The U.S. Senator, Bill Hagerty, has introduced the PROTECT USA Act of 2025 legislation. The regulation aims to protect U.S. companies from complying with the "extraterritorial" rules of the EU.
Private equity or credit firms, asset managers, and impact investors operating in the U.S. or having portfolio companies in the country may be alleviated from compliance burdens and reduce costs tied to ESG and sustainability standards. However, sustainability compliance may be difficult as there is no structured legislation governing it.
Let's explore the PROTECT USA Act of 2025 in detail.
About the PROTECT USA Act of 2025
Released on March 12, 2025, the Prevent Regulatory Overreach from Turning Essential Companies into Targets Act is legislation introduced by a U.S. Senator to shield U.S. companies from EU standards. One of the key standards banned by the U.S. by this Act is the Corporate Sustainability Due Diligence Directive (CSDDD). The CSDDD, adopted by the EU last year, imposes strict sustainability standards on companies, including supply chain practices and carbon emissions, which exceed the U.S. legal requirements.
Regarding the PROTECT USA Act, Bill Hagerty said, "American companies should be governed by U.S. laws, not unaccountable lawmakers in foreign capitals. The European Union's ideologically motivated regulatory overreach affronts U.S. sovereignty. I will use every tool at my disposal to block it."
Who needs to comply with the PROTECT USA Act?
The Act primarily applies to entities integral to U.S. national interests. Specifically, the entities include:
- Companies with contracts or agreements with the U.S. government will likely be covered under this Act.
- Entities organized under U.S. law, including corporations, partnerships, and other business entities formed under U.S. state or federal laws.
- Foreign subsidiaries of the U.S. companies. Therefore, U.S. companies operating abroad may also comply with this Act.
- Businesses involved in critical sectors such as raw material extraction, manufacturing, or defense-related production are likely to be considered integral to U.S. national interests and thus covered by the Act.
Key aspects of the PROTECT USA Act
- The Act aims to protect U.S. sovereignty by preventing foreign regulatory overreach, ensuring that U.S. laws rather than foreign directives govern American companies. The primary goal is to save U.S. businesses from what the EU perceives as motivated regulatory overreach.
- The PROTECT Act establishes a private right of action for entities aggrieved by foreign sustainability regulations, allowing them to seek any required legal recourse.
- The Act builds on Senator Hagerty's record of opposing the CSDDD from last year. In September 2024, Senator Hagerty along with Representative Andy Barr opposed the CS3D by sending a bicameral letter to the Biden Administration. The following month, Senator and Representative French Hill wrote an op-ed in the Wall Street Journal alerting about EU's regulations.
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