The EU Deforestation Regulation: Getting started now

From 30 December 2024, companies doing business in the EU will need to comply with the requirements of the EU Deforestation Regulation (EUDR). While a continually evolving legislative environment is a fact of life in the EU marketplace, this new regulation brings particularly significant implications, requiring businesses dealing with certain products to conduct even more extensive due diligence on their supply chains.  

In force since 29 June 2023, the EUDR has been introduced to limit the EU market’s impact on global deforestation/forest degradation and biodiversity loss, promote deforestation-free supply chains, reduce the EU’s contribution to greenhouse gases (GHG) emissions– and protect human rights and the rights of indigenous people.

When compliance becomes mandatory at the end of 2024, the new regulation will require large companies trading in seven key commodities (and products derived from those commodities) to prove that these goods/products do not originate from recently deforested areas or contribute to forest degradation.

This article sets out the EUDR’s core requirements and what companies should be doing to ensure they’re ready to comply.

Local customs authorities across EU states are already flagging companies’ responsibility to comply with the EUDR’s far-reaching requirements. All companies in the EUDR’s scope (and that’s likely to include companies in many different industry sectors) need to start preparing now for its impact on how they manage and monitor their supply chains.

Regulatory scrutiny will be intense – and large volumes of data (on products and suppliers) will be needed to comply. With this in mind, organisations’ immediate priorities should include understanding the legal obligations of the EUDR, defining a compliance framework, implementing a centralised data-gathering capability and ensuring key processes are in place, with clearly defined roles and responsibilities.

Failure to comply with the EUDR standards could result in punitive fines and reputational damage.

To understand the application of the EU Deforestation Regulation, it is crucial to define its objective and subjective scope – covering respectively the products that it affects and the economic operators that should comply with its requirements.

Objective scope 

The EUDR applies to an extensive list of products (‘relevant products’) made from commodities associated with deforestation (‘relevant commodities’): cattle, cocoa, coffee, oil palm, rubber, soy, and wood. To give an idea of the breadth of scope, this will encompass everything from beef and leather to furniture, boards and other wood or paper products, as well as soy flour and oil, chocolate, coffee, palm oil and its derivatives, and rubber products such as tyres.

Subjective scope

As for subjects, the EUDR’s definition of ‘operator’ is key. This is how the Regulation refers to any natural or legal person who, in the course of a commercial activity, places relevant products on the market, or exports them. ‘Traders’ should also comply with the Regulation. This means any person in the supply chain other than the operator who, in the course of a commercial activity, makes relevant products available on the market.  

The Regulation affects both large companies and SMEs, although obligations for the latter are delayed until 30 June 2025 (with simplified obligations for SME traders).

The Regulation is based on a basic premise: the prohibition on introducing into the market, marketing, or exporting relevant commodities and products – unless they meet three conditions:  

(a)    They do not contribute to deforestation or forest degradation. 

(b)   They have been produced in accordance with the relevant legislation of the country of production (which includes not only compliance with environmental regulations, but also those related to land-use rights, forest management, labour, tax and /or human rights laws).

(c)    They are covered by a due diligence statement.

The due diligence statement is the cornerstone around which the obligations of operators and traders are defined to ensure that products and commodities do not cause deforestation or forest degradation.

Both operators and traders should – before introducing into the market, marketing, or exporting a relevant product or commodity – make available to the competent authorities the corresponding due diligence statement through a European register (which the Commission should set up before the end of the year).

And they can only introduce into the market, make available or export such products and commodities if, after due diligence, the products are compliant (are not prohibited by the Regulation) and do not pose a risk of deforestation (or any risk is considered to be ‘negligible’). In other words: products or commodities cannot be introduced into the market, or exported, if these requirements are not met or if operators or traders have not been able to comply with the due diligence obligations for any reason.

It's worth noting that SME traders are not required to carry out due diligence statements themselves, but can rely on those obtained from the operators or traders who supply them with the products.

The Regulation also regulates how to carry out the due diligence that should conclude with the corresponding statement.

First, it requires the collection of comprehensive information, data, and documents about the products, the country of production, and even the specific (geolocated) plots where the relevant commodities were produced. This also includes conclusive and verifiable information that the products are free of deforestation and that the commodities have been produced in accordance with local legislation, among other aspects. 

Based on this information, a risk assessment will be carried out against a series of criteria, which include, among others: the level of risk assigned to each country (or parts of it) by the Commission, the presence of forests, the prevalence of deforestation or forest degradation in the country (or in part of it), the reliability of the information, the complexity of the supply chain, or the presence of indigenous peoples. This assessment should be carried out at least once a year. 

Finally, risk mitigation measures should be adopted, which may include gathering additional information, conducting independent studies or audits and/or adopting supplier support measures. 

The due diligence requirements are simplified if all commodities and products come from low-risk countries. 

Additionally, it is important to note that the Regulation requires companies to publicly report on their due diligence system annually and keep all documentation related to the due diligence for at least five years.

The EUDR requires Member States to designate competent authorities and regulates in detail the obligation to carry out controls to ensure compliance with its provisions. The Regulation is rigorous in requiring the analysis of due diligence systems and the documentation collected by operators, as well as the examination of commodities and products. National authorities are empowered to recover the costs incurred in cases of non-compliance, as well as to seize commodities and products or to suspend their import, export, or marketing.

The EUDR also introduces corrective measures for non-compliance, and regulates a sanctioning regime with fines amounting to 4% of the company's turnover in the EU, as well as measures for the confiscation of products and income. It even provides for the possibility of complaints (‘justified concerns’) by third parties, which would trigger the Administration's action. Lastly, the EU Commission will publish on their website a list with final judgement against companies for infringements of this legislation (including name, date and summary of the infringement including the penalties that are imposed on them).

Recognising that the EU marketplace is the world’s largest contributor of deforestation, after China, the EUDR should play a crucial role in reducing the EU’s impact on global deforestation and forest degradation.

Over time, the Regulation is expected to help to cut greenhouse gas (GHG) emissions and limit biodiversity loss. Furthermore, the Commision has mentioned that they will review the regulations and if needed can extend regulatory protection in the next few years to include commodities and products sourced from other threatened ecosystems (such as wetlands).

The EUDR’s scope is, of course, already far-reaching. In much the same way as the EU has already done with the Battery Regulation or other environmental due diligence regulations, the clear intent with this new regulation is to zero in on the environmental (and social) impacts of certain products along the value chain. With these regulations the EU wants to drive impact and change, with the hope that companies not only see it as a compliance requirement, but are actually reassessing their supply chain and making strategic decisions in the right direction.  

Compliance will have to be based on much more than a simple box-ticking exercise. The EUDR will require many economic operators to carry out a rigorous analysis of their supply chains to guarantee that the products they introduce into the market, or export, do not contribute to deforestation or forest degradation and that they are obtained and produced with full respect for the regulations of the countries of origin.

With just 10 months left before these obligations come fully in force, in-scope companies should prepare now for the considerable demands the EUDR will place on their data management, supply chain due diligence, and key systems and processes. 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, please feel free to contact us for further guidance.