EuroCham Malaysia Post: The 2026 Challenge for Malaysian Businesses in Dealing With Five New Supply Chain Rules

As EuroCham Malaysia’s exclusive Legal Knowledge Partner for Malaysia, Aqran Vijandran provides weekly legal insights tailored for EuroCham members. This article was prepared in that capacity by Dr. Harald Sippel (admitted in Austria, European Union).

2026 is shaping up to be a turning point for global supply chains into Europe. In a single year, five major EU regulations will either take effect or reach critical deadlines:

• The Carbon Border Adjustment Mechanism (CBAM).
• The EU Deforestation Regulation (EUDR).
• The Packaging & Packaging Waste Regulation (PPWR).
• The Ecodesign for Sustainable Products Regulation (ESPR).
• The Corporate Sustainability Reporting Directive (CSRD).

Each of these rules targets a different aspect of trade – carbon emissions, land use, packaging, product design and corporate reporting – but for exporters, they converge on the same supply chains. A Malaysian palm oil producer, rubber exporter or electronics manufacturer may soon find EU buyers asking for data on carbon intensity, plot-level geolocation, compliance with Malaysian employment laws, packaging recyclability, product lifecycle information and Scope 3 emissions – all at once and all in different formats.

The challenge is not simply “more ESG.” It is the practical reality of integrating diverse compliance requirements into one global supply chain. Without systems to collect and standardise data across multiple regulations, Malaysian businesses risk bottlenecks, rising costs, or even exclusion from the EU market.

Five rules, five demands – all in 2026

Carbon Border Adjustment Mechanism (CBAM) – financial phase from 1 January 2026

The CBAM is the EU’s way of levelling the playing field between domestic producers who must pay for carbon emissions under the EU Emissions Trading System (EU ETS) and foreign exporters. From 1 January 2026, EU importers of covered goods will need to purchase CBAM certificates that reflect the embedded emissions in their products – effectively putting a carbon price on imports.

For Malaysian exporters to the EU, this means that simply meeting product quality and cost benchmarks will no longer be enough. Exporters of iron and steel, aluminium, cement, fertilisers, electricity and hydrogen must now quantify the carbon intensity of their production processes in line with EU methodologies. If they fail to provide accurate data, EU importers will apply default emission values – which are set deliberately high and make non-compliant products less competitive.

⮕ On the necessity to go beyond product quality and cost benchmarks, also see our strategic takeaways for Malaysian companies from Bain & Company’s 'Visionary CEO’s Guide to Sustainability 2025'

The supply-chain challenge is that carbon data must be measured, verified and documented at the factory level. This often requires introducing monitoring and reporting systems that many producers have never used before. Malaysian exporters will also need to align with EU-style verification processes and ensure that suppliers of intermediate goods (for example, raw materials used in steelmaking or fertiliser production) can provide reliable emissions data.

In practice, CBAM compliance is not just a regulatory hurdle – it will shape trade flows. EU buyers may prefer suppliers that can demonstrate low-carbon production or that already operate credible monitoring systems. Those who cannot adapt risk seeing their exports priced out of the European market.

EU Deforestation Regulation (EUDR) – SME compliance from 30 June 2026 (large operators from 30 December 2025)

The EUDR requires all operators and traders placing palm oil, rubber, wood, cocoa, coffee, cattle and soy on the EU market to prove that their products are deforestation-free and produced legally. This goes beyond certification schemes – exporters must provide precise geolocation data down to the polygon or plot, confirm compliance with local land-use laws and submit a due-diligence statement before goods can enter the EU.

For Malaysian exporters, the EUDR is particularly relevant for palm oil, rubber and wood products. Even though Malaysian companies themselves are not directly bound by the regulation, EU importers are – and they will cascade requirements through supply chains. In practice, this means Malaysian producers must be ready to share detailed land-use maps, legal documentation and risk assessments with their European buyers.

⮕ Being MSPO-certified may facilitate compliance, but in itself has no impact. Read our article highlighting why full compliance with the EUDR remains a necessity for further details

The integration challenge is significant. Many smallholders and upstream suppliers may lack digital mapping capability or formal land titles. Exporters will need to build systems that can capture and verify this information at scale, often across fragmented supply bases. In some cases, exporters may have to invest in satellite imagery, traceability technology or training for smallholders to ensure compliance.

Failure to comply carries commercial risks. EU buyers will be required to reject non-compliant shipments. They also face severe consequences in case of non-compliant products, with confiscation of the relevant products, fines up to 4% of the total annual EU-wide turnover and, in the worst case, the prohibtion to import according products altogether. For Malaysian businesses, the risk is being excluded from EU supply chains altogether if they cannot provide the required traceability and legality proof.

Packaging and Packaging Waste Regulation (PPWR) – general application from 12 August 2026

The PPWR introduces strict EU-wide rules on packaging design, recyclability and labelling. From August 2026, all packaging placed on the EU market – thus including packaging that Malaysian exporters use – must be designed for recycling and must comply with new labelling standards. Over time, additional obligations – such as reuse targets and waste-reduction benchmarks – will come into effect.

For Malaysian exporters, this means that packaging is no longer just a marketing or logistics issue – it is a regulatory requirement. EU customers will increasingly demand that packaging materials meet recyclability standards and carry the correct EU labels. Exporters of processed foods, beverages, consumer goods and electronics will be under pressure to adapt packaging specifications in line with EU rules.

The challenge is that packaging requirements are highly technical and will evolve over time. What qualifies as “designed for recycling” may differ across materials such as plastics, aluminium and paper. This can be particularly challenging for Malaysian companies, which on average do not place much emphasis on recycling. Malaysian exporters will need to work closely with packaging suppliers to ensure compliance and may have to redesign packaging entirely for EU-bound goods.

In supply-chain terms, packaging compliance can become a bottleneck. If packaging fails to meet EU standards, the product itself cannot be sold – even if it is otherwise compliant. Malaysian exporters should expect EU customers to require packaging declarations or certification, and they should build internal systems to track and prove compliance.

Ecodesign for Sustainable Products Regulation (ESPR) – key go-lives from 19 July 2026

The ESPR is the EU’s framework for making products more sustainable over their entire lifecycle. Its centrepiece is the Digital Product Passport (DPP) – a mandatory digital registry that will store product data such as material composition, repairability and sustainability performance. The DPP system will go live on 19 July 2026, with sector-specific rules rolling out over time, starting with textiles, electronics and furniture.

For Malaysian exporters in these sectors, the ESPR represents a new level of transparency. Products entering the EU will need to be registered in the DPP and linked to QR codes or digital tags that EU consumers and regulators can access. Large companies will also face a ban on destroying unsold consumer products from July 2026.

The supply-chain challenge lies in data collection and interoperability. Information that may never have been tracked before – such as the recycled content of textiles or the ease of disassembly of electronic components – will need to be documented and uploaded in standardised formats. This requires exporters to coordinate closely with upstream suppliers and component manufacturers.

The ESPR shifts the compliance burden from the end product to the entire lifecycle. Malaysian businesses that can adapt early – by developing robust product data models and collaborating with EU buyers on DPP requirements – will gain a competitive edge. Those that cannot provide the necessary data risk delayed shipments or exclusion from EU supply chains.

Corporate Sustainability Reporting Directive (CSRD) – data requests already underway

The CSRD expands the scope and detail of sustainability reporting for EU companies. While the EU has postponed deadlines for some reporting entities, the first wave of companies is already reporting against the European Sustainability Reporting Standards (ESRS) for financial year 2024. This creates a ripple effect for supply chains.

Even though Malaysian exporters are not directly subject to the CSRD, EU buyers will increasingly request supply-chain data – especially on greenhouse-gas emissions (Scope 3), labour practices and resource use. For exporters, these requests may come in the form of detailed questionnaires, audit rights or contractual clauses.

The integration challenge is that CSRD data requirements are both broad and detailed. A single EU client may ask for carbon intensity figures, evidence of due-diligence on deforestation risks, proof of packaging recyclability and product lifecycle data – all of which overlap with CBAM, EUDR, PPWR and ESPR obligations. Exporters must therefore avoid treating each request in isolation and instead build systems that can serve multiple compliance needs.

From a commercial perspective, CSRD is less about direct penalties and more about supplier selection. EU companies will prefer suppliers that can provide reliable, audit-ready data that feeds into their own reporting. For Malaysian businesses, being data-ready is becoming a competitive differentiator – not just a compliance exercise.

The integration challenge – when five rules hit one supply chain

Individually, each of these EU regulations would already be demanding. Together, they create a convergence of compliance deadlines in 2026 that threatens to overwhelm exporters who are not prepared. The problem is not just “more regulation” – it is the fact that different rules require different types of data, collected from the same supply chain, all at once.

Take a Malaysian palm oil exporter as an example. Under the EUDR, it must map every plantation to the polygon level and document land legality. At the same time, EU buyers may ask for Scope 3 emissions data to feed into their CSRD reporting. If palm oil is further processed and exported in packaged form, the PPWR adds requirements on packaging recyclability and labelling. If the exporter also ships rubber gloves or furniture, ESPR will soon demand product passport data. Layered on top, CBAM may apply if the business also deals in fertilisers. The exporter suddenly faces five overlapping demands – not spread over years, but concentrated in one critical period.

The practical challenge is integration. Carbon emissions, deforestation risk, packaging recyclability, product lifecycle and supply-chain KPIs all require different data models – yet exporters cannot afford to build five separate reporting systems. Instead, businesses must create centralised data collection and compliance frameworks that can feed into multiple EU obligations simultaneously. This means investing in traceability tools, aligning supplier documentation, and developing internal teams capable of managing cross-cutting compliance.

The commercial risk is clear. EU buyers are under legal obligations and will not hesitate to cut off suppliers who cannot provide reliable data. For Malaysian exporters, the danger is being labelled “high risk” or “non-compliant” – leading to exclusion from contracts, delayed shipments or a loss of competitiveness in the EU market. Those who prepare early, by building integrated compliance systems, will not only survive the 2026 wave – they will also stand out as reliable partners in increasingly demanding European supply chains.

Conclusion – act now, not in 2026

The year 2026 will not bring a single compliance challenge – it will bring five, each with different demands, all hitting supply chains at once. For Malaysian exporters, the real risk is not fines from Brussels, but the loss of access to European markets if buyers conclude that a supplier cannot meet the new standards.

Those who prepare early – by mapping supply chains, integrating data systems and anticipating contractual push-downs – will turn compliance into a competitive edge. Those who wait risk being caught unprepared when EU customers tighten requirements.

At Aqran Vijandran, we help businesses navigate this shifting landscape – combining legal expertise with practical supply-chain insight. The message is simple: the time to prepare for Europe’s 2026 challenge is now.