EUDR: The European Union’s strict action against deforestation

Deforestation hinders global CO2 reduction efforts and has a significant negative impact on the homeland of indigenous people. As a result, the EU has implemented numerous measures, such as the EU Deforestation Regulation, to reduce and stop this negative impact. Companies that produce specific products will have to report on their deforestation-free supply chain operations starting 30 December 2024. 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:  

1. They do not contribute to deforestation or forest degradation. 

2. 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 with regulations on land-use rights, forest management, labour, tax and/or human rights laws).

3. They are covered by a due diligence statement.

Directly affected companies are defined by their products and services: cocoa, coffee beans, soy, palm oil, cattle, wood and rubber (“relevant products”). All companies placing or making a relevant product available in the EU market, or originating from the EU market, are within scope. On the one hand, this includes “operators,” which means any natural or legal person who, in the course of a commercial activity, places relevant products on the market, or exports them. On the other hand, it also includes “traders,” which 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. Compliance will become mandatory as follows:

Companies in scope should establish due diligence systems consisting of:

1. information requirements;

2. risk assessment measures;

3. risk mitigation measures.

These are complemented by reporting obligations, such as making available due diligence statements when placing products on the market or when exporting them, and an annual public reporting obligation for non-SMEs. Also, systems should be able to support this process throughout the supply chain, to ensure that all data tied to in-scope HS codes meet the information requirements. 

As per the regulation, the relevant commodities and products must not be placed or made available on the market or exported without the steps mentioned above. Non-compliance with the regulation can have serious consequences for operating licenses. Moreover, fines can add up to 4% of the annual turnover, and additional consequences include the confiscation of revenues and products with embodied deforestation; the donation/destruction of inventory with potential embodied deforestation; and the high costs associated with potential product recalls. According to historical deforestation litigation cases, non-compliance can result in the loss of 10-20% of a company’s market value.

PwC’s experts can support your company in the assessment of your current situation, preparing for compliance, implementation, and the maintenance and development of your due diligence system.

Barbara Koncz
Partner
Email: barbara.koncz@pwc.com

Dr. Rita Szalay
Senior manager
Email: rita.szalay@pwc.com