Navigating supply chain resilience amid rising geopolitical risk

As global supply chain disruptions become more structural, digital capabilities are shaping how resilience is defined and fostered. AI’s role in supply chains is expanding within this broader shift, not as a standalone solution, but as part of a wider system that includes infrastructure, regulation and workforce capability.

AI and advanced analytics are particularly significant because they operate across both sides of the supply chain system. They depend on complex global networks, including semiconductors, data centers and energy infrastructure, while also being used to manage those same networks. As highlighted in S&P Global Market Intelligence research, the supply chains supporting AI face ongoing challenges from trade policy, export controls and rising input costs.

This creates a dual dynamic. On the one hand, AI strengthens resilience by improving visibility across logistics, demand and supplier networks, supporting faster identification of risks and disruptions. On the other hand, the infrastructure required to support AI introduces new dependencies that are exposed to the same geopolitical, regulatory and operational pressures affecting broader supply chains.

AI’s impact, therefore, cannot be assessed in isolation. It is closely linked to infrastructure constraints, which are becoming more pronounced as demand for digital capacity expands. The build-out of data centers, energy systems and supporting logistics networks is subject to limitations tied to resource availability, environmental pressures and regulatory conditions. These factors are increasingly shaping where supply chain capacity can be developed and sustained.

Workforce capability adds another layer of complexity. Advances in AI and automation are reshaping how tasks are distributed across supply chains, with varying impacts across roles and regions. S&P Global Market Intelligence analysis shows that this shift requires ongoing adaptation in workforce skills, as well as broader alignment between technology adoption and human capital development.

The transition to green fuels accelerated in 2025, driven by the need for heavy investment and supportive regulatory frameworks. For green fuels, zero-carbon hydrogen sources are essential, while biofuels compete with food production for agricultural land and water resources.

The hydrogen sector is gradually transitioning from ambition to commercialization, with supply chains forming around new production, transportation and export networks. S&P Global Energy estimates that Asia-Pacific is home to approximately 795 hydrogen projects, representing 35.2 million metric tons per year of planned production capacity. Investments in hydrogen carriers, export infrastructure and renewable ammonia supply chains also continue to gain momentum. As global demand for low-carbon fuels grows, securing access to hydrogen technologies, infrastructure and critical materials will become increasingly important for organizations seeking to strengthen supply chain resilience and support decarbonization goals. 

Weaker demand growth for EVs and an oversupply of lithium slowed new investments in batteries and materials in 2024. As the energy transition continues, restrictions on critical mineral exports by mainland China in 2025 have posed additional challenges for the manufacturing of clean energy technologies.

The lower lithium price environment did not persist as expected, with market fundamentals improving significantly through late 2025 and 2026. S&P Global Market Intelligence consensus estimates indicate that average realized lithium carbonate equivalent prices could increase by as much as 78% in 2026, reflecting stronger demand from EVs and battery energy storage systems as the market moves closer to balance. This rebound is driving further investment and strengthening supply chain security across the EV and energy storage sectors.

Supply chain decision-makers face the dual challenge of supporting the expansion of data centers for AI applications and aligning with energy transition goals to boost efficiency and reduce emissions. US imports of data center construction materials surged 59.6% year over year in the third quarter of 2024, with power control products increasing 25.2% and cooling devices increasing 47.1%.

However, transformer shortages and tariffs on Chinese lithium-ion batteries significantly affected the cost of energy storage solutions in 2025, posing challenges for data center development and the energy-efficiency goals required for sustainable AI growth.

The EU’s EUDR will set a new standard for environmental accountability in global trade. This regulation requires companies to conduct due diligence on deforestation and forest degradation across their global suppliers. Targeting commodities such as cattle, soy, cocoa and palm oil, the EUDR imposes severe penalties for noncompliance, including fines of at least 4% of annual turnover, the confiscation of goods, and temporary bans from EU procurement and tenders.

Key components of the EUDR

Due diligence frameworks: Companies must establish annual supply chain due diligence frameworks to screen their suppliers and ensure that products entering the EU have not contributed to deforestation. These frameworks must be submitted to member states for verification.

Comprehensive commodity coverage: The regulation applies to cattle, cocoa, coffee, palm oil, rubber, soy, timber and their derivatives. It also includes products made or derived from these commodities, such as beef, charcoal, chocolate, leather and printed paper products.

Broader scope and implications

Beyond deforestation, the EUDR mandates that supply chain due diligence statements include information confirming compliance with land use, labor and human rights laws in supplier countries, including the rights of Indigenous communities. This comprehensive approach ensures that the regulation promotes ethical sourcing practices globally.

Impact on key markets

• Asia: Major palm oil producers such as Indonesia and Malaysia will need to adhere to stricter sustainability and human rights standards to maintain their market access in the EU.
• Latin America: The agribusiness sectors in Brazil and Argentina, particularly those involved in cattle and soy production, will face increased pressure to adopt sustainable practices.
• Africa: Cocoa exporters from countries such as Côte d’Ivoire and Ghana will need to ensure their products meet EUDR requirements. This delves into the far-reaching effects of the EUDR on companies placing products in the EU and key sourcing markets in Latin America, Asia-Pacific and sub-Saharan Africa. By demanding greater transparency and ethical practices, the EUDR aims to foster a more sustainable and responsible global trade environment, setting a new benchmark for future regulations.

When the EUDR takes effect, companies importing EUDR-related products into the EU can expect heightened regulatory scrutiny, particularly from customs authorities. This increased oversight is expected to continue for at least a year, with noncompliance leading to substantial fines.

The EUDR is integral to achieving the EU’s broader environmental objectives, including commitments to the European Green Deal and Paris Agreement on climate change. During a debate on the EUDR in April 2023, Austrian Member of the European Parliament Alexander Bernhuber emphasized the necessity for member states to rigorously enforce the regulation to ensure compliance by countries, regions and companies.

This regulation underscores the EU’s commitment to sustainability and environmental protection standards by making compliance crucial for companies trading with the EU market.

Key penalties and enforcement measures

• Fines: Noncompliance can result in fines of up to 4% of a company’s total annual turnover within the EU.
• Additional sanctions: Other penalties include the confiscation of revenue from noncompliant transactions, exclusion from public procurement and funding for up to 12 months, and ineligibility for grants and concessions for 12 months.
• Enforcement mechanisms: The EUDR mandates the establishment of a systematic information exchange mechanism among member states, customs authorities and the European Commission. Companies must present due diligence statement certifications to customs organizations, which have the authority to confiscate noncompliant products.

The EUDR will significantly affect companies that import EUDR-regulated products, and preparedness levels vary across businesses. According to the 2022 S&P Global Corporate Sustainability Assessment, 34.2% of the largest companies in the S&P Europe 350 index have set targets to reduce, offset or eliminate deforestation within their operations or supply chains. Some sectors are showing progress, with 35.1% of food product companies and 33.3% of paper and forest-related product companies setting similar deforestation reduction targets that same year.

As the EU enforces stricter environmental standards, companies will need to enhance their compliance efforts to align with these regulations, reflecting a significant shift toward greater sustainability and accountability in global supply chains.

The EUDR is poised to increase operational costs for European and non-European firms, while potentially encountering resistance from supplying countries. Under the EUDR, the level of due diligence required will vary based on the deforestation risk assigned to exporting countries by the European Commission, which will use a three-tier risk classification system. Low-risk countries will face simplified procedures, while standard and high-risk countries will need to provide more detailed supply chain due diligence, including satellite imagery and geospatial data.

The European Commission estimates that compliance costs could range from $170 million to $2.5 billion annually. These expenses may be absorbed by reducing profit margins along the supply chain or passing them on to end consumers in EU member states. As firms adjust to these new requirements, the financial and operational impacts will need to be carefully managed, and resistance from high-risk supplying countries could further complicate compliance efforts.

The EU is set to offer substantial support to countries committed to combating deforestation, as highlighted in the EUDR. The regulation mandates that member states provide technical and financial assistance to the "least-developed countries," aligning with broader EU commitments under the Paris Agreement and European Green Deal. Notably, during the 2021 UN Climate Change Conference (COP26), European Commission President Ursula von der Leyen committed €1 billion to the Global Forest Finance Pledge over five years.

While the EU aims to assist some supplying countries, many nations that deforest are unlikely to introduce anti-deforestation legislation in the near term, focusing instead on enforcing existing commitments. Countries such as Côte d’Ivoire see the EUDR as an opportunity for increased EU financial support, having already implemented GPS tracking for cocoa beans and introduced electronic tracking cards for farmers. Ghana has also launched a mandatory national traceability system to align with the EUDR.

However, challenges persist. The World Resources Institute reported a 10% increase in global deforestation to 4.1 million hectares in 2022, which complicates the task at hand. Weak enforcement capabilities, limited international funding and poor track records raise concerns about the ability of producing countries to meet EUDR standards. Countries that fail to meet EUDR expectations may be classified as high risk, affecting their trade dynamics with the EU.