EU Deforestation Regulation
Recognising that the EU marketplace is the world’s largest contributor of deforestation, after China, the EU Deforestation Regulation (EUDR) will play a crucial role in reducing the EU’s impact on global deforestation and forest degradation. Deforestation is a pressing global issue with far-reaching consequences for the environment, biodiversity, and climate change. Recognising the urgency to address this challenge, the European Union has taken a significant step forward with the introduction of the Deforestation Regulation. This legislation aims to minimise the EU's contribution to deforestation and forest degradation worldwide. It does so by ensuring that the products entering the EU market have not been associated with such harmful practices.
Due diligence system
The Deforestation Regulation establishes a due diligence system that requires companies to verify the legality and deforestation-free nature of their supply chains for specific commodities that are known to be major drivers of deforestation. The regulation applies to both EU-produced and imported goods, creating a level playing field and promoting sustainable practices globally.
Scope
The Regulation covers the most relevant commodities in the Union consumption in terms of driving global deforestation and forest degradation including derivatives of these commodities. Examples of products in scope of the EUDR are included in the list, for a full overview we refer to annex I of the Regulation.
Cattle incl. live cattle, meat, leather
Cocoa incl. beans, paste, butter, powder, chocolate
Coffee incl. roasted, unroasted, decaf, substitutes
Oil Palm incl. nuts, kernel, acids
Rubber incl. natural, compounded, tyres, inner tubes
Soy incl. beans, flower, oil
Wood incl. printed books, paper, furniture, pallets
How does it work?
Under this regulation, companies that qualify as ‘operator’ or ‘trader’ because they import, export or trade the relevant products in the EU, must collect and provide access to precise information, ensuring traceability of these commodities back to their place of production. This includes the geographical coordinates of the land where the commodities were grown, which will be checked against deforestation and forest degradation databases and confirmation that commodities are produced in line with the regulations in the country of production. The aim is to prevent products linked to deforestation from being placed on or exported from the EU market.
Non-compliance with the obligations of the Regulation can lead to not being able to import or export goods, withdrawal or confiscation of the relevant products, temporary exclusion from access to public funding, penalties with a maximum amount of at least 4% of the annual EU-wide turnover of the operator or trader and to reputational damage.
Companies in scope should establish and implement below steps to comply with the due diligence requirement:
- Information requirements
The verifiable and adequately conclusive information on the sources of commodities needs to be collected. Furthermore, companies need to ensure that the products have been produced in accordance with the relevant legislation of the country of production and have collected documentation as evidence of your compliance. - Risk assessment measures
Collected information must be used for a risk assessment to verify and evaluate the risk of non-compliant products entering the supply chain. Certification schemes can be used to help with the risk assessment. However, operators and non-SME (micro and small enterprises) traders will still be required to exercise due diligence and will remain responsible for any breach. Therefore, initially everyone will be required to comply with the risk assessment and possibly mitigation.
At a later stage, countries (or regional levels) will receive a risk classification. As of then, operators sourcing commodities entirely from areas classified as low risk will be subject to simplified due diligence obligations.
- Risk mitigation measures
Where the risk assessment results in more than a negligible risk of non-compliance, mitigations measures need to be taken to limit the risk. Measures taken need to be documented. - Due diligence statement
Operators and non-SME traders need to upload the information required in a due diligence statement. Such statements will need to be submitted by operators and non-SME traders. Traders may rely on the due diligence previously carried out in the supply chain, but are liable in case of a breach. If operators or traders cannot collect the required information, they must refrain from placing the affected product on the market.
Timeline
- Operators and traders will have to implement the new rules of the EUDR by 30 December 2025. SMEs will enjoy a longer adaptation period to 30 June 2026. This one-year postponement from the original application date was approved by the European Parliament mid November 2024.
- Operators must ensure that the items entering the EU market are not from land that has been deforested or subject to forest degradation since 31 December 2020.
- This means that the EUDR requirements will affect products currently in production, those using related ingredients or commodities, or those made with them. If these products don't meet the EUDR standards, they cannot be sold in the EU starting from 30 December 2025 (unless they are imported earlier than 30 December 2025).
What we can do for you
As these obligations come fully in force, in-scope companies should prepare for the considerable demands the EUDR will place on their data management, supply chain due diligence, and adequate systems and processes. Supplier engagement, data availability, governance and IT & systems are essential in this respect. This is a one-way street for companies in the EU and regulation will only become more stringent in the next few years. To ensure your business is fully prepared for whatever the future may bring and that synergies with other sustainability legislation will be utilised, please feel free to contact us for further guidance.
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