The automotive sector is undergoing significant change. Technological advancements, including the rapid expansion of electric vehicles (EVs) and connected-car platforms, are reshaping how vehicles are built and used. 

At the same time, geopolitical tensions are introducing new challenges. The United States recently introduced a 25% tariff on automotive imports, while China continues to dominate EV and battery production. At the same time, EU regulators are tightening environmental standards and demanding greater transparency, with policies aimed at phasing out combustion engines, enforcing circularity through battery and end-of-life vehicle regulations, and steering the sector toward decarbonization. 

Yet, amid these pressures, there are also signs of regulatory recalibration. In the European Union, efforts like the ‘’Competitiveness Compass’’ and the “Omnibus” package aim to ease administrative burdens—particularly in sustainability reporting—as part of a broader strategy to strengthen the region’s industrial resilience. This push for simplification reflects the tension between sustaining ambitious climate targets and supporting a struggling industrial base facing global competition, especially from China.

This article is written by Bart Ladru ([email protected]) and Iman Zalinyan ([email protected]). Bart and Iman are part of RSM Netherlands Business Consulting Services, specifically focusing on Sustainability and Strategy.

As automakers race toward a low-carbon future, they are doing so in a landscape increasingly shaped by geopolitical tension and regulatory fragmentation. Trade barriers, material dependencies, and diverging standards are no longer peripheral—they are central to both ESG strategy and global competitiveness.

China’s dominance in EV manufacturing and battery materials—backed by a robust domestic recycling framework and aggressive export growth—has made it a critical node in the global mobility value chain. For global automakers, this raises not only supply-chain risks but also ESG concerns tied to transparency, labor practices, and environmental standards.

The European Union is working to reduce its reliance on single, non-EU suppliers through policies like the Critical Raw Materials Act (CRMA). The CRMA aims to strengthen domestic extraction, processing, and recycling capacity for essential materials. More than an industrial initiative, the CRMA supports the EU’s broader ESG goals by promoting resilient, traceable, and circular sourcing—integrating environmental and ethical priorities into resource security.

This marks a broader shift in EU policy: sustainability is no longer just about emissions targets, but about securing the entire value chain against geopolitical vulnerabilities while maintaining environmental integrity.

The CRMA forms part of a growing constellation of regulations transforming the way ESG is operationalized in the automotive sector:

  • The Fit for 55 Package sets the path to 100% CO₂ reduction for new vehicles by 2035, introducing full life-cycle carbon assessment and tightening real-world emissions reporting.
  • The End-of-Life Vehicles Regulation mandates design-for-disassembly, bans on non-roadworthy vehicle exports, and targets for recycled content—especially plastics and critical metals.
  • The EU Battery Regulation enforces recycled content quotas, due diligence obligations, and introduces the Digital Battery Passport, a critical tool for lifecycle tracking and transparency.

Together, these measures push automakers toward circularity, transparency, and accountability—requiring not just product innovation, but deep structural changes across design, sourcing, and reporting systems.

Environmental Responsibility: Beyond the Tailpipe

As electrification accelerates, regulators are shifting focus from tailpipe emissions to the broader environmental footprint of vehicles. New policies such as the EU Battery Regulation and the revised End-of-Life Vehicles framework signal a growing emphasis on full life-cycle impact—encompassing emissions from raw material extraction, manufacturing, use, and end-of-life disposal.

This shift raises the bar for environmental performance. Automakers are expected not only to reduce direct emissions but to address embedded carbon in their supply chains—particularly in energy-intensive materials like steel, aluminum, and plastics. At the same time, battery recycling, take-back systems, and design for disassembly are becoming regulatory requirements rather than voluntary initiatives.
To meet these expectations, companies need to conduct detailed life-cycle assessments (LCAs), pinpoint emissions hotspots, and adopt science-based targets for decarbonization. Circular design principles—modularity, reuse, recyclability—must be part of product development from the outset. Investment in closed-loop battery systems and digital tracking tools, such as the Digital Battery Passport, will also be critical to ensure compliance and traceability across the value chain.

Social Equity and Workforce Transition

The shift to electric vehicles is not only technological—it is deeply social. Electrification and digitalization are redefining the automotive workforce. Demand for high-skilled roles in battery chemistry, software engineering, and automation is rising rapidly, while traditional manufacturing jobs face obsolescence or radical transformation.

At the same time, labor practices across global supply chains are under increased scrutiny. Social license to operate is at risk if companies fail to address inequality, working conditions, and access to opportunity.
Automotive companies must embrace the workforce transition as a strategic priority. This includes developing robust reskilling and upskilling programs, supporting employee mobility, and fostering inclusion across geographies. Companies should also assess their supply chains for labor risks and implement fair labor standards aligned with international norms. By investing in people—not just technology—firms can build resilience and loyalty in a rapidly evolving labor market.

Strengthening ESG Through Governance and Transparency

With heightened geopolitical tensions and expanding regulatory oversight, governance is moving to the forefront of the ESG agenda. Trade barriers, tariff announcements, and evolving EU and U.S. policy frameworks are exposing companies to new risks—ranging from regulatory capture to supply-chain opacity.

Stakeholders, from investors to consumers, are demanding greater clarity on how companies influence policy, manage global operations, and ensure ethical sourcing of materials such as cobalt and lithium.
Strong governance requires transparency—internally and externally. Companies should disclose lobbying activities, ESG-related risks, and due diligence measures in alignment with recognized frameworks. Internally, ESG oversight should be embedded into board structures and decision-making processes. Externally, stakeholder engagement must be continuous and responsive, particularly in high-risk or high-impact regions.

How the Consumer Is Redefining What Sustainable Mobility Means

As the automotive industry rethinks its environmental and social responsibilities, a critical but often overlooked factor is emerging: consumer behavior is shifting. In many developed markets, car ownership is declining as a status symbol, particularly among younger generations. Rising costs, urban congestion, and growing climate awareness are accelerating the move toward shared mobility, micromobility, and public transport.

This behavioral transformation is reshaping how mobility is consumed—and what sustainability means in practice. Electrification alone does not address issues like congestion, land use, and access equity. A growing focus on access over ownership brings new ESG dimensions to the forefront, including infrastructure equity, urban planning alignment, and product-as-a-service models.

While this shift is not uniform—ownership remains aspirational in many emerging markets—it is increasingly relevant for global strategy. As cities embrace the 15-minute city model and digital-native consumers demand smarter, greener solutions, automakers must consider how mobility ecosystems are evolving.

Automotive companies should adapt ESG strategies to reflect emerging mobility patterns. This includes designing for modularity and fleet use, engaging with urban mobility stakeholders, and expanding business models to include product-as-a-service, car sharing, and micromobility partnerships. By aligning with this shift, automakers can strengthen ESG performance while staying ahead of long-term consumer trends—ensuring relevance in a mobility landscape that is increasingly shared, digital, and demand-driven.

The Road Ahead

For the automotive industry, the ESG challenge is no longer just about reducing tailpipe emissions. It’s about rewiring the value chain—sourcing critical materials responsibly, embedding circularity in vehicle design, and maintaining transparency across jurisdictions. In a world fractured by geopolitical competition and marked by uneven sustainability commitments, those who can navigate this complexity—aligning innovation with integrity—will lead the transition to a more responsible and resilient mobility future.

Forward Thinking

As emissions regulations tighten and international trade becomes more complex, automotive companies must view ESG not as a compliance box to check but as a strategic core. Emphasizing robust governance, social responsibility, and environmental stewardship can help companies survive—and thrive—in a landscape shaped by high-stakes regulations and shifting global power dynamics.

In this evolving environment, leadership in sustainability and ethical practices builds brand resilience, secures consumer loyalty, and paves the way for long-term success. By proactively engaging with regulatory frameworks such as the EU’s Fit for 55, the proposed End-of-Life Vehicles Regulation, and the new Battery Regulation, the automotive sector has the opportunity to pioneer circular solutions, align with stakeholder expectations, and help define the future of mobility—one that is cleaner, fairer, more consumer-driven and more transparent.

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