Introduction

The automotive industry stands at a crossroads. With its vast global supply networks, reliance on energy-intensive materials, and growing dependence on critical minerals for electrification, it has long been a focal point of sustainability debates. Now, the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) adds a new dimension to this transformation. Adopted in 2024 and expected to take effect in the coming years, CSDDD requires large companies to identify, prevent, mitigate, and account for adverse human rights and environmental impacts across their value chains.

For the automotive sector, this is not a marginal change. It affects everything from raw material sourcing in Africa and South America to battery production in Asia and final assembly in Europe and North America. The directive imposes binding obligations on EU-based automakers and indirectly on their global suppliers. This creates a paradigm shift in how cars are designed, manufactured, and brought to market. The following sections examine in detail the regulatory obligations for automakers, the ripple effects across global supply networks, the strategic responses already underway, and the long-term implications for resilience and competitiveness.

Regulatory obligations under CSDDD for automakers

Generally, all companies within the scope of the CSDDD will be required to adopt a Climate Transition Plan. This includes EU companies with more than 1,000 employees and a net worldwide turnover exceeding EUR 450 million, as well as non-EU companies generating a net turnover of more than EUR 450 million within the EU. This scope captures nearly all major automotive manufacturers. Beyond corporate headquarters, the directive requires companies to oversee their supply chains up to several tiers deep, introducing legal accountability for social and environmental risks that were previously treated as reputational rather than legal concerns.

For automakers, this means conducting risk assessments on high-impact areas such as:

• Critical minerals mining: Cobalt from the Democratic Republic of Congo (where child labor risks are documented), lithium from South America (with water scarcity implications), and nickel from Indonesia (with biodiversity concerns such as forest destruction, and environmental degradation).
• Metals production: Steel and aluminum industries contribute significantly to a vehicle’s carbon footprint since steel and aluminum accounts for about 7% of global CO2 emissions.
• Electronics and semiconductors: Sourcing often involves complex subcontracting in countries where labor rights enforcement is weak.
• Battery manufacturing: High energy demand and reliance on coal-based power in certain regions increase indirect emissions.

Automakers must also implement transition plans aligned with the Paris Agreement, integrating climate goals into corporate strategy. This entails disclosing Scope 1, 2, and relevant Scope 3 emissions, setting science-based targets, and publishing progress in sustainability reports. Failure to comply may result in fines set as a percentage of turnover and expose companies to civil liability claims from affected stakeholders.

The table below summarizes how CSDDD obligations intersect with the automotive value chain:

Implications for global supply networks

Unlike sector-specific regulations, CSDDD cuts across industries and borders. The automotive sector is particularly exposed because of its reliance on globally dispersed suppliers. It is said the average car contains more than 30,000 individual parts sourced from hundreds of suppliers.

This complexity means that compliance pressures will not stop at the EU’s borders. A wire harness supplier in Mexico, a battery module producer in South Korea, or a mining company in Chile may never directly sell in the EU but will still be required to meet EU due diligence standards if they supply to European carmakers. This effectively exports EU sustainability rules worldwide.

The supply chain implications can be divided into three tiers:

• Tier 1 (Direct suppliers): Component manufacturers and system integrators. They face the most immediate compliance requests from automakers, including contractual clauses on human rights, emissions disclosures, and audit cooperation.
• Tier 2 (Sub-suppliers): Producers of sub-components such as semiconductors, chemicals, or processed metals. They are often less visible but will now come under stricter monitoring.
• Tier 3 (Raw materials): Mining and primary processing industries where environmental and human rights risks are highest. These actors will see the steepest rise in compliance costs as they are required to provide traceability and certification.

Strategic responses by automakers

Facing these regulatory and operational pressures, automotive companies are not standing still. Several strategies are emerging:

1. Advanced traceability systems
Automakers are scaling up digital product passports (DPPs) and blockchain-based traceability to track raw materials from mine to final assembly. BMW, for example, has piloted blockchain solutions for cobalt supply chain transparency. Volkswagen and Mercedes-Benz are testing similar tools for batteries. These systems make it possible to verify compliance at multiple tiers without excessive manual audits.

2. Industry collaboration and shared standards
To reduce duplication, automakers are participating in initiatives like the Global Battery Alliance and the Responsible Minerals Initiative. These platforms establish common reporting standards, supplier assessment protocols, and shared data pools. This collective approach helps spread costs and ensures a level playing field.

3. Integrating CSDDD into procurement contracts
Procurement agreements increasingly include clauses that mandate supplier compliance with CSDDD principles. Automakers now evaluate suppliers not only on cost and quality but also on sustainability performance. Non-compliant suppliers risk contract termination. In some cases, OEMs are offering incentives such as long-term sourcing agreements or preferential financing to suppliers demonstrating leadership in ESG practices.

4. Investment in decarbonized materials
Several automakers are directly investing in low-carbon steel and aluminum production, recognizing that upstream emissions account for a large portion of vehicle life-cycle impact. For example, Volvo has announced partnerships with Swedish green steel startups using hydrogen-based production. Similar trends are visible for recycled aluminum and sustainable lithium extraction.

5. Supplier capacity-building
Recognizing that many suppliers lack the expertise or resources to comply, some automakers are offering training, technical assistance, and co-financing of compliance tools. This not only ensures smoother adoption but also strengthens long-term supplier relationships.

Conclusion

The EU’s Corporate Sustainability Due Diligence Directive is more than a compliance exercise. It is a structural shift that will reshape global automotive supply chains by embedding sustainability and accountability into every stage of production. For automakers, the stakes are high: failure to act could lead to regulatory penalties, reputational damage, and exclusion from increasingly sustainability-conscious markets. Yet for those who adapt, the directive offers an opportunity to build more resilient, transparent, and future-ready supply chains.

By investing in digital traceability, engaging in collaborative initiatives, and supporting suppliers in their transition, automakers can transform CSDDD from a compliance burden into a source of strategic advantage. In an era of tightening climate policies, geopolitical uncertainty, and shifting consumer expectations, supply chain sustainability will no longer be optional. It will be the foundation of competitiveness in the automotive industry of the future.

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