The long arm of EU law: Linking supply chains and ESG

The long arm of EU law

Possibly the most significant regulatory advances are being made by the EU with its command-and-control approach to ESG issues. The EU’s Green Deal is casting a wide net that stretches beyond its borders. Recent initiatives range from the market mechanisms CBAM and the EU ETS for pricing carbon, to the CSRD’s disclosure and transparency changes to the Accounting Directive, as well as requirements for supply chain due diligence under the CSDDD and the Forced Labour Regulation, to name just a few. Layered onto this are quantitative changes under FuelEU for maritime shipping emissions, ReFuelEU for aviation, the Renewable Energy Directive and wider environmental initiatives under the EU’s ‘Fit for 55’ scheme.

The cumulative effect of the EU’s various ESG and sustainability laws is to set a new benchmark for regulating the conduct of companies within and outside the EU to gain or maintain EU market access and harmonize standards. Many governments around the world are looking to adopt the EU’s drive for regulatory controls, seizing the opportunity to regulate sustainability while supporting clean technology development and building in-country capacity to future-proof certain sectors. What does this all mean for the transportation sector?

The transportation sector is likely to find itself deeper in the eye of the regulatory storm. The “long arm” effect of EU laws is reaching through the entire length of supply chains, extending the EU’s extraterritorial reach and catching the transportation sector.

The EU Green Deal is significantly impacting the sector through its focus on global supply chains by promoting sustainability, transparency and innovation. Its influence is driving other countries to adopt similar regulations, creating a ripple effect that aims to encourage responsible business practices worldwide.

Stakeholders are also demanding deeper and more transparent disclosure of corporate engagement when evaluating, monitoring and addressing environmental and social risks and impact management. This is creating a complex regulatory landscape where participants in the transportation sector must navigate multiple overlapping frameworks. As an integral part of the complex and interlinked global supply chain, facilitating global trade means that the transportation sector must secure and maintain both the environmental and social licenses needed to operate.

This does also presents opportunities - for advancements in technologies, upgrading transportation infrastructure and innovating solutions to future-proof (and climate-proof) the sector. Sustainable aviation fuels, electrification of ground transportation, upgrading maritime vessels and port infrastructure, low-carbon corridors and using AI for efficiencies are facilitating positive contributions the transportation sector can make for environmental and social sustainability.