Chief Executive China recently interviewed Karl Borgschulze, founder and managing director of Consulting Service International to discuss his insights on the ESG challenges being faced and strategic approaches being adopted by companies in today’s global trade landscape.
Karl Borgschulze has extensive experience in sales, supply chain, and sustainable product development across various national markets, focusing on value chain optimization, sustainability market strategies, and innovative business solutions. He has also been invited to give lectures on sustainability management at several universities.
Chief Executive China (CEC): Which countries and regions are currently most affected by ESG globally?
Karl Borgschulze (KB): The European market, without a doubt. Europe has introduced a series of ESG regulations that are already in effect or will soon be implemented. However, similar trends are emerging worldwide—China, Japan, and Australia are all developing related legislation. Canada’s ESG regulations are also quite stringent. Even though the US government is attempting to roll back policies, states like New York and California are advancing their own agendas. Thus, ESG has become a trend that all global suppliers must confront. Integrating ESG principles into business operations is, therefore, a very wise approach.
In essence, almost every country and region will be impacted by ESG-related regulations. This applies to nearly all Western markets. The situation in the US is still evolving, and markets in China, Hong Kong, and Japan are also influenced by ESG. Other regions have less stringent or no regulations in this area.
While ESG is not ubiquitous, it is undoubtedly a crucial component of business operations in all major sales markets.
CEC: What are the most pressing ESG challenges currently facing businesses, and how should they balance priorities among cost control, compliance requirements, and long-term sustainability goals?
KB: This is a complex issue. By 2025, the world will undergo unprecedented changes.
On one hand, increasingly complex ESG regulations are affecting the consumer goods, electronics, and fashion industries. On the other hand, banks and insurance companies are also imposing ESG requirements, recognizing their importance for risk management, especially when financing large brands and retailers. The financial sector has acknowledged that ESG and sustainability are essential pillars for ensuring future business viability.
This is equally true at the B2B level. All businesses are interconnected and part of a larger supply chain. Clients will increasingly demand ESG compliance from their partners. Finally, stakeholders will also impose ESG-related requirements on companies.
The environment we find ourselves in today is vastly different from 25, 15, or even 5 years ago. I believe these ESG-related changes are something every business must confront, regardless of their position in the trade or supply chain.
From a business perspective, the biggest challenge is that these ESG-related laws and regulations impose requirements on various functions within a company. The anti-greenwashing laws mainly concern marketing departments, but sourcing, legal, human resources, and finance departments are also involved. This means companies must coordinate multiple departments to address a series of new regulations.
As is well known, large companies often face departmental silos. Under the dual pressures of legal regulations and financial disclosure norms, businesses must establish an integrated ESG management system—this is our current focus.
If ESG compliance is influenced by sourcing or supply chain teams, you cannot expect the marketing department to solve the problem alone. Companies must learn to build efficient management systems and work collaboratively to address these challenges. The ultimate goal should be to transform challenges into medium- to long-term benefits and profits. Establishing an integrated ESG management system is the first challenge companies face.
The second challenge lies in how to reshape the supply chain with ESG considerations. For example, in the electronics industry, the recent EU regulations on energy labeling for smartphones and tablets include provisions for repair rights. This means that factors related to product repair or lifecycle must be considered from the design stage. Companies need to rethink their entire design process and supply chain management to make it more streamlined and efficient, which is undoubtedly a significant challenge.
By necessity, companies will undergo a profound transformation. However, many are not prepared for this. Some hope to wait for problems to resolve themselves, which is simply wishful thinking; others feel overwhelmed by the new situation.
Thus, the key is for companies to address these new challenges as a team rather than in isolation.
That is correct. Responding to ESG requires a new management approach—current ESG demands are overly complex, and with fierce price competition, going solo is no longer viable.
I want to emphasize one point: Many sourcing professionals still try to squeeze costs by pressuring the supply chain, but the key is not which part of the supply chain you can control pricing for; rather, it’s about enabling the entire company and supply chain to collaborate effectively to produce higher-quality products at more competitive prices.
Material traceability has also become more complicated due to new ESG regulations. EU regulations such as the CBAM [Carbon Border Adjustment Mechanism] require data on the source of materials, energy consumption, and carbon footprints starting from the supply chain’s origin. This means companies must gather data from suppliers with whom they have no direct commercial relationship, or even those of which they have never heard.
Take metals, for example. According to EU customs regulations related to sanctions against Russia, imported television brackets must provide certification from the smelter, or the entire shipment will be denied entry. The compliance requirements for sustainability are increasingly resembling customs regulations—essentially, the two sets of requirements are highly aligned.
This means that supply chain transparency is imperative. Information about the origin of materials is becoming increasingly critical, especially considering US tariff conflicts. Material traceability is not just a sustainability requirement; it is also crucial for tariff calculations. The requirements in these areas are now merging, presenting companies with a new landscape.
CEC: In the context of tightening ESG regulations in Europe and the US, how can Asian manufacturing companies (especially SMEs) avoid falling into the "compliance burden trap" and turn ESG into a competitive advantage?
KB: Companies need to truly understand their customers—but the challenge is that manufacturing firms often do not connect directly with end customers.
From my perspective, a common challenge faced by companies, especially SMEs, is their difficulty in recognizing that they should be part of the solution rather than the source of the problem.
For suppliers (especially in Asia), the key is to proactively improve internal systems; regardless of whether clients request it, they should simplify management structures and reporting mechanisms to ensure they can respond to inquiries at any time. This is a stark departure from the traditional model of passively executing orders—successful companies in the future will be those that actively anticipate customer needs.
For instance, given that the European circular economy policy is driving up demand for recycled materials, can we incorporate recycled materials into our production systems? What does this mean for cost structures and product design? By addressing these questions, you can proactively approach your clients with proposals: "This is our standard product for you, but we can also offer an eco-friendly alternative. Would you be interested?" Today, European and American buyers are actively seeking partners in the supply chain capable of uncovering innovative concepts and products. If you have this ability, even if you don't secure an immediate order, such interactions can strengthen your collaborative relationships.
The interview continues in Part 2.
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• The content of this interview reflects only the views of the interviewee and not necessarily those of Chief Executive China or Global Sources.
