EU Deforestation Regulation: An Urgent Matter for Companies, People and the Environment

Although forested areas in Europe have expanded by 9% in the past three decades according to Forest Europe, the block’s prominent role in global deforestation has long warranted the development of new legislation to tackle the issue. Finally, after lengthy debates, the EU Deforestation Regulation (EUDR) is now ready to radically change the way European industries address the subject of sustainability when importing and exporting goods.

Finalised in December 2022, the EUDR is expected to come into force as early as May 2023, so here’s everything you need to know about this new piece of legislation and its potential effects for your organisation.

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The Issue of Deforestation

Deforestation is defined as the destruction of forested areas so that the land can be repurposed. Forest degradation, on the other hand, is the progressive decline in a forest’s ability to sustain itself and to support timber and biodiversity development.

Usually caused by human activities, such as industrial agriculture, urbanisation, over-exploitation of wood resources and climate change, both deforestation and forest degradation should be major points of concern for all of us.

In addition to the obvious biodiversity loss, these destruction processes result in innumerous issues which include soil erosion, water cycle alterations, increased greenhouse gas emissions, and loss of lives and livelihoods of people living in and around forests.

Understanding the EU Deforestation Regulation

As previously mentioned, while the size of forested lands is certainly increasing within European borders, the same cannot be said of those green areas on a global scale. In fact, the European Union’s consumption alone accounts for about 10% of worldwide deforestation, which was the fundamental reason behind the creation of the EU Deforestation Regulation.

Finalised in December 2022, the EU Deforestation Regulation is a new piece of legislation published by the EU Commission establishing a mandatory due diligence system for certain commodities and products, which are known for having a major impact on global deforestation.

According to the EUDR, EU companies with specific products on the EU market, or exporting them out of the EU, will need to conduct comprehensive due diligence throughout their entire value chains to guarantee that the products meet the following standards:

• Are deforestation-free, meaning that they have not contributed to deforestation and/or forest degradation in any part of the world;
• Have been sourced and/or manufactured in compliance with the legal requirements of the country in which they were produced, including in relation to human and indigenous peoples rights;

The proposed regulation also determines that companies must provide competent authorities with specific types of information regarding their supply chains, such as geo-localisation coordinates of the areas where goods were produced. Reports on the company’s measures to avoid deforestation are also mentioned as a requirement, and all the relevant information should be stored for a minimum of five years.

An information system, to be developed by the EU Commission, will support European companies and competent authorities in presenting and accessing the necessary information.

The Scope of the EUDR

Under the final text, the EUDR’s strong set of due diligence requirements applies to organisations dealing with the following commodities:

• Wood (including charcoal and printed paper goods)
• Rubber
• Beef
• Coffee
• Cocoa
• Palm Oil
• Soy

The final text of EUDR also details a specific list of commodity-derived products whose placing on the EU market will also entail a due diligence obligation. These include products such as chocolate, rubber apparel products (e.g., gloves), palm oil derivatives (used in cosmetic products), as well as any kind of wooden furniture.
Since before the publishing of its draft in November 2021, the scope of the EU Deforestation Regulation has been the subject of intense discussions, with environmental experts and other stakeholders advocating for an expansion of the legislation’s coverage to other commodity and ecosystem types. A big gap identified, for example, was the fact that the EUDR only targeted the destruction of forested areas, leaving other biodiversity-rich ecosystems unprotected.

Although they did not succeed in expanding the protection to other highly endangered ecosystems, they managed to ensure an obligation for the EU Commission to assess, within two years from the entry into force of EUDR, a potential expansion of EUDR to other ecosystem types (e.g., wetlands, savannahs) and to other commodities (e.g., maize).

Challenges for Companies Covered by the EUDR

Although some companies might have already started their green transition based on the trends evidenced by other policies, such as the EU Due Diligence Legislation, most others will likely face significant challenges in implementing changes required by the EUDR.

The fundamental difficulty for many players will lie in mapping the relevant actors throughout extensive value chains and collecting the necessary data. Multinational operations are expected to be especially challenging, since each country will have its unique set of regulations to be complied with. Some countries may also have inherent law enforcement problems.

While the EU Commission is already working on ways to assist European companies on their journey towards EUDR compliance, it is expected that organisations of all sizes will need to make significant investments in personnel and technology if they are to avoid potential penalties. In case of non-compliance, penalties can go from fines based on a percentage of the operator’s total annual turnover in the EU, to temporary prohibition of exportation and placement of goods on the block’s market.

Want someone with deep experience and connections in the EU to help guide your sustainability strategy? Get in touch!

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