It has long been known that deforestation and forest degradation pose significant environmental threats, such as loss of biodiversity, disruption of water cycles and contribution to climate change (accounting for more than 10% of greenhouse gas emissions).[1] To address this crisis, the European Commission has adopted the EU Deforestation Regulation (hereafter: EUDR).
The EU requires companies that place the following products on the Union’s market to comply with the Regulation: cattle, cocoa, coffee, oil palm, rubber, soy and wood (hereafter: relevant commodities).
These Companies shall contribute to:
- “Minimising the Union’s contribution to deforestation and forest degradation worldwide, and thereby contributing to a reduction in global deforestation
- Reducing the Union’s contribution to greenhouse gas emissions and global biodiversity loss.”[2]
The EU wants to make sure that all products which are placed on the market or are exported are deforestation-free, produced in accordance with the relevant legislation of the country of the production and are covered by a due diligence statement.[3]
A product is defined as ‘deforestation-free’, when the products “have been fed with or have been made using, relevant commodities that were produced on land that has not been converted from forest to agricultural use, whether human-induced or not, after 31 December 2020.”[4] This date is applicable for all products that are produced on or after 29 June 2023, except for timber which is only applicable from 31 December 2027 onwards.[5]
“‘Forest degradation’ means structural changes to forest cover, taking the form of the conversion of: primary forests or naturally regenerating forests into plantation forests or into other wooded land; or primary forests into planted forests.”[6]
Since the EUDR has both its challenges and opportunities for businesses, here are some key take aways for businesses to encourage and navigate themselves through the need of EUDR compliance, which will apply from 30 December 2024:
- Due Diligence Statement (DDS)
If your company places products on the Union’s market that fall within the scope of the EUDR, the first step is to prepare a Due Diligence Statement (hereafter: DDS) to be sent to the competent authority of the Member State in which the company is located. With this statement, the company demonstrates its compliance with the EUDR with this statement. These statements should consist of three elements[7]:
- Information requirements: providing “access to information about the sources and suppliers of the commodities and products being placed on the market, including information demonstrating that the absence of deforestation and forest degradation and legality requirements are fulfilled.”
- Risk assessment: “on the basis of that information, operators should carry out a risk assessment.”
- Risk mitigation measures: “Where a risk is identified, operators should mitigate that risk to achieve no or only a negligible risk.”
Operators take their responsibility by making their DDS available. The reference number of these statements will be communicated to all the suppliers throughout the complete supply chain to prove “that no or only a negligible risk was found”.[8] It is important that these statements will be accessible for operators, authorities and the general public to a limited extent, in order to fully comply with the Regulation.[9]
- Advantages of optimising your supply chain
For businesses producing or trading in the relevant commodities listed above, it is important that significant changes are made throughout the supply chain. To ensure that the companies’ production process is deforestation-free, the supply chain should be completely traceable so that suppliers can be checked for compliance with sustainable forestry practices. If not, it is recommended that you switch suppliers.
By changing your business as usual, you can open up new market opportunities. Consumers and investors increasingly favour companies that demonstrate environmental responsibility. Products certified as sustainably sourced can command higher prices and gain access to premium markets. These changes will also drive your innovation and operational efficiency. New technologies will be developed to monitor forests, such as drones, improve the supply chain transparency and reduce waste. Over time, these innovations will lead to cost savings and improved productivity.
- Risk mitigation and long-term sustainability
Although changing your operations to be fully compliant with this Regulation can be expensive, it also helps businesses to mitigate risks associated with deforestation, such as reputational damage, legal penalties, and supply chain disruptions. By adopting sustainable practices, you will not only enhance your business’ brand reputation and build consumer trust, but you will also create a long-term optimised supply chain, which in its turn will be less expensive.
These long-term sustainability practices will contribute to the long-term viability of businesses by ensuring the availability of natural resources. By preserving forests, companies protect ecosystem services that are vital for their operations, such as water regulation and soil fertility.
- Implementation & penalties
Effective implementation and enforcement of the EUDR are crucial in order to achieve its goals. For this reason, the European Commission is creating various tools to help the implementation process of the Regulation.
Firstly, there will be a multi-stakeholder platform on protecting and restoring the world’s forests. This platform will improve dialogues between the member states, third countries and the European Commission. Additionally, an EU observatory on deforestation and forest degradation will be set up. This will build on existing monitoring tools and facilitate access to information on supply chains not only for businesses and public entities, but also for consumers. Moreover, the Team Europe Initiative on deforestation-free value chains supports partner countries with transitioning to sustainable, deforestation-free, and legal agricultural value chains. Lastly, an Information System will be set up containing due diligence statements submitted by traders and operators to comply with the EUDR requirements.[10]
It is important that companies required to comply with the EUDR seek advice, since the failure of compliance will result in penalties and fines which can reach up to 4% of the company’s EU turnover.
[1] https://green-business.ec.europa.eu/deforestation-regulation-implementation_en.
[2] Art. 1, (a),(b) Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making availble on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010 (EUDR).
[3] Art. 3 EUDR.
[4] “10 key things to know about the new EU Deforestation Regulation”, 21 July 2023, https://www.whitecase.com/insight-alert/10-key-things-know-about-new-eu-deforestation-regulation.
[5] “10 key things to know about the new EU Deforestation Regulation”, 21 July 2023, https://www.whitecase.com/insight-alert/10-key-things-know-about-new-eu-deforestation-regulation.
[6] Art. 1, (7) EUDR.
[7] (49) EUDR.
[8] Art. 4, (2) EUDR.
[9] (51) EUDR.
[10] (62) EUDR; https://green-business.ec.europa.eu/deforestation-regulation-implementation_en.