Supply chain transparency: why it must happen now

EU regulations demand full supply chain transparency. Learn how CSDDD, CBAM, and due diligence affect your organisation.

Pillar context

The European Union has built an ambitious regulatory framework in recent years that compels companies to achieve unprecedented transparency about their supply chains. The Corporate Sustainability Due Diligence Directive (CSDDD), the Carbon Border Adjustment Mechanism (CBAM), the Deforestation Regulation, and the tightening of rules of origin for preferential trade together form a web of obligations that is being drawn ever tighter.

For companies operating internationally, supply chain transparency is no longer a nice-to-have or a marketing tool. It is a legal obligation with material financial consequences for non-compliance. This article analyses the regulatory pressure, the operational implications, and the concrete steps organisations must take now.

The regulatory landscape

CSDDD: the Corporate Sustainability Due Diligence Directive

The CSDDD, adopted in 2024, obliges large companies to map and monitor their entire value chain for negative impacts on human rights and the environment. The directive applies to EU companies with more than 1,000 employees and net turnover above 450 million euros, and to non-EU companies with net turnover above 450 million euros in the EU.

The obligations include identifying and assessing actual and potential negative impacts, taking measures to prevent or mitigate negative impacts, maintaining a complaints procedure, monitoring the effectiveness of measures taken, and publicly reporting on due diligence activities.

CBAM: carbon-related transparency

The Carbon Border Adjustment Mechanism requires importers to collect detailed information about the embedded emissions in imported goods. This demands direct communication with producers about production processes, emission intensities, and energy sources used. CBAM thus forces transparency about the climate impact of the supply chain.

EU Deforestation Regulation

The Deforestation Regulation prohibits placing on the EU market products produced on land that was deforested after December 2020. Companies must be able to trace the origin of products such as soy, palm oil, beef, coffee, cocoa, rubber, and timber to the plot of production, with corresponding geolocation data.

Tightened rules of origin

EU trade agreements require increasingly detailed documentation of the origin of goods. The combination of Product Specific Rules, supplier declarations, and REX certification requires companies to have mapped their supplier chain deep into the supply structure.

Why now?

Timelines converge

The implementation deadlines of the various regulations converge in 2025 and 2026. The CSDDD must be transposed into national legislation by member states and the first companies must be compliant. CBAM transitions from reporting to financial obligations. The Deforestation Regulation is in force. Preferential rules of origin are being audited with increasing frequency.

Companies that wait until the deadlines face not only compliance risks but also a shortage of capacity in the market for consultants, verifiers, and implementation partners.

Chain responsibility increases

A fundamental shift in European regulation is the assignment of responsibility to companies for their entire chain, including suppliers and sub-suppliers. It is no longer sufficient to declare that you know your direct suppliers. You must be able to demonstrate that you have made reasonable efforts to understand the entire chain.

Financial consequences become real

Penalties for non-compliance are becoming increasingly material. The CSDDD provides for civil liability. CBAM imposes fines for insufficient certificates. Incorrect origin statements lead to reassessments. The Deforestation Regulation allows fines up to 4 percent of annual EU turnover. For a mid-sized company with 100 million euros in EU turnover, the combined risks can run into the millions.

The five dimensions of supply chain transparency

Dimension 1: Who supplies what?

The first dimension is mapping the supplier chain: which suppliers and sub-suppliers deliver which materials and components? This sounds basic, but in practice many organisations lack a complete picture of the chain beyond the first tier. For effective compliance, you need insight into at minimum tier 1 (direct suppliers) and tier 2 (suppliers of your suppliers), and for high-risk products or regions down to tier 3 or deeper.

Dimension 2: Where is production located?

The second dimension is the geographic location of production. This is relevant for origin determinations, as the country of production determines which trade agreements and PSRs apply. For CBAM, as emission intensity and available default values differ by country. For due diligence, as the risk profile for human rights and environment varies significantly by region. And for the Deforestation Regulation, which requires geolocation data down to plot level.

Dimension 3: How is production carried out?

The third dimension concerns production processes. What materials are used, what operations are performed, and what energy sources are deployed? This is relevant for PSR calculations that determine whether a product enjoys preferential origin, for CBAM calculations that determine embedded emissions, and for due diligence that identifies potential negative impacts of production processes.

Dimension 4: What is the impact?

The fourth dimension is quantifying the impact: how much CO2 emissions are embedded in the product, what human rights risks have been identified in the chain, and what is the environmental burden of production? This information is needed for CBAM reporting, CSDDD due diligence, and ESG reporting.

Dimension 5: What is the evidence?

The fifth and perhaps most important dimension is evidence. All information about the supply chain must be supported by verifiable documentation: supplier declarations, production certificates, emission reports, audit reports, and geolocation data. Without evidence, transparency is nothing more than an assertion.

Implementation steps

Step 1: Risk assessment

Begin with a risk assessment of your supply chain. Identify which regulations apply to your organisation, which product categories carry the highest risk, which suppliers and regions require the most attention, and where the biggest gaps exist in your current knowledge of the chain.

Step 2: Map the supplier landscape

Map your supplier chain systematically. Start with tier 1 and work downward. Collect per supplier the name, registered address, and production location(s), the products supplied with HS codes, the country of origin per product, relevant certifications and registrations (REX, CBAM registration), and contact details for compliance-related communication.

Step 3: Set up data collection infrastructure

Design a systematic process for collecting and managing supply chain data. This includes a supplier portal where suppliers can provide information in a structured manner, standardised questionnaires aligned with the specific information needs per regulation, a central platform for storing and managing received data, and automated validation and reminders.

Step 4: Conduct due diligence

Conduct due diligence based on the collected data. Identify and assess risks per supplier and per region. Prioritise based on severity and likelihood. Take measures to mitigate identified risks and document the entire process.

Step 5: Monitoring and reporting

Implement an ongoing monitoring process. Supply chain transparency is not a one-time project but a continuous process. Changes in suppliers, production processes, regulations, and risk profiles require regular revision and updating of your data.

Technology as an enabler

Central compliance platform

A central platform combining all compliance data streams is essential for effective supply chain transparency. The platform must support supplier management, including onboarding, data collection, and monitoring. It must treat preferential origin, CBAM, due diligence, and deforestation in an integrated environment. And it must provide a complete audit trail with version control and documentation.

Automation

Automation accelerates the process and reduces errors. Automated matching of products against regulatory requirements, automatic signalling of regulatory changes affecting your products, automated reminders for expired declarations and certificates, and automatic aggregation of data for reporting purposes.

Data integration

Integration with existing systems reduces duplication of effort. Connection with the ERP system for product and supplier data, integration with customs systems for HS codes and trade transactions, connection with external data sources for risk profiles and emission default values, and linkage with certification registers such as REX and CBAM.

Common mistakes

Focusing only on tier 1

Most regulations require insight beyond the first supplier layer. Knowing only your direct suppliers is insufficient for CSDDD compliance and can also lead to incorrect origin determinations or CBAM calculations.

Treating data collection as a one-time project

Supply chain data ages quickly. Production processes change, suppliers switch sub-suppliers, regulations are amended. Treat data collection as an ongoing process, not a project with an end date.

Silo approach

Managing origin data, CBAM data, and due diligence data separately leads to inconsistencies, duplication of effort, and missed connections. An integrated approach saves time and increases data quality.

Starting too late

Building supply chain transparency takes time, particularly collecting data from suppliers in third countries. Start now, even if your information is still incomplete. An incomplete but structured picture is better than no picture.

No ownership

Assign a clear owner for supply chain transparency. Without ownership, responsibility fragments across departments and discipline erodes.

The business case for transparency

Compliance costs versus non-compliance costs

The investment in supply chain transparency is significant but pales compared to the costs of non-compliance. Beyond fines and reassessments, non-compliance leads to higher inspection frequencies, loss of preferential tariffs, exclusion from public procurement, reputational damage and loss of customer trust, and higher cost of capital as investors weigh ESG risks.

Competitive advantage

Organisations with a transparent supply chain have a competitive advantage. They can maximise the use of preferential tariffs, respond faster to regulatory changes, are more attractive to ESG-conscious customers and investors, and can identify and mitigate supplier risks earlier.

Operational efficiency

A structured approach to supply chain transparency also improves operational efficiency. Better insight into the chain leads to better procurement decisions, faster turnaround times during audits, less ad hoc firefighting, and higher data quality that benefits other business processes as well.

Sector-specific considerations

Manufacturing and industry

Manufacturing companies are hit hardest by the combination of rules of origin, CBAM, and due diligence. The complexity of their supply chains, often with dozens or hundreds of suppliers across multiple tiers, makes a systematic approach indispensable.

Trade and distribution

Trade and distribution companies act as a link between producer and end user. They must pass on information they do not generate themselves, requiring a seamless data chain from producer to importer.

Retail

Retailers with own brands are increasingly confronted with due diligence obligations across their entire production chain. The Deforestation Regulation directly affects them for products such as coffee, cocoa, and palm oil derivatives.

Outlook

The trend toward mandatory supply chain transparency will only strengthen in the coming years. The European Commission has announced further expansion of the CBAM product scope. The CSDDD will gradually apply to smaller companies. The Deforestation Regulation will likely be expanded to more product categories. And internationally, other jurisdictions are also working on comparable regulations.

Organisations that invest now in the foundations of supply chain transparency are prepared not only for current regulations but also for what is to come.

Conclusion

Supply chain transparency is the common denominator of the most important EU regulations for internationally operating companies. CSDDD, CBAM, the Deforestation Regulation, and tightened rules of origin all require that you know, document, and monitor your chain.

The question is not whether to invest in supply chain transparency, but how quickly you can begin. Every month of delay increases compliance risk and reduces the head start over competitors who are taking action now.

Next step

Download the supply chain transparency guide for a complete implementation handbook, a compliance matrix per regulation, templates for supplier communication, and a roadmap for the first 6 months.

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  • Export controls: Export controls cover the rules and checks that determine whether goods, parties, or transactions may be released.
  • Audit trail: An audit trail records who did what, based on which source data, and with what decision logic.
  • BOM: A BOM is the bill of materials: the structured composition of a product.