Multinationals Operating in the EU Can’t Ignore ESG Obligations

The transatlantic economic landscape is shifting, as trade policy, regulation, and markets become more intertwined. The EU–US trade deal lowers tariffs on some US exports but doesn’t reduce the EU’s stringent environmental, social, and governance obligations.

For US-owned multinationals, these standards are no longer distant—they’re embedded in trade, finance, and industrial policy, shaping operations and profitability. Companies with European exposure must prepare for tax, legal, financial, and reputational risks, because ESG compliance is now a fundamental condition for doing business in the EU.

The EU’s evolving regulatory landscape combines tougher enforcement with significant funding streams and market incentives. Those who delay risk fines, market exclusion, reputational damage, and lost growth.

Compliance Challenges

Following the 2024 Draghi Report, the European Commission shifted from an expansive Green Deal to a pragmatic Clean Industrial Deal that emphasizes decarbonization, competitiveness, reindustrialization, and reduction of unnecessary administrative burdens. The simplification efforts aim to make compliance more efficient without weakening core environmental and social requirements.

Two Omnibus legislative packages adopted this year cut red tape, correct legal inconsistencies, and improve regulatory coherence. These reforms are expected to reduce compliance costs by over 6.3 billion euros ($7.4 billion) annually and unlock up to 50 billion euros in green investment.

The EU’s ESG regulations affecting non-EU firms are broad and far-reaching. They cover sustainable supply chains through various measures. The Carbon Border Adjustment Mechanism, or CBAM, applies to EU importers of steel, aluminum, fertilizers, cement, hydrogen, and electricity, with a carbon price payable from 2026 based on embedded emissions.

The EU Deforestation Regulation, or EUDR, requires full localization traceability for imports of soy, palm oil, beef, cocoa, coffee, and timber. The Eco-design for Sustainable Products Regulation mandates information on repairability, recyclability, and durability of a broad range of goods.

It also extends to sustainability reporting. The Corporate Sustainability Due Diligence Directive applies from 2027 to companies with over 1.5 billion euros in global turnover and 5,000 employees, requiring them to address environmental and human rights risks across value chains, with fines up to 5% of global turnover.

The Corporate Sustainability Reporting Directive will, from 2028, require US firms with more than 150 million euros in EU turnover and a significant EU presence (subsidiary or branch) to report under EU standards, with first reports in 2029 for the 2028 financial year.

Issues for Multinationals

US multinationals are affected directly by EU ESG legislation in several critical ways:

Financial and legal exposure. Non-compliance with regulations such as the EUDR and CBAM can trigger fines of up to 4–5% of global turnover, or fixed penalties. Member countries enforce these laws individually, meaning that a non-compliant company could face parallel—and divergent—legal proceedings across the EU.

Market access restrictions. Firms failing to meet ESG product criteria risk customs seizures, exclusion from public procurement, or losing operation authorizations. The EUDR demands proof of zero-deforestation sourcing; CBAM requires disclosure of embedded carbon. Failure means exclusion from one of the world’s largest markets.

Investor and consumer expectations. European investors and consumers increasingly prefer or require ESG-aligned practices and transparent reporting. With the “name and shame” public information applicable to some regulations, consumer information is becoming key. Companies lacking this can be excluded from investment portfolios or lose customers to competitors with stronger sustainability credentials.

Operational and supply chain disruptions. Compliance requires deep traceability and data systems. Companies unable to monitor their supply chains or validate product origins may have to halt production, cut supplier contracts, or re-engineer logistics systems on short notice. The financial and productivity costs of reactive compliance are often far higher than upfront planning.

Reputational and investor risk. Companies linked to ESG breaches face not only consumer backlash but also capital market consequences—including shareholder activism, credit downgrades, and divestment from ESG-conscious funds. These effects can cascade into higher financing costs, reduced brand equity, and weakened strategic positioning.

Exclusion from EU incentives and strategic funding. Access to EU green investment, innovation funding, and sustainable procurement increasingly depends on ESG credentials. Companies without proper compliance systems may be ineligible for future subsidies or partnerships under EU industrial policy—a major missed opportunity for long-term growth.

The EU is boosting public funding for the green transition via current and upcoming frameworks. Under the 2021–2027 multiannual financial framework, 30% of spending supports climate and recovery goals, including the Recovery and Resilience Facility (276 billion euros) and Horizon Europe (175 billion euros).

The proposed framework increases climate spending to 40%, focusing more on industrial decarbonization, supply chain sovereignty, and strategic competitiveness. New initiatives include the European Competitiveness Fund to back clean transition and strategic technologies.

The Clean Industrial Deal dedicates over 100 billion euros to decarbonize energy-intensive sectors and speed clean tech deployment. This evolving funding landscape offers strong opportunities for US-owned companies to tap EU resources and expand their green market presence.

Compliance Strategy

To meet EU ESG requirements, US-owned multinationals need a comprehensive approach:

• Map regulatory exposure. Analyze how EU rules apply across operations, subsidiaries, suppliers, and clients to identify direct and indirect compliance obligations.
• Build data and traceability systems. Invest in infrastructure to gather and report ESG data, especially on supply chains, emissions, and deforestation. Plan for costs such as carbon certificates and audits.
• Align internal governance. Assign ESG responsibilities across tax, finance, legal, procurement, and risk teams, with senior oversight for coordinated compliance and swift enforcement response.
• Engage EU stakeholders. Collaborate early with EU customers, suppliers, and regulators to streamline data exchange, reduce onboarding friction, and build trust in compliance efforts.
• Explore EU funding and innovation. Leverage ESG credentials to access green investment, research and development grants, and preferential procurement opportunities, turning compliance into competitive advantage.

By mapping obligations, building ESG systems, aligning governance, and engaging partners, US companies can turn compliance into a strategic asset—ensuring resilience, market access, and leadership in the global sustainability transition.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ruth Guerra is head of global ESG tax & legal, KPMG International.

Weronika Zurawska is tax consultant, EU Green Deal, ESG tax and legal, KPMG Meijburg & Co.

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