Key takeaways:

• • • Only IEEPA鈥慴ased tariffs are up for refund 鈥� Refunds will flow electronically to importers of record through ACE, the government鈥檚 digital import/export system, but only once CBP鈥檚 process is finalized.

    • Liquidation and protest timelines are now critical 鈥� An organization鈥檚 tax concepts that directly influence which entries are eligible and how long companies have to protect claims.

    • Tax functions must quickly coordinate with other corporate functions 鈥� In-house tax teams need to coordinate with their organization鈥檚 trade, procurement, and accounting functions to gather data, assert entitlement, and get the financial reporting right on any tariff refunds.

WASHINGTON, DC 鈥� When the United States Supreme Court issued its much-anticipated ruling on President Donald J. Trump鈥檚 authority to impose mass tariffs under the International Emergency Economic Powers Act (IEEPA) in February it set the stage for what it to come.

The Court ruled the president did not have authority under IEEPA to impose the tariffs that generated an estimated $163 billion of revenue in 2025. In response, the Court of International Trade (CIT) issued a ruling in requiring the U.S. Customs and Border Protection (CBP) to issue refunds on IEEPA duties for entries that have not gone final. That order, however, is currently suspended while CBP designs the refund process and the government considers an appeal.

At聽the recent , tax experts discussed what this ruling means for corporate tax departments, outline what is and isn鈥檛 a consideration for refunds and the steps necessary to apply for refunds.

As panelists explained, the key issue for tax departments is that only IEEPA tariffs are in scope for refund 鈥� many other tariffs remain firmly in place. For example, on steel, aluminum, and copper; Section 301 tariffs on certain Chinese-origin goods; and new of 10% to 15% on most imports still apply and will continue to shape effective duty rates and supply chain costs.

So, which entities can actually get their money back?

Legally, CBP will send refunds only to the importer of record, and only electronically through the government鈥檚 digital import/export system, known as the Automated Commercial Environment (ACE) system. That means every potential claimant needs an with current bank information on file. And creating an account or updating it can be a lengthy process, especially inside a large organization.

If a business was not the importer of record but had tariffs contractually passed through to it 鈥� for example, by explicit tariff clauses, amended purchase orders, or separate line items on invoices 鈥� they may still have a commercial basis to recover their share from the importer. In practice, that means corporate tax teams should sit down with both the organization鈥檚 procurement experts and its largest suppliers to identify tariff鈥憇haring arrangements and understand what actions those importers are planning to take.

Why liquidation suddenly matters to tax leaders

As said, the Atmus ruling is limited to entries that are not final, which hinges on the . CBP typically has one year to review an entry and liquidate it (often around 314 days for formal entries) with some informal entries liquidating much sooner.

Once an entry liquidates, the 180鈥慸ay protest clock starts. Within that window, the importer of record can challenge CBP鈥檚 decision, and those protested entries may remain in play for IEEPA refunds. There is also a 90鈥慸ay window in which CBP can reliquidate on its own initiative, raising questions about whether final should be read as 90 days or 180 days 鈥� clearly, an issue that will matter a lot if your company is near those deadlines.

Data, controversy risk & financial reporting

The role of in-house tax departments in the process of getting refunds requires, for starters, giving departments access to entry鈥憀evel data showing which imports bore IEEPA tariffs between February 1, 2025, and February 28, 2026. If a business does not already have robust trade reporting, the first step is to confirm whether the business has made payments to CBP; and, if so, to work with the company鈥檚 supply chain or trade compliance teams to access ACE and run detailed entry reports for that period.

Summary entries and heavily aggregated data will be a challenge because CBP has indicated that refund claims will require a declaration in the ACE system that lists specific entries and associated IEEPA duties. Expect controversy pressure: As claims scale up, CBP resources and the courts could see backlogs. If that becomes the case, tax teams should be prepared for protests, documentation requests, and potential litigation over entitlement and timing.

On the financial reporting side, whether and when to recognize a refund depends on the strength of the legal claim and the status of the proceedings. If tariffs were listed as expenses as they were incurred, successful refunds may give rise to income recognition. In cases in which tariffs were capitalized into fixed assets, however, the accounting analysis becomes more nuanced and may implicate asset basis, depreciation, and potentially transfer pricing positions.

Coordination between an organization鈥檚 financial reporting, tax accounting, and transfer pricing specialists is critical in order that customs values, income tax treatment, and any refund鈥憆elated credits remain consistent.

Action items for corporate tax departments

Corporate tax teams do not need to become customs experts overnight, but they do need to lead a coordinated response. Practically, that means they should:

• • • confirm whether their company was an importer of record and, if so, ensure ACE access and banking information are in place now, not after CBP turns the refund system on.
    • map which entries included IEEPA tariffs, identify which are non鈥憀iquidated or still within the 180鈥慸ay protest window, and file protests where appropriate to protect the company鈥檚 rights.
    • inventory all tariff鈥憇haring arrangements with suppliers, assess contractual entitlement to pass鈥憈hrough refunds, and align with procurement and legal teams on a consistent recovery approach.
    • work with accounting to determine the financial statement treatment of potential refunds, including whether and when to recognize contingent assets or income and any knock鈥憃n effects for transfer pricing and valuation.

If tax departments wait for complete certainty from the courts before acting, many entries may go final and fall out of scope. The opportunity for tariff refunds will favor companies that are data鈥憆eady, cross鈥慺unctionally aligned, and willing to move under time pressure.

You can find out more about the changing tariff situation here

Key insights:

• • • Debanking can have harsh consequences 鈥� Losing a bank relationship can abruptly cut off finances and damage reputations, often excluding people and firms from basic economic life, often without a clear explanation.

    • The core tension for banks 鈥� Financial institutions need to balance the risk between AML/KYC and fraud versus preserving fair access to financial services. As reputational and ideological factors enter into decision-making, concerns about discretion and due process grow.

    • Policy is moving toward guardrails 鈥� Already many policymakers are pushing for clearer documentation, transparent notices, a common-sense path to appeal, and a bright line between financial鈥慶rime risk and other risks.

Financial institutions serve as the foundation of the modern economy. Nearly every transaction 鈥� from paying for services to buying a cup of coffee 鈥� depends on an institution that facilitates or underwrites these exchanges. In this interconnected system, access to banking relationships has become essential for meaningful economic participation for individuals and organizations.

This dependence creates significant consequences for society. Without access to banking services, both businesses and individuals face significant barriers to participating in the economy. Businesses cannot easily pay their employees, fulfill tax obligations, or conduct basic commercial activities. Similarly, individuals struggle to receive payments and manage their personal finances. When institutions terminate these relationships, they effectively exclude people and businesses from the broader economic system. This reality applies to both traditional banks and modern FinTech companies.

Given banking relationships’ critical role in economic participation, the circumstances under which these relationships end deserve careful examination. Financial institutions face ongoing challenges in determining which customers they can serve while meeting regulatory obligations and business objectives. This decision-making process has evolved and can ultimately lead to what experts call debanking 鈥� a practice that involves closing accounts and terminating interactions between debanked individuals or organizations and the financial institutions doing the debanking.

What debanking is 鈥� and isn’t

The impact of debanking extends far beyond the inconvenience of closing an account. Affected individuals may face extended periods without access to essential funds needed for survival, and they often suffer lasting reputational damage that may cause other financial institutions to reject them as well. Most concerning, however, is that banks rarely provide clear explanations for debanking decisions, leaving individuals unable to address potential misunderstandings or prevent future occurrences.

Without access to banking services, both businesses and individuals face significant barriers to participating in the economy.

This lack of transparency and the cascading effects of banking exclusion demonstrate the profound power that financial institutions hold in determining who can fully participate in the modern economy. This also causes concern about who holds this power and how it can ultimately be kept in check.

Not surprisingly, the concept of debanking has become a contentious issue in the financial sector, with proponents and critics presenting varying perspectives on its implications. At its core, debanking most often occurs when financial institutions terminate or refuse to establish customer relationships, often due to concerns about risk management or regulatory compliance.

Financial institutions argue that debanking is a necessary measure to mitigate potential risks, such as money laundering, terrorist financing, and other fraudulent activities by certain individuals or businesses. By terminating these illicit customer relationships, banks aim to protect themselves from reputational damage, financial losses, and regulatory penalties while maintaining financial system integrity and adhering to anti-money laundering (AML) and know-your-customer (KYC) regulations.

Critics, on the other hand, argue that debanking can have unintended consequences, particularly for marginalized communities and individuals who may not have access to alternative financial services. This can lead to financial exclusion, making it difficult for people to access basic banking services, such as deposit accounts, credit, and payment processing services.

However, the scope and application of debanking practices have expanded beyond traditional risk-based criteria. Questions have emerged regarding the appropriateness of account closures based on reputational concerns, political associations, or ideological considerations. This broader application has intensified public discourse about the boundaries of institutional discretion and the potential implications for financial inclusion.

Policymakers now are working to ensure that banks can address genuine risks without discriminating against customers based on their lawful views.

To navigate this issue, financial institutions need to follow a balanced approach. This involves enhancing transparency, providing channels for appeal or alternative services, and refining regulations to define acceptable grounds for debanking. The goal is to maintain a secure and inclusive financial system that effectively manages risk while protecting the interests of ordinary citizens and legitimate businesses.

Policymakers get involved

In response to concerns that non-financial factors may influence these decisions, an Executive Order was issued by the Trump administration in August to establish clearer guidelines for banking institutions, requiring that account management decisions be based primarily on financial and risk-related criteria. The order seeks to standardize practices across the industry and provide greater transparency in the decision-making process for account closures and financial service terminations.

In September, at the Association of Certified Anti-Money Laundering Specialists (ACAMS) Assembly held in Las Vegas, Mike Greenman, Senior Vice President and Chief Counsel of Financial Crimes Legal at US Bank, emphasized the critical importance that financial institutions present clear documentation for when and how debanking decisions were made about specific industries. Greenman strongly advised institutions to “always separate financial crime risk from other risks.”

Looking ahead at debanking

The issue of debanking has garnered attention due to high-profile cases and concerns about potential misuse. Investigations in several countries have found no evidence of widespread politically motivated debanking, but the perception of potential abuse has led many critics to re-examine this practice. Policymakers now are working to ensure that banks can address genuine risks without discriminating against customers based on their lawful views.

To navigate this issue, a balanced approach is necessary, one that involves enhancing transparency, providing channels for appeal or alternative services, and refining regulations to define acceptable grounds for debanking. The goal for financial institutions should be to maintain a secure and inclusive financial system that effectively manages risk while protecting the interests of ordinary citizens and legitimate businesses.

You can find out more about the regulatory challenges that financial institutions face here

It appears that this may be the case for sustainability practitioners as they face intense workloads from the explosion of upcoming environmental, social & governance (ESG) regulatory requirements. , the global sustainability manager at EnerSys 鈥� a leading industrial battery manufacturing and energy storage company 鈥� is one of these leaders at the forefront of leveraging AI. In fact, she and her colleagues have been using AI to enhance their company鈥檚 sustainability data collection and reporting processes for the last 18 months.

Their innovative approach first started with collecting Scope 1 and Scope 2 emissions and resource consumption data. EnerSys uses a platform called , which employs heat map-based machine learning to extract key information from utility bills at their 180 sites worldwide. This AI-powered system has significantly improved data accuracy, auditability, and efficiency in collecting Scope 1 and 2 emissions data; and, according to Sivulka, contacts at all 180 sites 鈥渦pload PDFs of their utility bills, which the AI then processes to extract data such as date range, usage amount, cost, and units of measurement. The AI also flags anomalies and variabilities, which has been instrumental in helping us collect our data in a traceable and auditable way.鈥�

The sustainability team at EnerSys is also piloting ESG Flo鈥檚 compliance platform, which contains project management tools supplemented by AI to help companies meet upcoming ESG regulations and disclosure requirements. The platform uses AI to populate answers to similar disclosure questions across different ESG frameworks, saving time and effort.

[Once contracts are uploaded] the AI then extracts data such as date range, usage amount, cost, and units of measurement. The AI also flags anomalies and variabilities, which has been instrumental in helping us collect our data in a traceable and auditable way.鈥�

In addition, EnerSys is using ChatGPT Enterprise to analyze large datasets related to sustainability metrics, including Scope 1 and 2 emissions, travel data, and waste data. This generative AI (GenAI) tool is helping the team members uncover insights more quickly than manual analysis. They are also using it to assist in answering customer questionnaires and surveys about their sustainability practices. By uploading EnerSys sustainability reports and internal policies to the ChatGPT Enterprise platform, the team can generate responses to customer inquiries more efficiently, although human review is still necessary to ensure accuracy. Sivulka estimates that the tool has cut the time spent on questionnaires by roughly 50%.

Looking ahead, EnerSys plans to explore using ChatGPT Enterprise to help write portions of the company鈥檚 next sustainability report and customize storytelling for various types of stakeholders. The team also is considering using AI to review its Climate Disclosure Project (CDP) questionnaire responses for potential improvements and gap identification.

Actions to overcome issues of trust and accuracy

With trust and accurate data continuing to be key concerns for using GenAI, Sivulka says that she and her colleagues are proactively addressed these issues through a couple key steps:

Prioritize internal collaboration from the beginning 鈥� EnerSys took a collaborative, cross-functional approach to address concerns and implement AI tools for sustainability purposes. When exploring the use of AI, they partnered with key stakeholders including the company’s IT, legal, internal audit, and compliance teams to thoroughly evaluate risks and establish proper controls. This allowed the company to customize cybersecurity and data privacy safeguards specific to their use cases. For example, EnerSys coded its ChatGPT Enterprise implementation to flag and reject requests involving proprietary or material information.

Provide training to employees 鈥� Employees utilizing AI at EnerSys received comprehensive training on the responsible use of GenAI tools like ChatGPT Enterprise. The training focuses on several key areas, such as how to effectively engineer prompts, learning cybersecurity best practices and data privacy protocols, and how to identify potential biases or inaccuracies in AI-generated content.

Further, employees were taught to always have a human review any AI outputs before using the data externally; and they were instructed on what types of information should not be entered into the system in order to protect proprietary data. Employees had to sign documents acknowledging their understanding of proper AI usage guidelines, while ongoing collaboration with IT, legal, and compliance teams helps the organization utilize AI safely and ethically.

Guidance to get started

Overall, Sivulka says that her advice to her peers at other companies is to leverage AI cautiously but proactively to stay ahead of the curve, as sustainability teams will likely need to adopt these tools to keep up with increasing reporting and data collection demands. Specifically, sustainability team leaders would be wise to:

Partner across the enterprise 鈥� Sivulka emphasizes the importance of cross-functional collaboration when exploring AI for sustainability purposes. She advises against operating in silos and recommends partnering closely with risk functions to scope out feasibility, mitigate risks, and set up AI tools safely. This collaboration was critical for her team in implementing AI solutions like ESG Flo and ChatGPT Enterprise among her team.

Engage actively with software vendors 鈥� Sivulka encourages sustainability professionals not to be afraid to talk with AI software providers, even if the professionals don’t have a strong technical background in AI or coding. Many tools are designed to be user-friendly for non-technical users, and AI software providers are often eager to discuss new ways AI can help individual businesses and address specialized needs.

Make human review mandatory 鈥� Sivulka stresses the importance of treating AI tools like ChatGPT as you would a human employee, particularly when it comes to reviewing work. She notes that humans are not always accurate and can have biases, so AI outputs require similar scrutiny. “I think you just have to be aware of it,鈥� Sivulka says. 鈥淲e have been trained to know how to flag or how to see any sort of bias or lack of accuracy.” She advises having humans review all AI-generated content before using it, in the same way as managers review their employees’ work.

As AI continues to revolutionize sustainability practices, companies like EnerSys are at the forefront of this technological integration. By leveraging AI tools for data collection, reporting, and analysis, EnerSys demonstrates how these technologies can significantly enhance efficiency and accuracy in an organization鈥檚 sustainability efforts.

You can read more ESG Case Studies here.

This is especially important when business seek to expand into other geographic areas or markets. At the early stages of a site selection process, such as taxes, costs, labor and community characteristics, utilities, logistics and transportation, and facility-specific requirements, among others, to choose their best option. Nevertheless, the heightened scrutiny from investors, consumers, and regulatory bodies for sustainable and ethical practices makes it crucial now to factor ESG into the equation. In this sense, companies should take into consideration how their operations in a specific location might impact the local environment, biodiversity, or communities and look for ways to mitigate any adverse effects.

The escalating demand for ESG compliance in the United States and Europe is compelling companies around the world to map their supply chains to ensure a responsible business environment. As part of a broader ESG landscape review, companies should do comprehensive mapping of the supply chains for any new site under consideration, tracing the origins of their raw materials, identifying potential risks, and assessing the environmental and social impacts of their operations.

Relevance of ESG in site selection in Latin America

Latin America, with its rich biodiversity, abundance of natural resources, and diverse social groups, presents a unique opportunity for companies looking to set up a project. Latin America鈥檚 comparatively lower labor costs make it an attractive destination for manufacturing and service industries seeking cost-efficient operations without compromising quality. Additionally, the region鈥檚 increasing infrastructure developments, trade agreements, and strategic geography greatly contribute to a conducive business environment, making the region a promising option for investors.

Further, Latin America has made strides to address ESG concerns, with notable advancements. For example, , and most recently have adopted green taxonomies, while other countries, like Brazil, are expected to follow in the near future. Indeed, Brazil has made under the International Sustainability Standards Board鈥檚 International Financial Reporting Standards 1 and 2 for all publicly traded companies starting in 2026.

Several other countries in the region have also enacted domestic laws that, although not explicitly labeled as ESG, involve environmental, social, or corporate governance aspects. These regulations carry substantial implications that investors need to acknowledge, some of which should be considered in the early stages of choosing the geographical location for a new project.

Differing laws throughout the region

Interestingly, countries in Latin America have different environment-related tax laws that won鈥檛 have an equal impact on a company鈥檚 financial performance. With the election of Colombian President Gustavo Petro in 2022 and his green agenda, the country on the oil and gas sectors. And addresses the reduction of atmospheric pollution and greenhouse gases; while in Mexico, , each with different fees and targets.

According to each project鈥檚 profile and needs, companies and firms can also benefit more in certain places than others. Brazil鈥檚 ongoing efforts to 鈥� thanks to a cleaner energy grid and emerging green hydrogen 鈥� present a unique opportunity for procurement of materials with low embodied carbon. While some countries are working to develop carbon markets, in the region that has an active regulated market.

Moreover, companies鈥� carbon footprints and emissions can be reduced if supply chains are brought closer together or located strategically. This information is not only commonly disclosed in ESG reporting but need also required to be reported in and Pollutant Release and Transfer Registry (PRTR).

Due to the growing efforts to promote a sustainable business environment, the European Union requires companies intending to supply the European markets to comply with specific regulations, some involving land use change. The , for example, requires companies that sell seven commodities 鈥� soy, cattle, palm oil, wood, cocoa, coffee, and rubber, most of which are extensively produced in Latin America 鈥� to prove that their production does not come from or result in deforestation or forest degradation.

Regarding social responsibility and community engagement, foreign companies or firms coming into Latin America need to bear in mind the legally binding international treaties and agreements of the region. Latin America is home to numerous indigenous communities, many of which have suffered from marginalization and displacement. For this, was designed to protect their rights and territories. Further, , signed and ratified by many countries in the region, requires not only a certain level of protection of the environment, but also promotes public participation, transparency, and access to justice in environmental matters.

Going beyond traditional procedure to ensure success

Because of the uniqueness of each country鈥檚 legal framework and the advancing dynamics of ESG, today鈥檚 companies should undertake new and effective methods to map and address as many of the ESG aspects of a new project as possible, says , a legal expert with an extensive background on ESG matters. Based on her experience and perspective, Owens says that lawyers should conduct a thorough landscape assessment of the legal ESG parameters that apply to the site selected, looking at rules and requirements related to the environment (including biodiversity), social communities, and governance. As part of the analysis, Owen advises lawyers to ideally look at:

• • • The national, state, and local or municipal regulations around ESG, such as 惭别虫颈肠辞鈥檚 state-level greenhouse gas emission taxes
    • The environmental classification for the area to determine whether it falls within any environmental special zoning
    • The proximity to indigenous communities and whether engagement strategies are required
    • The title to the land to ensure clear title and ownership
    • The projections for carbon emissions, whenever possible, to better understand whether the project would fit within stated corporate targets
    • The local regulations on water, land use, waste management, emissions, and biodiversity

The lawyer on the site selection team can be an integral link between corporate subject matter experts and the new local regulatory requirements, Owens says, adding that companies having professionals who know the laws on their teams would then be in a better position to determine if the proposed location would advance a company鈥檚 sustainability goals as well as its bottom line 鈥� or not.

Considerations for the future

Countries in Latin America not only have their own legal structures that pose relevance for investors, but their ESG-related regulations must be taken into account. The region is rich in biodiversity, but also in regulatory diversity 鈥� and a comprehensive analysis of the different incentives, benefits, and legal obligations will be key for any planned project to thrive.

Countries across the region are not waiting for the US or Europe to lead the way on ESG. They are taking action on their own and will continue to do so, each with their distinct agenda and goals. Discrepancies between laws and enforcement levels across countries will raise further challenges.

Indeed, the resulting compliance patchwork may not necessarily advance ESG goals, but it is a reality that legal practitioners and businesses in the Americas need to be aware of 鈥� and learn how to navigate.

Indeed, research shows that emissions in a company’s than the emissions directly produced by the company and account for more than 70% of the total emissions.

Regulators from the European Union to are requiring the collection of Scope 3 data, and public companies are expecting suppliers to provide their emissions data. In fact, 90% of the FTSE 100 have said will only work with suppliers that share their environmental, social & governance (ESG) credentials with the company, according to , a provider of corporate performance software.

Collecting comparable and quality data, however, is a complex and challenging process for many companies. This issue often arises due to several factors, including determining which part of the company owns the data that must be collected from multiple sources within a supply chain. This difficulty is notably pronounced within the consumer goods sector in which there’s often limited visibility into the activities of third-party entities engaged in the production process.

Another complicating factor is understanding how robust the data is and how to make it audit-grade in order to comply with regulatory requirements, says Hein Scholten, Senior Director of ESG Strategy at OneStream Software.

Spend-based approach vs. activity-based approach

Nonetheless, businesses are striving to address data gaps to better track their Scope 3 emissions by adopting that guide companies to estimate their carbon footprint based on the economic value of goods they produce. This approach involves collecting financial data typically of higher market value and total expenditure because it has the most significant financial impact on the organization. These data sets are then used in carbon accounting to estimate total GHG emissions.

While the applicability of a spend-based approach is by policymakers and investors, there is a significant challenge to benchmarking Scope 3 data using this method. The calculated figures are often based on assumptions and estimates to fill data gaps and don鈥檛 account for unforeseen events such as supply chain disruptions that can impact emissions in ways that were not accounted for in the initial calculations. The spend-based approach might not align with the actual emissions that occur in real-world practices and therefore do not serve as preventive measures to reduce emissions over the long-term.

The , on the other hand, instead measures the amount of emissions associated with a specific activity, such as production volumes, waste disposal, and electricity usage. This quantitative approach gives a more accurate understanding of the relative magnitudes of various Scope 3 activities because it takes into consideration both high and low market value products.

This is very important because low-cost products are often associated with higher risks and larger GHG emissions due to the use of lower quality of raw materials to cut costs, less efficient technologies that consume more energy, and the final product being by nature more disposable, for example.

The challenge, however, is that activity data must be provided by suppliers, particularly sub-tier suppliers that mostly handle production in the supply chain but do not directly engage with the reporting company. Sub-contractors are often smaller in size with limited capital to invest in advanced tracking systems or to hire dedicated personnel to manage data, more so when handling . This hinders their ability to effectively manage data for GHG emissions purposes.

A recent 成人VR视频 report, The 2023 State of Corporate ESG, found that businesses now more than ever are providing training and guidance tools to suppliers, while integrating solutions and stringent audit and validation processes. One executive from a cosmetic retail brand noted: “We’ve invested in an outsourcing agency that is helping us navigate the universe of what really sustainability means鈥� for every single product that we make, we’re auditing every single thing down to the chemical level, basing them and preparing dossiers on each item鈥� we’re also building a database鈥� as new ingredient gets added into a product鈥� it’ll flag us, it’ll communicate with us.”

Implementing an automated system within a data management platform to flag potentially adverse impacts and notify relevant teams helps identify where the most salient risks might be hidden.

Scope 3 as a means to progress

While it is true that not all suppliers can readily provide GHG data, the path to progress is effective communication. Encouraging suppliers to develop their own GHG inventories and championing the vision of global net-zero emissions by 2050 will foster trust and fruitful collaboration across borders. Inclusion grounded in shared goals holds the key to enhancing more supply chain visibility and transparency making data collection more accessible in the long term.

The pursuit of effective Scope 3 emissions associated with a company’s activities outside of its direct control or ownership is not just a compliance requirement, it’s a strategic imperative for businesses as they progress to achieve a global net-zero emissions 2050 agenda. As companies collaborate, communicate, and prioritize their data collection efforts 鈥� actively seeking progress, not perfection 鈥� they will pave the way for environmental stewardship for future generations.

Global trade professionals involved in ESG

The decision to collect ESG data by global trade functions is driven by three main factors, according to insights from our survey: i) to comply with local laws around emerging environmental, labor, and human rights standards; ii) to support the company鈥檚 or owner鈥檚 values and ethics; and iii) to mitigate reputational risk. In fact, survey respondents from more than two-thirds of businesses said they take ESG considerations into account in their decision to use a supplier.

Because so many ESG criteria are connected to supply chains 鈥� such as carbon emissions, labor rights, anti-corruption, sustainable sourcing, and more 鈥� trade professionals are deeply involved in corporate ESG initiatives.

In addition, there are other related factors spurring global trade professionals鈥� involvement in ESG, including:

Expansion of data-gathering requirements 鈥� Companies are increasingly being challenged to measure metrics related to how the company manages its impact on biodiversity, the use of water and other natural resources, its treatment of workers, its progress on diversity, and dozens of other factors. Gathering data on suppliers is the trade department’s main responsibility.

Increase in jurisdiction-specific disclosure requirements 鈥� Driven primarily by the European Union, the United Kingdom, the United States, and Canada, reporting and disclosure requirements around ESG have ballooned in the past few years as climate-related risks have escalated and the notion of using forced labor at any point in the supply chain has not only become illegal, but also repugnant and risky. Specific jurisdiction rules from the last 18 months include:

• • • • • In the U.K. 鈥� In April 2022, companies with more than 500 employees are required to report on ESG issues.
        • In the E.U. 鈥� In January 2023, the E.U.鈥檚 Corporate Sustainability Reporting Directive (CSRD) went into effect.
        • In Germany 鈥� That country passed the Supply Chain Due Diligence Act, which focuses on environmental and human rights violations.
        • In the U.S. 鈥� There have been longstanding rules targeting human rights violations and human trafficking, and many other countries are jumping on the ESG bandwagon for various reasons, including the fact that ESG compliance can be profitable.

Risk management 鈥� Companies that fail to comply with ESG reporting mandates risk alienating investors and customers, damaging the company鈥檚 reputation, and limiting the markets in which the company can operate.

Further, these measures apply to suppliers all along the supply chain, so responsible supply-chain management and scrutiny are now critical for companies dedicated to greater ESG transparency and overall compliance with emerging ESG regulations 鈥� in addition to tracking performance on carbon emissions and pollution.

ESG data collection correlates with size of organization

ESG considerations are especially important for businesses with more than $100 million in annual revenue. In fact, those business are more likely than smaller businesses to collect information on business ethics, waste management, anti-corruption, employee diversity, and percentage of materials recycled or re-used. More than half (57%) of the respondents to our survey said their companies collect data-privacy information from their suppliers.

Issues that are a priority for both small and large companies include those relating to data privacy, health and safety, labor standards, and carbon emissions. Indeed, more than half of companies are collecting data around health and safety (54%) and labor practices (51%), and just slightly under half of corporations collect information on suppliers鈥� business ethics (48%) and carbon emissions (47%).

Latin America stands out

Of those responding to our survey, 57% of respondents from businesses in Latin America said achieving a financial benefit was a driving factor in their ESG strategy, which is almost 20 percentage points higher than other regions covered in the survey. Latin American companies were also more likely to cite compliance with local laws as a driving factor, whereas in North America the most often cited reason for ESG data collection was alignment with the company鈥檚 values and ethics.

Of course, global trade managers are not solely responsible for collecting ESG data on a company鈥檚 suppliers, but they do have a more direct relationship with suppliers and access to data that ESG compliance teams need. So, depending upon the size of the company, the burden of gathering supply-chain data can fall on relatively few people in the trade department.

How big a burden this will become remains to be seen, but the writing on the wall is clear: ESG standards are now solidly embedded in the DNA of corporate governance and will only grow as more countries move from simply making recommendations on responsible corporate governance to passing legislation enforcing it.

However, how corporations are approaching these strategic priorities is changing 鈥� and becoming more technologically-savvy. The report found that an increasing number of businesses are leveraging technology for global trade management (GTM), as the number of respondents now reporting they鈥檙e engaged in 鈥渆arly-stage鈥� GTM technology use at 31%, a decrease of six percentage points compared to 2022, while those who said their GTM technology use is 鈥渆stablished鈥� increased four percentage points to 34%. And those respondents who indicated they鈥檙e 鈥渆xploring emerging technologies鈥� increased slightly as well, to 23%.

The imperative is clear from corporate trade and supply chain leaders: Technology is helping them achieve their top priorities. But it鈥檚 to what areas those technology investment dollars are going that provide interesting insight into where the future of supply chains may be headed, as companies increasingly focus on data security and privacy.

Securing the supply chain

Although the global trade function is increasingly investing in technology, that doesn鈥檛 mean that all companies necessarily have their own internal data in order. Only about half (49%) of respondents reported having an integrated system with visibility on trade across regions, while 29% reported having a partially integrated system, and 21% reported disparate systems for each region or business unit. About two-thirds (68%), meanwhile, reported being very satisfied or somewhat satisfied with the integration of trade systems and data throughout the company.

There was recognition among respondents, however, that visibility needs to increase. When asked about top priorities for investment, one respondent responded simply, 鈥淲e need to have true and accurate data to drive better business decisions & compliance.鈥� But another added an additional key reasoning behind that desire: 鈥淒ata security is a huge priority simply because of the amount of data we use and store currently. The biggest issue [in my opinion] is finding a way to successfully stitch our various systems together globally.鈥�

Indeed, among survey respondents, supply chain security and data protection ranked as the top priority area for increased technology investment.

The percentage of survey respondents pinpointing 鈥渟upply chain security and data protection鈥� as a high area of investment rose 8 percentage points between 2022 and 2023, overtaking 鈥渆nsuring compliance for transactions鈥� as the most commonly cited high-priority area. The high-priority focus on security and data protection also stayed consistent regardless of geography (more than 60% cited this in each of North America, Europe, and Latin America). These priorities are reflected in the data collected from suppliers as well, as 57% of companies overall reported collecting privacy data from suppliers 鈥� more than any other type of data.

This is perhaps unsurprising, given the increasingly integrated nature of the global economy and the role of the internet as a risk factor. A separate survey from software supply chain management company has noted that involving malicious third-party components increased more than 700% between 2020 and 2023, topping 88,000 known instances last year.

Global trade respondents have gotten the memo, according to the 成人VR视频 Institute鈥檚 report. 鈥淪upply chain security and data protection need to be our highest [priority] at all times to protect us and the supplier,鈥� answered one respondent.

Another offered: 鈥淪upply chain security and data protection are high priorities for my company because they help mitigate the risk such as theft, counterfeiting, and disruptions.鈥�

For companies investing heavily in supply chain security, however, there may be more at play than simply risk mitigation. Some even see security and other data-related technologies as a potential business opportunity. When asked about top investment priorities, one survey respondent took a different approach to security, saying, 鈥淲e always consider compliance, security, and proper innovation as key factors to distinguish our business from our competitors in the industry.鈥�

The staffing solution

Even with security and innovation as top priorities, technology is often only as good as the people and processes allowing it to function. And there, corporate trade departments may run into some issues: One-third (33%) of respondents reported being under-resourced as to staffing in their department, including a worrying 44% of respondents at companies with more than $500 million in annual revenue.

In order to fill the gaps, companies also see technology as a possible answer. Nearly 60% of survey respondents said they have plans to or are actively introducing technology and automation to fight resourcing shortages. That percentage reaches 70% for the largest companies.

Will those technology investments provide the cover that some companies yearn for? Respondents mentioned a number of different areas with which they expect automation to help their supply chain. 鈥淭he company is currently working on a fully automated barcoding system in line with shipping companies which alerts the second there is an issue,鈥� answered one respondent.

鈥淚nvesting in automation will increase our productivity,鈥� another added. 鈥淧redictive analytics well help us plan for future operations. Different trade labels will help on fuel and overhead.鈥� Other respondents even pointed to next generation technologies, with one noting: 鈥淯sing AI [artificial intelligence] to anticipate needs and resource management is key to streamlining our logistic and procurement arms of the business.鈥�

The global trade market continues to change in previously unforeseen ways, and in an increasingly complex regulatory and business environment, keeping data and security in order can also be easier said than done. However, it appears that many companies will continue to focus investment on data governance and security, particularly because it aligns the global trade department鈥檚 goals with that of the larger organization.

鈥淥ur big drive is towards efficiency to ensure our teams are working as best as possible,鈥� explained one survey respondent. 鈥淲e also have a strong integrity as a company, so we must ensure that this flows through our supply chain.鈥�

The extent of these sanctions has reached a point聽where there is now little scope for new measures. The focus now has shifted to tightening the implementation of those measures that are in place.

This means tougher regulation and enforcement, both to prevent deliberate evasion and to punish inadvertent breaches due to inadequate compliance. Businesses that have not already done so would be well-advised to review their procedures to ensure that they are not found on the wrong side of the law.

Tougher regulations

The Russia sanctions are being coordinated at the level of the G7 states (the U.S., Canada, the U.K., Germany, France, Italy, and Japan) as well as the E.U., which are cooperating to track down and freeze the assets of Russian and of the Russian state until Russia pays for the damage it has caused to Ukraine.

G7 states are also coordinating bilaterally, for example, through the designations by the聽U.S. and the U.K. of professional enablers suspected of helping Russian oligarchs hide their assets.

Reporting obligations have been broadened. In the U.K., relevant firms 鈥� not only banks, but others such as auditors, estate agents, and metal exchanges 鈥� must inform the Office of Financial Sanctions Implementation (OFSI) if a customer is a known or suspected designated person and provide any information they have about the designated person and any funds or economic resources held on behalf of the customer.

The E.U. has similar measures, but these apply to all persons and now require reports on assets that have not been properly frozen and on the assets of designated persons subject to any move or change in the two weeks preceding their designation.

Tougher enforcement

E.U. and U.K. penalties historically have been significantly lower than those in the U.S., and to date, in 2023, the United States has imposed聽10 fines totaling聽more than $557 million.

By contrast, the U.K. total for 2022 was 拢45,000 and there had been none in 2023 until August, when a聽. There are, however, clear indications of a tougher approach being developed.

In the U.K., OFSI doubled its staff in 2022, and a breach of financial sanctions is now a strict liability offense, meaning that a person may be fined even if they did not know or have reasonable cause to suspect that they were in breach of sanctions.

OFSI may publicly name and shame organizations that have breached sanctions, potentially inflicting serious reputational damage.

The E.U. has appointed a special envoy to stop sanctions evasion and has issued 聽expected to be taken by firms to prevent circumvention. Sanctions violations now constitute an E.U. crime, alongside terrorism, money laundering, and corruption. The E.U. also is working on a聽聽to stiffen penalties for sanctions violations to include up to five years in prison and, for companies, exclusion from access to public funding, disqualification from business, placement under judicial supervision, judicial winding-up, or a fine of up to 5% of total group worldwide turnover.

This tougher stance is also reflected in a聽stricter approach at the E.U. member state level. In 2022, for example, Germany adopted two Sanctions Enforcement Acts and established a Central Office for Sanctions Enforcement. At least 150 cases were reportedly under investigation there, and it is likely that this number has since increased significantly.

Tougher compliance

With governments gearing up, businesses need to ensure that their compliance mechanisms are fully effective and proportionate to their level of risk. Key steps include:

• • • rigorous screening for on-boarding and continuing relationships with business partners, checking not only the counterparties but also their major shareholders, directors, and senior managers to determine whether the counterparty is owned or controlled by a designated person;
    • identifying which jurisdictions apply to their transactions and whether U.S. jurisdiction applies 鈥� this includes not only transactions in U.S. dollars, but also those routed through U.S. servers or involving direction, facilitation, or back-office support by U.S. persons;
    • checking on the use of third-party intermediaries and trans-shipment聽points for Russia and Belarus (for example, China, Armenia, Turkey, and Uzbekistan) for possible sanctions evasion;
    • if conducting business under a sanctions license or exception, ensuring that the conditions (such as reporting and recordkeeping) are met;
    • keeping up to date on sanctions developments because the sanctions measures against Russia have evolved very rapidly, with new measures announced and in force the same day, sometimes without notice;
    • fulfilling all reporting obligations;
    • determining whether other financial or trade sanctions may apply to a proposed transaction, such as granting new loans, dealing in securities, making new investments, and exporting or importing sanctioned goods and services;
    • ensuring that staff have up-to-date guidance and training, and that robust internal reporting and audit procedures are in place; and
    • checking that contracts can be suspended or terminated without liability or serious risk of judicial challenge if sanctions prevent their performance.

Having effective compliance policies not only helps prevent violations but also, if one should occur,聽helps offset the risk and size of a penalty, as well as the related reputational damage. In the coming months, there is likely to emerge a growing list of businesses that failed to heed the warnings and suffered severe consequences.

The contents of this article do not constitute legal advice and are provided for general information purposes only.

Working with these vendors exposes businesses to various risks and challenges such as fraud, corruption, reputation-damaging environmental and social issues, and regulatory violations. It is essential for companies to verify and monitor those parties with which they do business and ensure their third parties comply with relevant laws and standards within their industry and jurisdiction.

Regulators and authorities expect businesses to perform due diligence and provide necessary disclosures on their vendors. Failure to fulfill these obligations can lead to fines and legal accountability, with potential consequences, such as trade embargoes, asset freezes, and travel bans.

The U.S. Customs and Border Protection, for example, recently seized 1,000 shipments of solar energy components due to used in the imports from China鈥檚 Xinjiang region. While the products were held in custody, the company faced 30-day storage expenses. In accordance with the Uyghur Forced Labor Prevention Act, companies are required to provide evidence that their goods are not produced using forced labor if there are suspicions of human rights violations. Failure to substantiate this claim could result in the destruction or re-export of the products at an additional cost to the company.

Sanctions in particular have become more prevalent since 2021. in the wake of Russia鈥檚 invasion of Ukraine have focused on Russia’s biggest financial entities, which hold 80% of the country鈥檚 banking assets with an estimated value of almost $1.4 trillion and will not be able to raise money through the U.S. market. In the same year, also witnessed a remarkable surge of more than 100% growth. The European Union along with other G7 nations and Australia to 鈧�300 billion from the Russian Central Bank. These regulations and more are driving the need for robust vendor due diligence.

Beyond basic corporate information

Businesses are looking beyond basic corporate information to assess beneficial ownership, including identifying connections to politically exposed persons (PEPs) or individuals on sanctions lists. To mitigate risks associated with sanctioned individuals, it is essential to screen multiple relationship types including associates and to ensure that new affiliates are not linked to individuals or entities subject to sanctions. What鈥檚 more, corporate structures, including subsidiaries, distributors, and partners are often subject to scrutiny due to the potential use of shell companies in offshore countries for financial misconduct, money laundering, and fraud.

A recent 成人VR视频 Risk & Fraud study, , highlighted the significance of ascertaining beneficial ownership especially when dealing with companies potentially owned by oligarchs or PEPs. Despite export restrictions to Russia, some companies connected to oligarchs still manage to supply goods, making continuous monitoring of vendors and third parties vital. Former FBI official , for example, recently admitted to using shell companies and forged signatures to receive payments from Russian oligarch Oleg Deripaska, thereby evading U.S. sanctions.

The process of verifying vendors and third parties

Higher volume and dollar value relationships require greater accuracy and enhanced due diligence. For example, screening important distribution partners requires thorough vetting and in-depth due diligence; and as such, the process should be regarded as less time-sensitive to ensure that a high-quality review occurs. Allocating resources based on a risk-based approach helps guarantee that higher-value relationships receive a more comprehensive review.

Assessing vendors on their ethical practices, commitment to social responsibility, and any legal issues remain ongoing areas of concern. To mitigate such risks, companies should do real-time searches based on public records data and proprietary data that can be categorized and translated into risk factors. By using a data analytics program, companies can quickly categorize vendors into different risk levels, allowing companies to then prioritize time and resources on higher-risk vendors while expediting the verification process for lower-risk ones.

Finally, the lack of integration with core business applications and processes can also be challenging. Many companies use technology or software solutions that do not integrate with their existing systems, thus creating inefficiencies. To overcome these challenges, companies must invest in solutions that are tailored to their specific needs and integrate those new solutions seamlessly with their existing systems.

Conclusion

As businesses expand their global networks, they are increasingly exposed to more risks, including fraud and sanctions violations. The importance of knowing your vendors and third parties cannot be overstated amid this heightened regulatory environment.

To protect themselves from potential legal and regulatory damage, companies must be prepared to invest in robust risk-based solutions that enable accurate and complete due diligence on their vendors and other third parties.

鈥淣o matter if you don’t do anything else… improvements in manufacturing鈥檚 digital transformation journey drives positive around ESG [environment, social & governance] and sustainability,鈥� says , sustainability leader for global advanced manufacturing & mobility at EY.

One of the sub-components of digital transformation within manufacturing is supply chain traceability. In an increasingly complex global marketplace, traceability has emerged as a critical factor for businesses and their supply chains across industries. Companies are under mounting pressure to ensure transparency and sustainability throughout their supply chains for across ESG issues. Technologies across supply chains have been used to maximize efficiency and to manage inventory for many years. Indeed, barcodes, radio frequency identification, global positioning system (GPS), and artificial intelligence (AI) have been in the mix for decades.

However, the demand for supply chains transparency and clean supply chains have put a new importance on these and other emerging technologies to fulfill ESG goals.

The combination of old and new technologies is one of the most cost-effective and efficient ways to track and identify products throughout a supply chain. Adding in the mobile component with the ability to track the origin of ingredients and raw materials ensures that such material comes from sustainable sources and helps to enhance supply chain traceability.

Complimenting these technologies with software enables companies to capture data at every stage of their supply chain, from raw materials to finished products, according to , president and chief technology officer at . This software allows for real-time tracking, monitoring, and verification of goods, enhancing supply chain transparency in the following areas of sustainability:

Waste reduction 鈥� AI capabilities help to optimize inventory levels, reducing the risk of overstocking or understocking, which can reduce waste.

Carbon footprint management 鈥� Using GPS technology enables companies to optimize transportation routes, reducing fuel consumption and greenhouse gas emissions in order to help achieve sustainability goals.

Supplier compliance 鈥� Supply chain traceability solutions enable companies to monitor and enforce supplier compliance with sustainability standards.

Consumer trust and brand reputation 鈥� End-to-end supply chain traceability provides consumers with detailed information about the products’ journey, including sourcing, manufacturing processes, and handling. This transparency can generate consumer trust.

Generative AI can revolutionize supply chain traceability

Generative AI has the potential to revolutionize supply chain traceability and fulfill clean supply chain requirements even more. 鈥淕enerative AI with the functionality to consume data can be trained on the operations of an industry to drive efficiency and at the same time be compliant,鈥� Brice explains. 鈥淎 human really could not do that.鈥�

Critical areas of transformation include:

• • • Data analysis and pattern recognition 鈥� Generative AI algorithms can analyze large volumes of data collected throughout the supply chain, identifying patterns and anomalies that might be challenging for humans to detect.
    • Sustainable supplier selection 鈥� By analyzing a wide range of factors 鈥� including supplier certifications, environmental performance, and ethical practices 鈥� generative AI algorithms can identify suppliers that align with a company’s sustainability goals.
    • Risk management and mitigation 鈥� By analyzing data from various sources such as weather conditions, geopolitical factors, and market trends, generative AI algorithms can help companies proactively identify and respond to potential disruptions.
    • Life-cycle assessment and product design 鈥� By considering factors such as materials used, manufacturing processes, transportation, and end-of-life disposal, generative AI algorithms can help optimize product design to minimize environmental footprints.

Major barriers still hinder progress

While ensuring full transparency and accountability of supply chains is a valuable goal, there are several significant barriers standing in the way. First, companies鈥� ESG data is often sitting in disparate IT systems that don鈥檛 talk to each other across the value chain; second, there are many different systems within a manufacturer鈥檚 technology stack, which often include multiple enterprise resource planning systems, and differing software for inventory and production control and asset management platforms, notes Coulter.

In fact, Coulter says that he and his team worked with several clients to stitch together these systems to create a cohesive approach for efficiency, while driving improvements in ESG data collection and analysis.

For example, he says they are working with a client to implement an added layer on top of its enterprise asset management system to trace all of the assets in a given factory and across the organization. This enables the controller to extract and report on energy outputs across the client鈥檚 entire manufacturing process.

Because technology like generative AI can only improve outcomes so much, the other major challenge is communication. 鈥淚t [generative AI] can only go so far based on the definition of scope that the people using it provide,鈥� adds Coulter. 鈥淎nd if we don’t see improved communications within the manufacturing organization about the scope of what they need and how to implement it, the risk of failure after throwing millions of dollars at a digital project is pretty high.鈥�