As businesses expand their reach across borders, the complexity of supply chains increases, often leading to hidden unethical practices. To address these issues, the European Union has introduced several regulations aimed at making companies more ethical and accountable, targeting specific supply chain issues and imposing stringent compliance requirements on companies. These regulations include the EU Deforestation Regulation 2023 (EUDR), the Packaging and Packaging Waste Regulation 2025 (PPWR), the EU Forced Labour Regulation (FLR), the Corporate Sustainability Due Diligence Directive (CSDDD), and the Corporate Sustainability Reporting Directive (CSRD). Each of these regulations addresses specific aspects of supply chain transparency and imposes compliance requirements on companies operating within the EU. This article explores the importance of supply chain awareness under these various targeted regimes.
Deforestation is a critical environmental issue contributing to loss of biodiversity and climate change. In the EU, products linked to deforestation are prevalent, making it essential to regulate and ensure sustainable sourcing practices. The EUDR aims to prevent products linked to deforestation from entering the EU market. Globally, 10 million hectares of forest are cut down every year—an area the size of Portugal. The EUDR requires companies to ensure that their products do not originate from recently deforested land or contribute to forest degradation. It applies to commodities such as cattle, cocoa, coffee, oil palm, rubber, soya, and wood. Companies must collect detailed information about the geographical location of the land where these commodities are produced and submit a due diligence statement to the Information System before placing products on the market. Noncompliance can result in significant penalties, including fines and the removal of products from the market. The regulation’s application to the commodities mentioned above means that companies dealing with these products will need to reassess their sourcing strategies. They will need to work closely with suppliers to verify the origins of their commodities and ensure compliance with the EUDR. This will require detailed information about the geographical location of the land where commodities are produced, which means companies must establish robust traceability systems.
Following pressure from industry, the European Parliament has adopted a one-year delay for the application of the EUDR, which will now apply as of December 30, 2025, to large operators and traders and June 30, 2026, to micro and small enterprises. The postponement aims to give third countries, member states, operators, and traders adequate time to meet their due diligence obligations, ensuring that commodities and products sold or exported from the EU are free from deforestation.
Another environmental challenge the EU aims to tackle is packaging waste. Vast volumes of packaging waste in the EU underscore the need for regulations promoting sustainable packaging practices. The PPWR repeals the previous packaging and packaging waste directive and amends other EU laws. It entered into force on February 11, 2025, and the majority of the provisions will apply by August 12, 2026. The PPWR will bring significant changes to the legislative framework and set ambitious targets. It is hoped that these will enhance “closed loop” recycling, reduce the use of primary natural resources, and lead to greater harmonization of measures among EU member states. The use of a regulation as opposed to a directive will make the provisions directly applicable across all member states, eliminating the need for individual countries to implement it through their own legislation.
The Regulation includes packaging reduction targets: 5% by 2030, 10% by 2035, and 15% by 2040, which will lead to member states legislating accordingly. It also covers bans on certain single-use plastic packaging types, such as for some food, individual portions (e.g., condiments), and very lightweight plastic carrier bags. The PPWR will impose various constraints and obligations related to packaging design, material use, and recyclability. Packaging will be required to be recyclable, with minimum recycled content targets for plastic packaging.
Companies will need to scrutinize their supply chains more closely to ensure compliance with the new regulations. This change will necessitate a thorough review of packaging materials, design processes, and recycling capabilities to meet the new standards. The introduction of packaging reduction targets and bans on certain single-use plastics will compel companies to innovate and find sustainable alternatives, and similarly the requirement for recyclable packaging with minimum recycled content targets will push companies to source materials that meet these criteria.
From a human rights perspective, a grave ethical concern being addressed at EU level is the use of forced labor within supply chains. Products made with forced labor in the EU market are the result of violations of fundamental human rights and the exploitation of vulnerable populations. On November 19, 2024, the Council of the European Union officially adopted the FLR, which bans the sale of products made with forced labor on the EU market. It will come into effect in late 2027. The final act was published in the Official Journal on December 12, 2024. It applies to any company selling within or into, or exporting from, the EU, regardless of size or location. The Regulation uses a definition of “forced labor” aligned with the International Labour Organization Conventions as any work or service exacted under threat of penalty without voluntary consent.
The determination of whether a product is made with forced labor will be made by the EU Commission or competent authorities of EU member states using a risk-based approach. They will have regard to the size and resources of the operators. The prohibition covers the entire life cycle of the product, ensuring no forced labor was used at any stage of production, manufacture, harvest, or extraction. If an investigation confirms forced labor, authorities will prohibit the sale and export of the products, order their withdrawal from the market, and mandate their disposal according to national and EU laws. Noncompliance with these decisions can result in significant penalties under national laws of EU member states. The legislation requires penalties to be effective, proportionate, and dissuasive, considering factors such as the gravity and duration of noncompliance, previous instances of noncompliance, the degree of cooperation with authorities, and any mitigating or aggravating circumstances, including financial benefits gained or losses avoided.
Finally, the requirement for companies to carry out due diligence on corporate sustainability topics is a crucial way in which supply chain responsibility can be enhanced. The CSDDD creates a substantive corporate duty for EU companies, and non-EU companies with significant EU activity, to meet such due diligence requirements throughout their supply chains. This directive focuses on mitigating adverse impacts on human rights and the environment. Companies are required to identify, prevent, and mitigate risks related to human rights violations and environmental harm in their operations and supply chains. These requirements are significant, and achieving compliance is likely to involve a considerable administrative burden. They include the duty to integrate due diligence into company policies and risk management systems, to identify and assess actual and potential adverse human rights and environmental impacts, and to prevent or mitigate potential impacts and bring to an end to or minimize actual impacts. Companies also may be required to receive contractual assurances from supply chain partners, which seem to confirm that their obligations will be complied with.
While the directive applies to EU member states, who must transpose it into their national law by July 25, 2026, it also means that non-EU companies must comply if they meet an EU-derived revenue test. This applies to both subsidiary and ultimate parent companies. It is clear the impacts of this directive are far-reaching. Non-EU companies that are potentially in-scope must navigate understanding how these new requirements interplay with their own domestic obligations.
The CSRD replaces the Non-Financial Reporting Directive 2014 (NFRD) and extends the scope of nonfinancial reporting to include all large companies and all companies listed on regulated markets, except for listed microenterprises. The CSRD requires companies to disclose information on their policies, risks, business models, and key performance indicators (KPIs) related to sustainability. This information must be included in their annual reports and be subject to audit. The directive also introduces more detailed reporting requirements and mandates the use of EU sustainability reporting standards. Additionally, companies may need to digitally tag their reported information to make it machine-readable.
Much like the legislative measures mentioned above, the CSRD aims to enhance transparency and accountability in corporate sustainability practices. It covers a wide range of sustainability topics, including environmental, social, and governance matters. The directive is designed to ensure that companies provide comprehensive and reliable information on their sustainability impacts, risks, and opportunities. This will help investors, stakeholders, and the public make informed decisions and promote sustainable business practices across the EU.
It is clear that transparency within supply chains is of increasing and crucial significance. These regulations represent a significant step forward in promoting ethical business practices and ensuring accountability within supply chains. However, they also pose challenges for companies, particularly in terms of compliance and the need to establish robust traceability systems. I predict that we will see increased collaboration between companies and their suppliers to meet these requirements, as well as a greater emphasis on sustainability and ethical practices in corporate strategies. One question that remains is how effectively these regulations will be enforced and whether they will lead to meaningful changes in supply chain practices. It will be interesting to follow how these developments unfold and the impact they will have on businesses operating within the EU.
