CBAM: Procurement Strategies to Comply with EU Sustainability Regulation

The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) is set to change the game for high-carbon industries, imposing tariffs on carbon-intensive goods entering the EU.

As EU takes steps to secure a greener future, industries, specially manufacturing, must rethink their procurement and supply chain strategies to stay compliant and competitive.

The Impact of CBAM

CBAM’s goal is to level the playing field for EU producers by imposing a carbon levy on certain imported goods, similar to EU’s Emissions Trading System (ETS). The goal is to prevent carbon leakage, which refers to companies relocating operations to countries with less stringent environmental regulations.

Initially, CBAM targets industries such as iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen, but by the end of 2025, its reach will expand to include companies that make lime, glass, ceramics, pulp, paper, cardboard, acids, plastics, and bulk organic chemicals.

The Big Challenge: Emissions Reporting

The regulation, which aims to cut emissions and encourage cleaner production practices, presents a significant challenge, which is that businesses need to report actual emissions data for their imported goods from the third quarter of 2024.

Companies must now work closely with suppliers to collect accurate emissions data so that they can measure the extent to which the CBAM will impact them. This process requires collecting both direct and indirect emissions data. But many suppliers don’t have all the required data and sometimes neither the capability to document their carbon emissions.

Strategic Approaches for Procurement

High-carbon industries in the EU need to adopt effective procurement and supply chain strategies to enable data collection from suppliers as well as to develop a road map to achieve CBAM compliance.

• Collect Relevant Supplier Data

The process of data collection is intensive and will require procurement to collaborate with suppliers. Organizations will have to ensure their suppliers, especially the non-EU ones, understand CBAM requirements and can provide the necessary emissions data. Companies should consider working with ESG supply chain consultants with relevant experience to speed up the process.

• Reevaluate Supplier Networks

This is a good time for enterprises to reassess their partnerships and consider sourcing materials from EU-based suppliers, those with capabilities to calculate emissions and those with lower carbon emissions. It can reduce the administrative burden of collecting emissions data from unprepared, offshore suppliers with limited ESG awareness and capabilities. It will also help align procurement strategies with the organization’s larger sustainability goals.

• Adopt ESG Technology

Investing in technology is crucial for emissions tracking and reporting. This can be done by integrating ESG tools into existing procurement software or by plugging them into the wider technology ecosystem. These tools can collect, centralize, track and report ESG data and progress, making CBAM compliance easier.

• Embed ESG Goals

In the long term, it is vital that companies embed their ESG goals into procurement strategies. Businesses should set decarbonization targets and empower category managers to drive sustainability goals. Procurement teams will need to be trained to evaluate and select suppliers based on their sustainability practices and carbon footprint. They will have to work with and monitor suppliers closely to manage and track emissions, as well as ensure they implement ESG programs.

• Develop a Long-Term Plan

A long-term CBAM compliance plan should be put in place to fulfill current and potential future regulatory requirements. Companies should anticipate the expansion of CBAM requirements and prepare by ensuring that they have complete visibility into all their imports.

Prep in Time Saves Nine

CBAM represents a significant change for high-carbon industries in the EU. There are considerable challenges, but a forward-thinking, proactive approach, executed by procurement, will help companies navigate the complexities of CBAM, be compliant, mitigate risks and contribute to a green global future.

Download our guidebook on how to navigate Carbon Border Adjustment Mechanism (CBAM)