal the same troubling pattern: CS3D favors large firms that can shoulder the added administrative burden while leaving small ones at a serious, potentially existential, disadvantage.

6. Quantifiable Costs of CSRD and CS3D by Industry and EU Member State

Using EU data, I calculate the EU revenue of seven sectors that CSRD and CS3D affect directly or indirectly: agriculture; mining and energy extraction; manufacturing; transportation; electric utilities; and, because the EU already heavily regulates them, finance and information.^[110] Directly affected firms are those in scope for reporting; indirectly affected firms are those in a supply or distribution chain that will likely face costly information requests. I conservatively assume that only half of these industries’ revenue is affected. As table 6.1 shows, the seven sectors comprise nearly 6.2 million enterprises and €18.915 trillion in revenue.^[111] This figure excludes EU firms in other industries that the law will almost certainly require to report directly or indirectly. It represents the revenue these companies generate within the EU, not global revenue, and includes EU subsidiaries of non-EU companies.

This industry-level view captures many smaller EU firms that sit in the value chain of CSRD and CS3D reporters without reporting directly themselves. As “protected undertakings,” they need not supply information, though they may do so voluntarily, and even the “voluntary” standard demands substantial operational detail.^[112] After three years, firms that CSRD requires to report directly must estimate information about firms in their value chain, regardless of whether those firms provided it.^[113] That rule may push small firms to volunteer information in hopes of winning more business from direct reporters. I conservatively treat half of the seven sectors’ revenue, €9.458 trillion, as at risk in the EU, covering both in-scope firms and those merely in the value chain.

Potential Exposure by Member State

The industries most at risk operate in every EU member state. This section reviews the likely effects of CSRD and CS3D country by country, drawing on a projection of 2024 country-level revenue for the seven sectors: mining, manufacturing, utilities, information, finance, transportation, and agriculture.

Table 6.2 presents estimated 2024 at-risk revenue by country. The EU total is about €9.458 trillion, half of the €18.915 trillion in selected-industry revenue. Germany has the most at risk, €2.7 trillion, and France and Italy are the only other countries above €1 trillion.

Manufacturing is the largest industrial sector in the EU by revenue and the most exposed sector in nearly every EU country except Cyprus (finance), Luxembourg (finance), and Malta (transportation).

The final two columns of table 6.2 give each country’s population and its at-risk revenue per capita, about €21,000 for the EU as a whole (at-risk industry revenue per person, not GDP or income per person). The two outliers, near €100,000, are Luxembourg and Ireland, both with large information and finance sectors.

Vulnerability of Small Businesses

The at-risk measures above include many small businesses, and others outside the seven sectors are exposed as well. Though large firms are more often the reporting undertakings, small firms may be more vulnerable. Large firms can usually afford to comply, while for small ones, for whom regulation is rarely just a cost of doing business, CSRD and CS3D may pose existential threats.^[114]

CS3D may in fact help large firms by disproportionately burdening small ones. It requires companies to account for their upstream and downstream business partners by requesting information on those partners’ due diligence and compliance practices. Many small firms lack the resources to assemble this information from their own operations, either to package it in a standardized report or to outsource it to a consulting firm.

Small suppliers thus become a liability. In-scope companies, often among the world’s largest, may consolidate their supply chains into a few manageable streams and gravitate toward larger suppliers able to meet CS3D requests, reducing their own risk. Those larger suppliers gain a competitive edge over smaller rivals, especially in holding onto the stable business of major corporate partners.

This is not novel: Previous EU regulations have also disproportionately burdened smaller firms rather than larger businesses. The Draghi report candidly notes that “EU regulation imposes a proportionally higher burden on SMEs and small mid-caps than on larger companies.”^[115] The Statutory Audit and Corporate Reporting Directives (Directive 2006/43/EC), which aimed to harmonize auditing standards across the EU, disproportionately burdened smaller banks more than larger banks.^[116] The EU’s digital regulation has also disadvantaged smaller businesses more than larger ones.^[117]

CS3D will almost certainly deepen this trend, reaching across every industry and the full length of company value chains. It mandates supply chain changes for most or all EU industries, a scope without precedent in EU legislation.

Estimating the Costs of Changing Conduct

Reporting costs are usually just a small part of the total annual costs of regulation. CS3D requires due diligence, whereas CSRD requires the reporting of transition plans to reduce harms to the environment and human rights.^[118] Both directives attach liability and penalties to noncompliance. The cost of actually changing corporate conduct is substantial—part measurable, part not. The measurable part includes pollution abatement and other direct compliance costs beyond reporting.

Several studies estimate the ratio of administrative costs to abatement and total recurring compliance costs. Applying those ratios to the recurring costs of CSRD or CS3D yields estimates of abatement and compliance costs.

Joshi, Krishnan, and Lave found that every dollar of visible recurring spending on regulation reflects 10 dollars of spending in less visible accounts.^[119] Pizer and Kopp examined various cost categories for pollution abatement.^[120] They found that administrative costs averaged 5.3 percent of pollution-abatement spending by businesses and consumers over three years (a range of 4.9–5.7 percent). Drawing on Bureau of Economic Analysis data, Vogan puts administrative costs at just 1.8 percent of pollution-abatement control costs.^[121] Each of these studies points the same way: The administrative cost of complying with CSRD or CS3D is likely only a small fraction of the directives’ total compliance cost.

I offer this range not to endorse any single figure but to underscore that reporting’s administrative cost is only a small part of the cost of environmental regulation. The European Commission’s CSRD and CS3D estimates capture only those administrative costs, almost certainly a small share of the total.

7. Qualitative Costs vs. Measurable Costs in the EU

It is not yet possible to quantify many costs of CSRD and CS3D, but they are no less real and most likely dwarf the measurable ones. Nearly every EU firm is likely to feel them. Large firms reporting directly under either directive do business with hundreds or thousands of firms in their value chain or chain of activities, and a firm of any size is likely either to deal with such a reporter directly or to sit within one’s chain.

Costs to European Consumers from Higher Prices and Loss of Choice

The measurable costs discussed in chapter 6 are substantial and will almost certainly raise prices for European consumers. The economy’s basic inputs—energy, metals, food, and materials—are all likely to cost more in the EU under the new rules. Consumers will bear those increases, to the detriment of their welfare.

CS3D’s reach over corporate environmental practices will likely raise energy prices for EU citizens. Energy is the essential input behind every global supply chain, so the environmental footprint of any in-scope company will be among the first areas the EU flags for compliance. More than 900 of the largest EU firms and their largest suppliers must reshape their energy operations to meet the Paris Agreement’s Net Zero goals.^[122]

CS3D risks turning the EU into an energy island by squeezing the suppliers that export to it. As the Draghi report soberly noted, “fossil fuels will continue to play a central role in energy pricing” despite the EU’s clean-energy commitments.^[123] The price shock that followed the outbreak of the Russia-Ukraine war underscored the point, laying bare the EU’s dependence on outside energy.

Oil, the EU economy’s top energy source, illustrates this point: The EU imports 97 percent of its petroleum supply.^[124] In 2025, the EU’s top petroleum suppliers were the United States (15 percent), Kazakhstan (13 percent), Norway (13 percent), and the Gulf Cooperation Council (7 percent). They may sharply curtail their exports to the EU as their producers retreat from significant EU operations to avoid CS3D and CSRD, leaving the EU’s energy outlook still more precarious.

Natural gas tells the same story. CS3D’s pressure on supply is likely to push consumer prices higher. Since the Russia-Ukraine war, the EU has leaned heavily on alternative sources, and by 2025, Norway (31 percent) and the United States (27 percent) had become its largest gas suppliers.^[125] Some of these natural gas suppliers have already threatened to pull back from EU markets due to CS3D. Qatar, another top exporter to the EU, repeatedly threatened to halt natural gas exports to the EU if it enforced the directive.^[126]

CS3D and CSRD will fall especially hard on the energy industry, potentially driving key gas suppliers out of the EU market, and it is EU citizens who will ultimately pay.

Costs to European Consumers from Corporate Risk

CSRD and CS3D add further costs through the heightened risk of noncompliance and civil liability. Member states may penalize firms for failing to comply with CSRD, and the EU may impose penalties of up to 3 percent of global revenue for CS3D violations.^[127] Potentially costlier still is the civil liability that attaches to breaches of a wide range of CS3D provisions.

The following is one example in CS3D:

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

• 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
• 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.^[128]

Citizens could already sue companies for environmental damage, but they could not necessarily sue a company operating in the EU for the conduct of a subsidiary or value chain firm in another country. CS3D changes that: Claimants anywhere in the world, or a trade union or nongovernmental organization, can now, by default, haul any firm operating in the EU into court over conduct anywhere in its value chain.^[129] This is a novel and untested exposure that could prove very costly to EU business.

Academic research finds that 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.^[130]

Firms can normally insure against predictable risks for which ample historical loss data exist. The penalties and civil liability CS3D attaches to a wide range of rules are not such risks; they are effectively uninsurable. European consumers will feel the cost of that added uninsurable exposure, but the inherent uncertainty makes quantifying it impossible.

Costs to EU Businesses and Consumers from Market Harm

Markets routinely exchange the information a transaction requires: prices, quantities, product quality, ability to pay, ability to fill an order. But buyers and sellers are rightly reluctant to share information that a transaction does not require, especially anything revealing their market position, since disclosure can cause competitive harm, damage reputation, or invite liability. CS3D’s stakeholder due diligence will likely bring demands for exactly such business-sensitive information, including business plans. This demand will force firms to choose between disclosing it and risking liability for withholding it. Either way, their costs rise, and the bill passes to EU consumers.

Costs to European Consumers from Changes in Corporate Responsibilities and Objectives

Most businesses pursue profit within the law; they are not instruments of government policy. CS3D changes that, recasting corporations as agents of EU policy. It 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.”^[131]

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

1. This Directive lays down rules on:

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

A casual reader might find this benign, even benevolent. Companies must ensure human rights are respected, and what is the harm in that? In fact, these provisions redefine what a company is. A corporation is no longer merely accountable to shareholders and the state while pursuing lawful profit; it is now legally responsible for advancing a vague and sweeping set of non-business objectives, “obligations . . . 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.”

Under most systems of corporate law, only corporate owners and duly appointed corporate officers have control of the corporation and can make decisions on behalf of the company. Government agencies can limit corporate conduct through laws and regulations. Third parties can influence corporate conduct through contracts. Remarkably, the CS3D directive shifts corporate control and decision-making away from the shareholders and management of the company toward governments and “stakeholders,” whom the new consolidated text mentions 35 times.^[132] Corporations thus cede substantial control to these ever-present stakeholders and must consult them on virtually every corporate decision. Article 13, for example, provides the following:

Consultation of stakeholders shall take place at the following stages of the due diligence process:

• 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;
• 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;
• when deciding to terminate or suspend a business relationship pursuant to Article 10 and Article 11;
• when adopting appropriate measures to remediate adverse impacts pursuant to Article 12;
• as appropriate, when developing qualitative and quantitative indicators for the monitoring required under Article 15.

In short, a company under CS3D must consult stakeholders on many, perhaps most, important decisions. Failing to carry out the article 13 consultation process invites both liability in stakeholder disputes and a loss of meaningful corporate control.

The pervasiveness of “due diligence” compounds the problem. The term recurs throughout CS3D, and each instance can, and likely will, trigger the article 13 consultation process. Rather than simply running an efficient business, a company must perform more than 100 distinct due-diligence steps and consult an exhaustive list of stakeholders at each one. The December 2025 amendments narrow that list but leave the consultations in place.

The directives transfer corporate control to EU governments and stakeholders not only for conduct within the EU but for conduct abroad. Recent academic research finds that American board members will bear growing individual responsibility for CS3D compliance.^[133]

I have found no cost estimates of the dramatic shift in corporate control under the CSRD and CS3D directives. Those effects are large, but currently no one has measured them.

Costs to Businesses from Changes in Liability

CS3D is not only about shifting corporate control; it is also about liability, including civil liability that can be invoked by shareholder interests. Civil liability, damages, and remediation recur throughout the directive.^[134] The law assigns liability to corporations and frequently requires damages and remediation. CSRD and CS3D thus mark a dramatic change in the law of corporate liability and damages, not just corporate control.

Beyond formal EU enforcement, corporations remain exposed to shareholder suits for failing to disclose information that could affect securities prices. As discussed above, CSRD and CS3D impose seemingly unbounded obligations to perform “due diligence” and to consult countless “stakeholders.” It defines both vaguely, and each such activity is potentially a reportable event.

Complying with the directives may reduce exposure to EU penalties while paradoxically increasing the legal liability of corporate directors. The boards of American corporations, for instance, owe duties to shareholders, not to outside parties, yet CS3D imposes duties to outside parties, likely in conflict with American corporate law. I have found no discussion, let alone cost estimates, of this shift in corporate liability. Its effects are large, but currently no one has measured them.

F. Costs from Changes in the Relative Regulation of Industries

The directives will not affect all industries equally. They may sharply curtail or eliminate some activities, though not formally bar them, to serve environmental objectives regardless of cost. The most exposed sectors include textiles, leather goods, agriculture, forestry, fisheries, food and beverage manufacturing, and extraction.^[135]

Many reviews dwell on the line between “covered” companies, which are large firms facing substantial reporting duties, liability, and penalties, and smaller firms that face neither directly. But the shifts in EU business activity that CSRD and CS3D set in motion are likely to reach every company operating in the EU, large or small.

G. Effects on EU Employment

The seven core industries in the EU employ approximately 65 million Europeans.^[136] Even a reduction of 0.1 percent would mean 65,000 jobs. As table 6.2 shows, estimated one-time costs of CSRD and CS3D exceed 7 percent of corporate revenue, and recurring annual costs, even before any behavioral change, run between 0.015 and 0.164 percent of revenue. These findings align with a recent paper from the Organisation for Economic Co-operation and Development showing that higher regulatory compliance costs reduce labor productivity and shrink the share of workers employed in young firms.^[137] No simple formula converts higher corporate costs into a precise job-loss figure, but their effect is almost certainly to reduce demand for labor.

8. Conclusion: Dramatic Changes in Market Conditions with Untold Qualitative Costs

CSRD and CS3D will disrupt markets profoundly. Some firms will close; others will restructure and abandon entire lines of business. The measurable costs estimated above capture none of these exits.

Market structures will shift not only in the EU but worldwide. CSRD and CS3D impose substantial compliance costs that larger firms can bear more easily than smaller ones, so the directives ultimately favor large incumbents at the expense of small businesses. As the minimum efficient scale of competition rises, fewer firms can enter; with fewer competitors, competition weakens, and the prospect of greater innovation and lower prices fades. In the end, it is EU residents who will be hurt most by this overregulation.

Abbreviations

CEPS Centre for European Policy Studies

CS3D Corporate Sustainability Due Diligence Directive

CSRD Corporate Sustainability Reporting Directive

EFRAG European Financial Reporting Advisory Group

ESRS European Sustainability Reporting Standards

EU European Union

NFRD Non-Financial Reporting Directive

SOMO Centre for Research on Multinational Corporations

SME small or medium-sized enterprise

 

 

1. Detailed regulations of CSRD and CS3D change frequently, and changes after early June 2026 are not reflected in this report. ↑
2. Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 on Corporate Sustainability Reporting, as amended by Directive (EU) 2026/470, February 26, 2026, consolidated text as of March 18, 2026, https://eur-lex.europa.eu/eli/dir/2022/2464/2026-03-18. Henceforth “CSRD.” ↑
3. Directive (EU) 2024/1760 of the European Parliament and of the Council of 13 June 2024 on Corporate Sustainability Due Diligence, as amended by Directive (EU) 2026/470, February 26, 2026, consolidated text as of March 18, 2026, https://eur-lex.europa.eu/eli/dir/2024/1760/2026-03-18. Henceforth “CS3D.” ↑
4. CSRD, articles 19a and 29a. Article 22 of CS3D requiring compliance to the Paris Agreement was deleted. ↑
5. CSRD, article 5. ↑
6. CSRD, article 40a. One might imagine that certain firms in software sales, for example, pass the firm-wide revenue benchmark of €450 million in EU revenue without a separate EU subsidiary earning more than €150 million. ↑
7. CS3D, article 2. ↑
8. Regulations of the State Council on the Security of Industrial and Supply Chains, State Council Order No. 834, People’s Republic of China, March 31, 2026, https://www.mee.gov.cn/zcwj/gwywj/202604/t20260408_1148459.shtml. See also Regulations of the People's Republic of China on Countering Foreign Improper Extraterritorial Jurisdiction, State Council Order No. 835, April 7, 2026, https://www.chinalawtranslate.com/en/counter-long-arm. ↑
9. “China – New Rules on Supply Chain Security and Measures to Counter Extraterritorial Jurisdiction,” Conventus Law, May 28, 2026, https://conventuslaw.com/report/china-new-rules-on-supply-chain-security-and-measures-to-counter-extraterritorial-jurisdiction. ↑
10. Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as Regards Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups, November 15, 2014, pp. 1–9, https://eur-lex.europa.eu/eli/dir/2014/95/oj. See also Kara Anderson, “What Is the Non-Financial Reporting Directive (NFRD)?,” Greenly, August 4, 2025, https://greenly.earth/en-gb/blog/company-guide/what-is-the-non-financial-reporting-directive-nfrd. ↑
11. Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on Statutory Audits of Annual Accounts and Consolidated Accounts, amending Directives 78/660/EEC and 83/349/EEC and repealing Directive 84/253/EEC, June 9, 2006, p. 87, http://data.europa.eu/eli/dir/2006/43/oj. ↑
12. Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the Annual Financial Statements, Consolidated Financial Statements and Related Reports of Certain Types of Undertakings, amending Directive 2006/43/EC and repealing Directives 78/660/EEC and 83/349/EEC, June 29, 2013, p. 19, http://data.europa.eu/eli/dir/2013/34/oj. ↑
13. European Commission, “Action Plan: Financing Sustainable Growth,” COM/2018/097 final, March 8, 2018, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018DC0097. ↑
14. European Commission, “The European Green Deal,” COM/2019/640 final, December 11, 2019, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52019DC0640; “European Climate Law,” European Commission, April 20, 2026, https://climate.ec.europa.eu/eu-action/european-climate-law_en. ↑
15. “EU Agrees on a 2040 Climate Target That Sets a Clear Path Towards a Decarbonised and Competitive Economy,” press release, European Commission, December 9, 2025, https://ec.europa.eu/commission/presscorner/detail/en/ip_25_2967. ↑
16. Council of the European Union, “Proposal for a Directive of the European Parliament and of the Council Amending Directives 2006/43/EC, 2013/34/EU, (EU) 2022/2464 and (EU) 2024/1760,” December 10, 2025, 2, https://data.consilium.europa.eu/doc/document/ST-16702-2025-INIT/en/pdf, henceforth “December 2025 amendments.” An earlier proposal with the same title had similarly stated, “This proposal therefore contains provisions to simplify and streamline the regulatory framework with a view to reduce the burden on undertakings resulting from the CSRD and the CSDDD without undermining the policy objectives of either piece of legislation and to ensure more cost-effective delivery of the overall ambition of the European Green Deal related to the green and just transition.” COM(2025) 81 final, February 26, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52025PC0081. See also “Simplified Sustainability Reporting and Due Diligence Rules for Businesses,” press release, European Parliament, December 16, 2025, https://www.europarl.europa.eu/news/en/press-room/20251211IPR32164/simplified-sustainability-reporting-and-due-diligence-rules-for-businesses. ↑
17. CSRD, article 5. ↑
18. CSRD, article 29b. ↑
19. December 2025 amendment to article 19a, p. 33. ↑
20. December 2025 amendments, p. 16, and amendments to articles 1 and 40a. ↑
21. CSRD, para. 33, emphasis added. ↑
22. CSRD, p. 43. ↑
23. December 2025 amendment to 2013 directive, article 19a, p. 34. ↑
24. December 2025 amendment to 2013 directive, article 19a, p. 33, emphasis added. ↑
25. Commission Recommendation (EU) 2025/1710 on a Voluntary Sustainability Standard for Small and Medium-Sized Undertakings, July 30, 2025, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202501710. ↑
26. See note 8. ↑
27. December 2025 amendments to 2013 directive, article 19a, p. 34. ↑

28. For recitals 1–99, see the July 5, 2024, version of CS3D, https://eur-lex.europa.eu/eli/dir/2024/1760/oj/eng. The full text of article 1 is as follows:

    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); and

    (c) the obligation for companies to adopt and put into effect a transition plan for climate change mitigation which aims to ensure, through best efforts, compatibility of the business model and of the strategy of the company with the transition to a sustainable economy and with the limiting of global warming to 1,5° C in line with the Paris Agreement.

    2. This Directive shall not constitute grounds for reducing the level of protection of human, employment and social rights, or of protection of the environment or of protection of the climate provided for by the national law of the Member States or by the collective agreements applicable at the time of the adoption of this Directive.

    3. This Directive shall be without prejudice to obligations in the areas of human, employment and social rights, and of protection of the environment and climate change under other Union legislative acts. If a provision of this Directive conflicts with a provision of another Union legislative act pursuing the same objectives and providing for more extensive or more specific obligations, the provision of that other Union legislative act shall prevail to the extent of the conflict and shall apply as regards those specific obligations.” ↑

29. EFRAG, Draft European Sustainability Reporting Standards (EFRAG, 2022), p. 28, https://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/05%20EFRAGs%20Cover%20Letter%20on%20the%20Cost-benefit%20analysis.pdf. Henceforth “EFRAG 2022.” ↑
30. CS3D, article 1, with subsection (c) amended by December 2025 amendments. ↑
31. CS3D, article 3g. ↑
32. CS3D, article 27. ↑
33. CS3D, article 27.1. ↑
34. CS3D, articles 27.1 and 27.3b. ↑
35. CS3D, article 29. ↑
36. CS3D, article 29.2. ↑
37. CS3D, article 29.3a. ↑
38. CS3D, article 29.3. ↑
39. CS3D, article 29.3b. ↑
40. EFRAG 2022, p. 1. ↑
41. EFRAG 2022, pp. 2–3, 15–45. ↑
42. EFRAG 2022, p. 3. ↑
43. EFRAG 2022, p. 24. ↑
44. EFRAG 2022, p. 25. ↑
45. H. Furchtgott-Roth, “The EU’s December 2025 Changes to CS3D: Quantifying Costs to U.S. Industry,” January 2026, https://doi.org/10.2139/ssrn.6065548. See also this commentary from Karl Burkart: “Altogether that adds up to about €39.0 billion per year ($45 billion US) for ESRS accounting and reporting by my estimate — or roughly 10 basis points on business revenue (aka ‘turnover’ as they say on the Continent).” The 10 basis points can be divided two-thirds CSRD reporting and one third auditing: “Based on estimates presented below, this could create an addressable market of $30 billion per year by 2030 for CSRD reporting software and services (beyond an estimated $15B per year for auditing and staffing).” Burkart, “How Much Will It Cost Companies to Comply with EU’s Nature Reporting Standard (ESRS)?” One Earth (Medium blog), July 9, 2025, https://medium.com/oneearth/how-much-will-it-cost-companies-to-comply-with-eusnature-reporting-standard-esrs-90b5d46dd86e. See also Ecobio, which estimates that CSRD setup would cost 0.5–1.0 percent of revenue. “The Costs and Benefits of CSRD Reporting,” Ecobio Manager, accessed July 10, 2026, https://ecobiomanager.com/the-costs-and-benefits-of-csrd-reporting. ↑
46. EFRAG 2022, p. 2. ↑
47. EFRAG 2022, p. 3. ↑
48. EFRAG 2022, pp. 53–55. ↑
49. EFRAG 2022, pp. 56–63. ↑
50. True Diligence (DWF, 2024), https://dwfgroup.com/en/news-and-insights/reports-and-publications/true-diligence. ↑
51. EFRAG 2022, pp. 2, 4. ↑
52. EFRAG 2022, p. 2. ↑
53. Regulation (EU) 2021/1119, https://eur-lex.europa.eu/eli/reg/2021/1119/oj/eng. ↑
54. “Fit for 55,” June 12, 2026, European Council, https://www.consilium.europa.eu/en/policies/fit-for-55. ↑
55. Directive 2003/87/EC (consolidated, as amended by Fit for 55 in 2023), https://eur-lex.europa.eu/eli/dir/2003/87/2024-03-01/eng. ↑
56. Regulation (EU) 2018/842, as amended by (EU) 2023/857, https://eur-lex.europa.eu/EN/legal-content/summary/climate-action-binding-annual-greenhouse-gas-emission-reductions-2021-2030.html. ↑
57. Regulation (EU) 2023/839, amending (EU) 2018/841, https://eur-lex.europa.eu/eli/reg/2023/839/oj/eng. ↑
58. Regulation (EU) 2023/956, https://eur-lex.europa.eu/eli/reg/2023/956/oj/eng. ↑
59. Regulation (EU) 2020/852, https://eur-lex.europa.eu/eli/reg/2020/852/oj. ↑
60. Regulation (EU) 2019/2088, https://eur-lex.europa.eu/eli/reg/2019/2088/oj. ↑
61. EFRAG 2022, p. 5. ↑
62. Directorate-General for Justice and Consumers, “Commission Staff Working Document: Follow-Up to the Second Opinion of the Regulatory Scrutiny Board,” SWD(2022) 39 final (European Commission, February 23, 2022), https://op.europa.eu/en/publication-detail/-/publication/d21c6349-9584-11ec-b4e4-01aa75ed71a1/language-en. Henceforth “Staff working document.” ↑
63. Staff working document, p. 39. ↑
64. Staff working document, p. 39. ↑
65. Staff working document, p. 39. ↑
66. “Answer Given by Executive Vice-President Dombrovskis on Behalf of the Commission,” Parliamentary Question E-003394/2023(ASW), European Parliament, April 2, 2024, https://www.europarl.europa.eu/doceo/document/E-9-2023-003394-ASW_EN.html. ↑
67. Draghi, The Future of European Competitiveness (European Commission, 2024), https://commission.europa.eu/topics/competitiveness/draghi-report_en. ↑
68. European Commission, COM(2025) 81 final. ↑
69. “Council and Parliament Strike a Deal to Simplify Sustainability Reporting and Due Diligence Requirements and Boost EU Competitiveness,” press release, Council of the European Union, December 9, 2025, https://www.consilium.europa.eu/en/press/press-releases/2025/12/09/council-and-parliament-strike-a-deal-to-simplify-sustainability-reporting-and-due-diligence-requirements-and-boost-eu-competitiveness. ↑
70. CS3D, article 3. ↑
71. Council of the European Union, “Council and Parliament Strike a Deal.” ↑
72. EFRAG, Cost-Benefit Analysis on the Draft Amended European Sustainability Reporting Standards (EFRAG, 2025), https://www.efrag.org/sites/default/files/media/document/2025-12/Cost-benefit%20Analysis%20on%20Draft%20Amended%20ESRS.pdf. Henceforth “EFRAG 2025.” ↑
73. EFRAG 2025, p. 3. ↑
74. EFRAG 2025, p. 2. ↑
75. EFRAG 2025, p. 4. ↑
76. Directive (EU) 2026/470, article 2, 4d and 5e (financial holding company exemption from CSRD consolidated reporting); see also recital 50 (removal of tailored CS3D rules for financial institutions), https://eur-lex.europa.eu/eli/dir/2026/470/oj. ↑
77. EFRAG 2025, p. 3. ↑
78. Furchtgott-Roth, “EU’s December 2025 Changes to CS3D,” p. 22. ↑
79. EFRAG 2025, p. iii. ↑
80. Furchtgott-Roth, “EU’s December 2025 Changes to CS3D,” p. 22. ↑
81. David Ollivier de Leth, “CSDDD Datahub Reveals Law Covers Fewer Than 3,400 EU-Based Corporate Groups,” Centre for Research on Multinational Corporations (SOMO), January 21, 2025, https://www.somo.nl/csddd-datahub-reveals-law-covers-fewer-than-3400-eu-based-corporate-groups. ↑
82. These are firms headquartered in Liechtenstein, Norway, Switzerland, and the United Kingdom. ↑
83. “Fortune 500 Europe,” Fortune, October 29, 2025, https://fortune.com/europe/ranking/fortune500-europe. ↑
84. The five firms not meeting the 1,000-employee threshold are Unedic, GasTerra, Mind Energy, FMS Wertmanagement, and AerCap Holdings. ↑
85. The sample consists of GSK, AstraZeneca, Novartis, Unilever, Roche, Nestle, and HSBC Holdings. ↑
86. Exchange rate of $1 = €0.86 as of June 4, 2026, at CurrencyRate.Today, https://usd.currencyrate.today/eur. ↑
87. EFRAG 2022, p. 19. ↑
88. EFRAG 2022, p. 3. ↑
89. EFRAG 2022, p. 33. ↑
90. Ecobio Manager, “Costs and Benefits of CSRD Reporting.” ↑
91. I exclude the industry-level information because it includes both firms that are in scope and those that are not. ↑
92. DWF, True Diligence. ↑
93. EFRAG 2022, p. 3. ↑
94. Answer by Dombrovskis to Parliamentary Question E-003394/2023(ASW). ↑
95. “Altogether that adds up to about €39.0 billion per year ($45 billion US) for ESRS accounting and reporting by my estimate — or roughly 10 basis points on business revenue (aka ‘turnover’ as they say on the Continent.” The 10 basis points can be divided into two-thirds CSRD reporting and one-third auditing: “Based on estimates presented below, this could create an addressable market of $30 billion per year by 2030 for CSRD reporting software and services (beyond an estimated $15B per year for auditing and staffing).” Burkart, “How Much Will It Cost Companies to Comply?” ↑
96. EFRAG 2022, p. 28. ↑
97. EFRAG 2022, p. 3. ↑
98. December 2025 amendments, p. 4. ↑
99. “The result of the negotiations reduces the number of entities falling in scope of the CSRD by around 90% and those falling in scope of the CS3D by around 70%.” See “Agreement on the CSRD/CS3D Omnibus Package: Key Changes and Implications,” A&O Shearman, December 18, 2025, https://www.aoshearman.com/en/insights/agreement-on-the-csrd-cs3d-omnibus-package-key-changes-and-implications. ↑
100. SOMO, “Look for a Company,” CSDDD Datahub, last updated June 2, 2026, https://www.somo.nl/csddd-datahub/#look-for-company. ↑
101. The updated SOMO list reflects 1,449 firms in scope for CS3D, whereas the prior list included 7,000, an 80 percent reduction. See also A&O Shearman, “Agreement on the CSRD/CS3D Omnibus Package.” ↑
102. I excluded firms with fewer than 5,000 employees. ↑
103. Answer by Dombrovskis to Parliamentary Question E-003394/2023(ASW). ↑
104. DWF, True Diligence, p. 12. ↑
105. Answer by Dombrovskis to Parliamentary Question E-003394/2023(ASW). ↑
106. CS3D does not create new audit requirements but does create new monitoring requirements. See articles 11, 15, and 20. ↑
107. Answer by Dombrovskis to Parliamentary Question E-003394/2023(ASW). See also European Commission staff working document, annex 2. ↑
108. Jasper van Teeffelen and David Ollivier de Leth, “CSDDD: Companies Cry ‘Burden’ While Paying Out Billions to Shareholders,” SOMO, February 25, 2025, https://www.somo.nl/csddd-companies-cry-burden-while-paying-out-billions-to-shareholders. ↑
109. Peter Bex, Joey van den Hurk, Marieke Vollebregt, Jeanine Oude Elferink, and Jeroen Mook, Bedrijfseffectentoets CSDDD: De regeldrukeffecten, markteffecten en innovatie-effecten voor het bedrijfsleven als gevolg van de Corporate Sustainability Due Diligence Directive (CSDDD) [Business impact assessment: Regulatory burden, market effects, and innovation effects on the business community resulting from CS3D], v. 1.0, (Sira Consulting, 2024), p. 5, https://www.internetconsultatie.nl/wivo/document/13294. ↑
110. For agriculture, mining, and manufacturing, see, e.g., Jan Stappers and Cherelle Johannes, “The EU Corporate Sustainability Due Diligence Directive – March 2024 Update,” Navex, March 21, 2024, https://www.navex.com/en-us/blog/article/eu-csddd-march-2024-update. I include utilities and transportation as energy-intensive sectors. ↑
111. These industries employed 40.8 million workers in the EU in 2025. See “Employed Persons by Economic Activity (NACE Rev. 2) (2008-2026),” Eurostat, last updated June 30, 2026, https://ec.europa.eu/eurostat/databrowser/view/lfsa_egan2__custom_20377752/default/table. ↑
112. Protected undertakings are firms that have less than 1,000 employees but are in the value chain of a reporting undertaking. December 2025 amendments, p. 16, amendments to articles 1 and 40a. ↑
113. CSRD, article 19a. ↑
114. Charles Calomiris, Harry Mamaysky, and Ruoke Yang, “Measuring the Cost of Regulation: A Text-Based Approach,” working paper (Columbia Business School, March 8, 2020), https://business.columbia.edu/faculty/research/measuring-cost-regulation-text-based-approach. See also James W. Bailey and Diana W. Thomas, “Regulating Away Competition: The Effect of Regulation on Entrepreneurship and Employment,” Journal of Regulatory Economics 52 (2017): 237–54, https://doi.org/10.1007/s11149-017-9343-9. ↑
115. Draghi, The Future of European Competitiveness, p. 69. ↑
116. Sunil Poshakwale, Daniel Aghanya, and Vineet Agarwal, “The Impact of Regulations on Compliance Costs, Risk-Taking, and Reporting Quality of the EU Banks,” International Review of Financial Analysis 68 (March 2020): 101431, https://doi.org/10.1016/j.irfa.2019.101431. ↑
117. Aryamala Prasad, “Two Years Later: A Look at the Unintended Consequences of GDPR,” Regulatory Studies Center, George Washington University, September 2, 2020, https://regulatorystudies.columbian.gwu.edu/sites/g/files/zaxdzs4751/files/downloads/Commentaries/GW%20Reg%20Studies%20-%20GDPR%20Two%20Years%20Later%20-%20APrasad--.pdf. ↑
118. CSRD, articles 19a and 29a. ↑
119. Satish Joshi, Ranjani Krishnan, and Lester Lave, “Estimating the Hidden Costs of Environmental Regulation,” The Accounting Review 76, no. 2 (April 2001): 171–98, https://doi.org/10.2308/accr.2001.76.2.171. ↑
120. William A. Pizer and Raymond Kopp, “Calculating the Costs of Environmental Regulation,” Discussion Paper 03–06, Resources for the Future, March 2003, https://media.rff.org/documents/RFF-DP-03-06.pdf. ↑
121. Christine R. Vogan, “Pollution Abatement and Control Expenditures,” Bureau of Economic Analysis Survey of Current Business (September 1996), chart 2, https://apps.bea.gov/scb/pdf/national/niparel/1996/0996eed.pdf. ↑
122. SOMO, “Look for a Company.” ↑
123. Draghi, The Future of European Competitiveness, pp. 6, 14. ↑
124. “Where Does the EU Get Its Oil From?” infographic, Council of the European Union, last updated April 17, 2026, https://www.consilium.europa.eu/en/infographics/where-does-the-eu-get-its-oil-from. ↑
125. “Where Does the EU’s Gas Come From?,” Council of the European Union, last updated April 13, 2026, https://www.consilium.europa.eu/en/infographics/where-does-the-eu-s-gas-come-from. ↑
126. “Qatar Vows to Stop EU Gas Sales If Fined Under Due Diligence Law, FT Reports,” CNBC, December 22, 2024, https://www.cnbc.com/2024/12/22/qatar-vows-to-stop-eu-gas-sales-if-fined-under-due-diligence-law-ft-reports.html. ↑
127. December 2025 amendment to article 27.4. ↑
128. CS3D, article 29.1. ↑
129. CS3D, article 29.3. ↑
130. Calomiris et al., “Measuring the Cost of Regulation,” p. 45. ↑
131. CS3D, preamble, para. 20. ↑
132. CS3D defines stakeholders as follows: “ ‘stakeholders’ means the company’s employees, the employees of its subsidiaries and of its business partners, and their trade unions and workers’ representatives, and individuals or communities whose rights or interests are or could be directly affected by the products, services and operations of the company, its subsidiaries and its business partners and the legitimate representatives of those individuals or communities.” Article 3.1n. ↑
133. Luca Enriques, Matteo Gatti, and Roy Shapira, “How the EU’s Sustainability Due Diligence Directive Could Reshape Corporate America,” Harvard Law School Forum on Corporate Governance, February 5, 2025, https://corpgov.law.harvard.edu/2025/02/05/how-the-eus-sustainability-due-diligence-directive-could-reshape-corporate-america. ↑
134. Civil liability is mentioned 32 times. See particularly article 29. ↑
135. See, e.g., Stappers and Johannes, “The EU CS3D – March 2024 Update.” ↑
136. According to Eurostat, employment in 2024 in agriculture was 6.895 million; in mining, 0.567 million; in manufacturing, 31.7395 million; in electricity generation and related industries, 1.695 million; in information, 8.046 million; in finance, 5.647 million; and in transportation, 11.133 million, for a total of 65.698 million, or 31.7 percent of the total workforce of 207.225 million. “Employed Persons by Economic Activity (NACE Rev. 2) (2008–2026),” Eurostat, last accessed, March 2026, (https://ec.europa.eu/eurostat/web/lfs/database. ↑
137. “In particular, the increase in the United States since 2012 is associated with a decline in labour productivity of 0.5% and a reduction in the share of workers employed in young firms of 0.4 percentage points.” Dan Andrews, Sébastien Turban, and Stefanos Tyros, “Regulatory Compliance Costs and Productivity: New Task-Based Evidence,” Economics Department Working Paper No. 1856 (OECD, 2026), p. 3, https://www.oecd.org/en/publications/regulatory-compliance-costs-and-productivity_1c1da52e-en.html. ↑