Simon Jaehnig, Co-Founder and CRO at IntegrityNext, says US-based companies not complying with the CSRD and EUDR risk serious consequences
New EU regulations, such as the Corporate Sustainability Reporting Directive (CSRD), are set to transform how US companies approach supply chain sustainability, with unprecedented requirements for transparency and environmental accountability coming into force.
The stakes are higher than ever, with non-compliance potentially resulting in substantial fines and market restrictions.
As Mindy Lubber, President and CEO of the NGO, Ceres, says, “sustainability is no longer a choice, it’s a must”, reflecting the shifting paradigm in corporate responsibility that has evolved since the 2016 Paris Agreement set its landmark 1.5C warming limit.
“The CSRD mandates that businesses have an emissions reduction plan in place that aligns with the Paris Agreement to limit global warming to 1.5C and will have the company reach net-zero by 2050,” explains Simon Jaehnig, Co-Founder and CRO at IntegrityNext.
“US-based companies that operate in the EU must be compliant with the CSRD or risk serious consequences. These include fines of potentially millions of euros, reputational damage from the public disclosure of non-compliance, restrictions on governmental business and the potential freezing or delisting of public trading on stock markets.”
Framework set to impact cross-border trade
The regulatory framework extends beyond the Corporate Sustainability Reporting Directive (CSRD).
The EU Deforestation Regulation (EUDR) aims to address deforestation by requiring companies to uphold complex due diligence obligations such as tracing and verifying the origin of products. It bans certain products from the EU market unless they are deforestation-free, covered by due diligence statements and produced in accordance with local laws.
“The need could not be more urgent,” Simon emphasises. “Recently, an international team of scientists found that the Earth’s natural ability to act as a carbon sink—absorbing and neutralising carbon—has collapsed, with trees, plants and soil absorbing almost no carbon in 2023.
“Now is the time for companies to prepare and begin to act – not only to be in compliance with the coming regulations, but also for the importance of biodiversity and the future of our planet.”
Then there’s the EU Carbon Border Adjustment Mechanism (CBAM), for which reporting obligations are also moving into the next round. As of 1 January, organisations are required to report actual carbon emissions data instead of relying on default values, with the EU’s emissions calculation methodology now fully mandatory.
To stay competitive in the European market, US companies must accurately track emissions, comply with stricter reporting standards, and work toward reducing their carbon footprint, with carbon costs on exports of carbon-intensive products to the EU coming into effect from 2026.
The challenge of implementation
The scale of the challenge is unprecedented, particularly regarding supply chain practices.
“Maintaining a sustainable global supply chain is undoubtedly challenging, as demonstrated by recent regulatory shifts,” Simon notes.
In fact, the UN Global Compact ranks supply chain practices as the biggest challenge to advancing sustainability performance, while a McKinsey report found two-thirds of the average company’s ESG footprint is tied to their suppliers – underscoring the importance of engaging suppliers in sustainability efforts.
Implementation challenges are further complicated by technological limitations.
Simon continues: “According to a recent survey from EY, executives across the retail, consumer packaged goods, health providers, life sciences, government, technology, energy, manufacturing, mobility and food and agriculture sectors lack the technology and comprehensive programmes to provide the visibility they need to measure their progress towards their companies’ long-term sustainability goals.”
Tech-driven solutions
Simon asserts that the path forward involves combining advanced technology, like AI, with human expertise.
“Robust technology and proactive strategies play a crucial role in managing complex risks and regulatory demands,” he adds. “Advanced technology, such as AI, enables companies to conduct in-depth ESG assessments, analyse risks and identify vulnerable areas within their supply chain. AI can uncover insights that might otherwise remain hidden, providing companies with the information needed to act proactively.”
Clearly, the integration of technology and expertise is crucial for success, allowing firms to make informed, agile decisions that not only address immediate issues but also strengthen long-term resilience.
“Moreover,” Simon continues, “regular, transparent communication with suppliers is key to building trust and ensuring alignment with sustainability goals.”
Looking ahead, Simon emphasises that the aforementioned regulations and the changes they bring in 2025, not to mention technological advancements and growing consumer and investor expectations, are “key factors shaping the future of supply chain sustainability”.
He concludes: “US companies that proactively adapt to this evolving landscape will be better positioned to meet current and future challenges, advancing both their sustainability efforts and business objectives.”