In the beginning of this year, companies have faced a myriad of challenges impacting their supply chains. These challenges range from geopolitical pressures and extreme weather events to significant regulatory changes. One key change was the adoption of the Omnibus package by the EU, aimed at reducing the compliance burden for companies and promoting business. However, this decision has led to uncertainties in several supply chain regulations that were scheduled to commence soon, adding to trade tensions and low projected global economic growth. Several stakeholders are calling for companies not to abandon long-term sustainability goals in their supply chains to maintain flexibility and resilience during these uncertain times.
Navigating Supply Chain Regulatory Uncertainties
The first four months of 2025 have been turbulent, disrupting supply chains across industries and challenging how companies respond to a range of issues, including renewed pressures from Trump’s tariff announcements, extreme weather events, natural disasters, social unrest, and ongoing conflicts. Additionally, the regulatory landscape has been uncertain since the European Commission adopted the Omnibus package in February this year. This package involves a series of measures aimed at simplifying and streamlining various legislative areas to enhance competitiveness and attract investment, ultimately reducing the compliance burden for companies. This decision has affected several supply chain regulations that were scheduled to commence soon.
April marked a period of significant changes. The new government coalition in Germany repealed the German Supply Chain Act (LkSG), which had been in effect since 2023, citing economic stagnation and geopolitical uncertainty as key factors influencing their decision. This law was replaced by the EU’s new Corporate Sustainability Due Diligence Directive (CSDDD). Concurrently, the CSDDD underwent several modifications, resulting in less frequent monitoring compared to the LkSG, thereby making it less stringent. Furthermore, EU lawmakers agreed to delay the application of the sustainability due diligence law by a year, with the CSDDD now set to come into effect in mid-2028. Additionally, the EU Deforestation Regulation (EUDR) was targeted for simplification to facilitate its implementation.
Some European stakeholders have expressed concerns about these regulatory modifications, stating that they contradict the objectives of the Green Deal and the long-term sustainability targets of the EU. The main issue is that, although these regulations were aligned with the EU’s commitments to UN Sustainable Development Goals (SDGs), global political pressures are pervasive. It appears that no government wants to be at a disadvantage in light of current global changes, thereby promoting the idea of fostering short-term economic growth while postponing long-term beneficial initiatives.
While these modifications may offer relief to companies affected by these regulations, they have also introduced uncertainty for both companies and investors who rely on a stable legislative framework to ensure the accuracy of disclosed data and commitments. This is particularly concerning as regulatory support diminishes at a time when managing non-financial supply chain risks is crucial for avoiding and mitigating disruptions.
This story is ongoing. As I write, I am reading that German Chancellor Merz is calling for the elimination of the CSDDD during a press conference alongside European Commission President Ursula von der Leyen, marking his first visit to Brussels as Chancellor on May 9. Additionally, CDP announced a restructuring aimed at reducing the reporting burden and advancing real-time, actionable insights to promote Earth-positive action. This news follows other announcements, such as significant changes to the Net-Zero Banking Alliance’s framework and principles for members, including the elimination of a mandatory requirement for banks to align lending and capital markets activities with the goal of limiting global warming to 1.5°C.
Politics and Recession Fears Impacting Supply Chain Sustainability
Geopolitical factors have significantly hindered the progress made in sustainability within supply chains. Just as we believed there was a global consensus on the importance of non-financial disclosures and due diligence in supply chains, the world order shifted. This shift led to a cascade of companies abandoning their net-zero commitments, including Scope 3 emissions, and withdrawing from DEI policies that impact supply chains. These actions not only negatively impact communities but also raise concerns about the resilience and adaptability of supply chains, as well as the reputation of the brands involved.
Global economic projections are playing a significant role in this scenario. The latest IMF projections in April estimate a world GDP growth of only 2.8%, down from January’s estimate of 3.3%. Almost all world regions are expected to experience a decrease compared to last year, except for the Middle East and Central Asia, which are projected to grow by 3% (up from 2.4% in 2024). It is worth mentioning that the US economy’s growth is estimated at 1.8%, and J.P. Morgan has projected a 60% probability of a recession in the country.
Global economic projections are playing a significant role in this scenario. The latest IMF projections in April estimate a world GDP growth of only 2.8%, down from January’s estimate of 3.3%. Almost all world regions are expected to experience a decrease compared to last year, except for the Middle East and Central Asia, which are projected to grow by 3% (up from 2.4% in 2024). It is worth mentioning that the US economy’s growth is estimated at 1.8%, and J.P. Morgan has projected a 60% probability of a recession in the country.
What we are witnessing today are companies striving to adapt to this new political and economic landscape. In the absence of stringent regulations, companies often navigate sustainability commitments by weighing tangible costs against less quantifiable factors like public perception and brand reputation. Without a deeply rooted belief or cohesive strategy, maintaining a sustainable supply chain can become a lower priority -especially when compliance, rather than long-term value creation, is the primary driver of decision-making.
Clearly, not all the blame lies with the companies, as they need to keep the business running even when regulations mandate the cancellation of DEI policies or reduce existing incentives to decrease Scope 3 GHG emissions to achieve supply chain decarbonization. In any case, maintaining business balance is difficult, especially in the current context.
Bringing Transparency to the Forefront
Sustainability in supply chains is often perceived as a complex and costly endeavor with no immediate financial return for the company. However, it is essential for maintaining long-term business continuity and should be viewed as a competitive advantage. A notable example is Ford’s confrontation with its shareholders. Led by Green Century Capital Management, Ford’s shareholders raised concerns that Ford lacks a concrete strategy to address supply chain emissions—an essential component for achieving its 2050 global carbon neutrality target. In response, shareholders called for a detailed report outlining the company’s approach. The pressure intensified as Green Century highlighted that Ford is falling behind industry peers like Volvo and Mercedes-Benz, who have taken more proactive steps in disclosing and managing supply chain-related climate risks. Therefore, whether engaging with shareholders, investors, or consumers, transparency is essential across all areas of the business, including the assessment of non-financial risks within the supply chain.
Despite many companies taking a measured approach to enhancing sustainability due diligence within their supply chains, data from 2023 (Supply Chain Resilience Report 2024 – BCI) reveals that nearly 80% of organizations experienced between one and ten incidents of supply chain disruption. The primary causes of these disruptions were third-party failures, cyberattacks, and natural disasters. While supply chain disruptions are not a new phenomenon, today’s interconnected business environment necessitates a refreshed perspective that incorporates a sustainability strategy for supply chains.
Although global trends seem to be moving away from sustainable supply chains and transparency, companies must be proactive and plan for the long term. Non-financial risks are evident and are impacting supply chains as you read this article. The approach companies take to manage their supply chains may vary by industry; however, there is a consensus that AI is the key to enhancing data collection, risk analysis, and the design of action plans, leveraging rapid advancements in technology.
Conclusion
As companies navigate the evolving regulatory landscape and geopolitical pressures, the importance of maintaining a sustainable supply chain becomes increasingly evident. Despite the relief these regulatory modifications may offer, they also introduce uncertainty for companies and investors who rely on stable legislative frameworks. Companies must adapt to these shifts while balancing short-term compliance with long-term sustainability goals. Transparency and proactive planning are crucial in managing non-financial risks and ensuring the resilience and adaptability of supply chains. Harnessing the capabilities of AI and technology can enhance supply chain due diligence, helping companies navigate disruptions and maintain business continuity in an increasingly complex global environment.
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