Decomplexifying EU CBAM

Organisations will need to develop a comprehensive CBAM readiness strategy and align it with regulatory mandates and corporate objectives, which extends far beyond compliance.

Organisations may need to reevaluate critical decisions governing investment and supply chain strategies, market positioning, and product portfolio optimisation to factor in the EU CBAM’s potential impact. For instance, they might need to reallocate product basket volumes across different global markets to ensure revenue optimisation. Alternatively, to take concrete steps towards decarbonisation, companies could explore investing in low-carbon technologies, integrate carbon considerations into procurement strategies, and consider localising certain parts of the supply chain.

It is crucial to assume a proactive approach and integrate carbon considerations into every aspect of an organisation’s operations at this stage to ensure your operations remain competitive and resilient while mitigating the regulatory risks.

The EU CBAM usually requires joint cross-functional effort from several teams in an organisation, including ESG, marketing, finance and tax, customs and supply chain. Setting up a “CBAM function” would require a comprehensive assessment of roles and remits across the organisation. As the company refreshes its strategy, reevaluates business operations and defines new responsibilities, it might consider corresponding changes to its organisational structure, whether it is creation of new roles and teams or the redistribution of responsibilities to existing ones.

Optimising internal processes is imperative to ensure efficiency and compliance with CBAM requirements. This entails an examination and comprehensive mapping exercise of existing processes and workflows to seamlessly integrate the new requirements into various business operations, including procurement, production and logistics. At this stage, organisations might explore the adoption of internal carbon pricing mechanisms to create necessary incentives to have a meaningful impact on their carbon footprints.

Following the identification phase, companies will need to update their policies, procedures and guidelines. This may involve revising procurement protocols to prioritise suppliers with lower carbon footprints and implementing emission-tracking mechanisms at each stage of production. Moreover, organisations might leverage automation tools and technologies to streamline processes, reduce manual effort and minimise errors associated with CBAM compliance. In parallel, companies should establish robust control mechanisms to ensure the integrity and accuracy of data. This involves identifying processes for data management, verification, and validation and conducting regular audits to assess adherence to CBAM requirements.

To effectively navigate CBAM requirements, and considering cross-functional team involvement, it is important to include CBAM-related metrics in the performance management framework. This involves defining tailored key performance indicators (KPIs) that reflect the specific CBAM processes and objectives and are supported by benchmarks to facilitate performance evaluation.

Ultimately, an effective performance management approach will enable companies to monitor progress towards CBAM implementation, identify areas of strength and improvement, and make informed decisions to optimise their efforts and enhance overall competitiveness in the global marketplace.

The EU CBAM regulations have specific requirements to the GHG monitoring methodology, and it is important to ensure its timely implementation. We recommend starting with diagnostics of the current GHG accounting methodologies and processes to identify any “gaps” with the CBAM requirements. Then, a CBAM monitoring plan should be developed, which visualises the boundaries, production processes and routes. The CBAM monitoring methodology would typically include elements such as data collection procedures, calculations and formulae to be used, control activities, and data maintenance and archiving activities (including security to safeguard against manipulation). The methodology should also be supplemented with processes and written procedures.

Finally, organisations need to ensure that sufficient control measures and quality management practices are in place. This involves conducting a risk assessment and establishing effective controls in areas such as IT systems, segregation of duties in the data flow activities, internal reviews and data validation, as well as outsourced processes.

Companies need to identify skill gaps and develop an upskilling plan for impacted employees. As part of these efforts, organisations can define learning interventions for different employee groups, for example, offering short courses from relevant external education bodies. Organisations should also explore ways to create opportunities for staff to gain hands-on experience and practical insights through on-the-job training activities.