Deforestation is one of the greatest threats to humanity’s ability to operate within planetary boundaries, with the net loss in forests globally between 2010 and 2020 being 4.7 million hectares per year.
It’s welcome news therefore that the European Union has introduced legislation to curb deforestation in the supply chains of products supplied into the bloc. The Regulation on Deforestation-Free Products (EUDR) is part of the EU’s biodiversity strategy for 2030, the EU’s new EU forest strategy for 2030 and the European Green Deal and became law in April 2023.
But, of course, new rules mean increased burden on businesses and this guide summarises the key things to watch out for if you are buying or selling affected products within the EU.
The EUDR’s impact assessment estimates that, without this intervention, the EU’s consumption and production of the six commodities alone could cause almost 250,000 hectares of deforestation annually by 2030.
The Regulation, which will have a considerable impact all the way through a product’s supply chain and requires effective due diligence to verify the origin of raw materials, with the onus falling on the businesses trading the products.
The overarching implication is that businesses need to first collect information, then carry out a risk assessment followed by risk mitigation.
What products are covered?
The Regulation applies to the following commodities and some derived products:
- Soy, beef, palm oil, wood, cocoa, coffee, and rubber.
- Derived Products: Check Annex I of the Regulation for a full list (customs codes are provided). Examples include leather goods, furniture, and chocolate.
Key dates to note:
Compliance becomes mandatory on:
- December 30, 2024: for medium and large companies.
- June 30, 2025: for small and micro-sized companies.
Note: the EU has proposed to extend these deadlines by 12 months to allow adequate time for businesses to prepare. At the time of writing, this proposal is currently with the EU Parliament for approval. We expect an updated timeline by the end of 2024.
Whether your own company will be classified as a “micro or small”, “medium-sized” or “large” company depends on the thresholds defined in the Accounting Directive (Directive 2013/34/EU). A “medium-sized enterprise” is a company that exceeds at least two of the following three size criteria on the balance sheet date:
- Balance sheet total greater than 5,000,000 Euros
- Net sales above 10,000,000 Euros
- Average number of employees above 50
Who is affected?
The Regulation applies to businesses that sell relevant products in the EU market or export them from the EU. This includes:
- Operators: Those who directly import or produce relevant products listed (see below for details on determining if your products are covered).
- Traders: Those who buy and sell products already on the EU market.
- Large retailers: Businesses that sell large quantities of relevant products.
What does compliance entail?
First up, Due Diligence:
Businesses must gather information about their supply chains to verify that products are deforestation-free and legally produced. This includes:
- Deforestation-Free: Products must not be linked to deforestation after December 31, 2020.
- Legality: Products must comply with relevant legislation in the country of production.
Risk Assessment: Businesses must assess the risk of deforestation in their supply chains, focusing on high-risk countries.
Documentation: They also need to maintain records to demonstrate due diligence efforts (e.g. supplier information, geolocation data).
Due Diligence Statement: Operators must submit a statement confirming their due diligence efforts.
There will be a list of high risk countries set out that should help businesses to assess risk, though has not yet been published.
How to get started:
- Check Annex I of the Regulation to determine if your products are listed or contain derived products from the list;
- Decide whether you are an Operator, Trader or Exporter to identify your role in the supply chain;
- Map your supply chain to identify suppliers and the origin of materials;
- Conduct a risk assessment to evaluate deforestation risks in your supply chain;
- Gather documentation: collect supporting documents for due diligence;
- Identify gaps: determine what information is missing to demonstrate compliance.
If you need help figuring out if this legislation applies to you and what you need to do, book a call with one of our consultants here.
Additional Resources
- EU Regulation Text: https://eur-lex.europa.eu/EN/legal-content/summary/fighting-deforestation-and-forest-degradation.html
- EU Green Business Website with Frequently asked questions: https://environment.ec.europa.eu/topics/forests/deforestation/regulation-deforestation-free-products_en
This is a general guide, and specific requirements might vary depending on your business size and role in the supply chain. Consider seeking specific advice for a more comprehensive understanding of your obligations.
