Risk & Economy » Climate change » Carbon Border Adjustment Mechanism: CFOs need to reassess procurement models

Carbon Border Adjustment Mechanism: CFOs need to reassess procurement models

In this article Simon Thompson, Vice President of Sales UKI and Nordics at JAGGAER explores how procurement can improve transparency through accurate data analysis and the introduction of AI-based automation. 

The European Union’s Carbon Border Adjustment Mechanism (CBAM) will end its transition period in December 2025. Aimed at slashing carbon emissions, CBAM puts a price tag (15%-30% price increase) on the carbon emissions embodied in certain imported products: Iron and Steel, Aluminium, Cement, Fertilisers, Electricity, Hydrogen.  The ripple effect is significant as it requires businesses to improve the way they calculate the embodied emissions of imported goods through grater supply chain transparency.

As CFO’s play a pivotal role in sustainability and carbon management to lead businesses towards a greener economy with innovative strategies, it is key they ensure their procurement is working with suppliers to understand their emission reduction strategies, explore ways to jointly minimize the carbon footprint of sourced materials and achieve compliance. 

Efficient and sustainable carbon management has climbed to the top of the agenda, driven by new regulations and the push to meet the EU’s 2030 objectives, which include reducing the EU’s greenhouse gas emissions by 55% by 2030, compared to 1990 levels.

Every business is therefore called upon to play its part and comply with the new regulations and strategies that are being rolled out to anticipate the impacts of climate change, preventing or minimising damage wherever possible. The CFO’s key role as financial custodians is to ensure that they lead carbon reduction strategies that stimulate growth and renewal, mitigating risks deriving from sanction for non-compliance, unreliable supply chains, and much more.

CBAM: raising the bar

One of the measures CFOs will urgently need to sit up and take notice of is the European Union’s Carbon Border Adjustment Mechanism (CBAM) ends its transition period in December 2025 and represents a change from the present EU Emissions Trading System (ETS) which sets a cap on the total amount of greenhouse gases that can be emitted by the installations and aircraft operators covered by the system. The new regulation takes into account so-called ‘carbon leakage’ which occurs when companies based in the EU move carbon-intensive production abroad to countries where less strict greenhouse gas emission policies are in place.

CBAM aims to redress the balance at a global level dis-incentivising the transfer of carbon intensive production abroad. The objective is to put a fair price on the emissions produced during the production of carbon intensive goods that are entering the EU, thus encouraging cleaner industrial production the world over. Specifically, CBAM covers businesses importing goods that involve the production of: Iron and Steel, Aluminium, Cement, Fertilisers, Electricity, Hydrogen.

As of 2026, EU importers of goods covered by CBAM will need to register with national authorities and buy CBAM certificates. EU importers will declare the emissions embedded in their imports and surrender the corresponding number of certificates each year. Deductions will be available for importers that can prove that a carbon price has already been paid during the production of the imported goods.

CFOs take action now

Businesses thus need to start immediately assessing the emissions of imported goods so that they can work with suppliers to curb emissions, face potentially higher costs and possible trade barriers with a clear strategic outlook. CFOs can turn this challenge into an opportunity by leveraging their role as custodians of financial data and reporting to discover opportunities in the evolving regulatory landscape, while showcasing their ability to link sustainable practices and ESG targets with growth to stakeholders and the wider market. CFOs thus play a key role not just in setting ESG strategy but in safeguarding business competitiveness, building reputation and improving investor relations.

CFOs need to ensure that procurement works closely with suppliers to understand their emission reduction strategies, explore ways to reduce the carbon footprint of sourced materials, collect and trace the data required to achieve compliance. As CBAM incentivizes sourcing from low-carbon footprint suppliers, procurement may also need to explore alternative suppliers in regions with tougher sustainability regulations or draft new contracts with those investing in clean technologies.

Automation for accurate reporting

Fortunately technology is available to assist in this compliance journey several ways: from helping automate the collection of vast volumes of data from suppliers, to identifying areas where improvements are needed and evaluating suppliers’ sustainability practices. From smooth data ingestion and eProcurement systems that ensure supplier certifications are always up to date, automation can help businesses save multiple man-hours, freeing up staff for more value-add tasks as well as reducing the risk of human error and improving accuracy in reporting. In addition to this, technology can automatically alert suppliers reminding them to send updated certificates or missing information.

Identifying and completing missing data automatically also eliminates the need for questionnaires that prove time-consuming on both the supplier and purchaser side.  Creating an environment where information is easily shared also helps create a more engaging and constructive relationship with suppliers that spend less time in cumbersome reporting and questionnaire completion, while benefitting from the ability to address potential disruptions ahead of time. All this is key to creating compliant quarterly CBAM reports that are ready for submission to the EU regulator.

CFOs play a crucial role in driving businesses’ sustainability strategies and meeting reporting obligations so more accurate reporting will not only help avoid carbon-leakage, but can also drive competitive advantage and protect businesses from costs associated with unsustainable suppliers. The clock is ticking and procurement solutions that improve transparency in time for mandatory CBAM reporting are already available for CFOs embracing sustainability.

Simon Thompson is the VP Sales Northern Europe at JAGGAER. With over 20 years of experience in the provision of technology solutions for Commercial, Not-For-Profit and Public Sector Organisations, Simon leads JAGGAER’s UK, Nordic and Benelux Commercial teams. He strives to drive change through the delivery of value that has a meaningful impact on Cost Optimisation, Supply Chain Resilience and Risk Mitigation.

[1] EU Commission, 2030 targets- EU policy, strategy and legislation for 2030 environmental, energy and climate targets, last accessed 02.07.2024,

Was this article helpful?

Comments are closed.

Subscribe to get your daily business insights