The impact of the EU’s Deforestation Regulation across industries

The EU’s Deforestation Regulation will go into full effect for most in-scope companies by the end of the year and for all in-scope companies next summer. The regulation aims to prevent new deforestation and biodiversity loss by focusing on several key commodities that are linked with ecological harm: cattle, cocoa, coffee, palm oil, rubber, soya, and wood. Companies will have to enhance their due diligence investigations and reporting, ensuring that these substances and associated products are acquired without new deforestation and in keeping with local laws. With such a short turnaround time, in-scope businesses across industries need to update their due diligence processes now to make sure that their products will still be valid within the EU market in 2025.   

Compliance requirements

The EUDR has three general requirements for businesses importing, exporting, selling, or transforming the seven commodities or their derivatives: 

Figure 1: Seven commodity types with direct impact from EUDR

1. The commodities or derivations must be deforestation-free; that is, they must not have contributed to the EU’s definition of deforestation or forest degradation after Dec. 31, 2020. This distinction is significant, as some countries have a legal limit on deforestation, which the EU does not consider compliant within the terms of the EUDR.
2. The commodities or derivations must be acquired or produced in accordance with the local social, environmental, and governance laws of the country where the commodity or derivation originates. 
3. The company that places the commodity or derivation within the EU market must provide a comprehensive due diligence statement proving the deforestation-free provenance of the product. This due diligence statement must include a risk assessment that demonstrates only a negligible risk of non-compliance. 

It is important to note that the EUDR specifically names which derived products fall under the scope of the regulation, so businesses should check Annex I in the legislation to confirm.   

Eligible businesses qualify as “operators” or “traders” under the EUDR, depending on their use of the commodity or derivation. Businesses can operate as both operators and traders, depending on their actions with various commodities and products.  

• Operators: entities that import, export, or place a relevant commodity or derived product on the European market for the first time.  
• Traders: entities that are involved in the movement and distribution of a relevant commodity or derived product within the EU, without importing, exporting, or transforming them 

Furthermore, reporting requirements vary slightly for SME traders, who are only required to collect and store key information for five years—including the name of their suppliers—and present it to relevant authorities if required. SME traders are also allowed to use the due diligence information provided to them by their suppliers as long as they store the name, reference numbers of the due diligence statements and other key information, and can provide these to relevant authorities when necessary. 

However, operators and non-SME traders are required to create thorough due diligence statements, proving no deforestation has taken place in the gathering of a commodity or creation of a derivative product and providing a risk assessment. If the commodity or derived product is placed in the EU market without accurate or confirmed due diligence information, the operator or non-SME trader can face severe fines and temporary exclusion from public procurement processes.  

Food & Beverage EUDR considerations

Many Food and Beverage (F&B) companies will be affected by the EUDR’s focus on the key commodities of cattle, cocoa, coffee, palm oil, and soya. All businesses that use or sell these commodities or related products must trace their provenance back to farm level.  

Related products that will be impacted include cattle meat and hides; cocoa beans, butter, and powder; all coffee products; palm oil and palmitic acid; soya beans, oil, and flour. Though this is not an exhaustive list, it demonstrates how many food and beverage products will be affected by the EUDR.   

For example, businesses that use oil palm in their products or import or export palm oil face a tricky road ahead with EUDR compliance.  Palm oil supply chains can be fragmented, with various small suppliers that can be difficult to track. The EUDR will require companies to know and report the exact geographic coordinates of these suppliers, as well as assess the related environmental and human rights risks.   

F&B businesses must implement accurate data-gathering and reporting measures quickly. Additionally, automating risk assessments for standard and emerging risks can help companies take quick and effective risk mitigation actions, such as changing suppliers. 

Automotive EUDR considerations

Automotive businesses will have to be aware of the supply chain provenance of key materials such as leather, wood and rubber tires. These materials may prove tricky in demonstrating compliance with the EUDR, especially if automotive manufacturers don’t have solid supply chain risk management systems in place.  

Though leather production is often paired with beef production, it is currently very difficult to prove that the original cattle didn’t graze on deforestation-free land. Similarly, rubber supply chains are plagued by a lack of transparency, which will make proactive traceability burdensome. The EUDR aims to make both supply chains more sustainable by holding operators and traders to higher green standards. However, this isn’t possible without a clear understanding of the origin and impacts of leather and rubber. 

As a result, automotive manufacturers must ensure that their due diligence statements are thorough and inclusive of the key details required by the EUDR. Since the burden of proof falls on the side of the business, anything less than verified environmental data will fall short of EUDR compliance. 

Consumer goods EUDR considerations

It’s not just automotive manufacturers that will have to be observant of the EUDR—companies that manufacture consumer goods will also have to prove the provenance of their timber and associated products, such as paper. From book and furniture manufacturers to toymakers, these consumer goods companies are looking at heightened due diligence requirements to trade within the EU.   

It is also important for these companies to note that local legal deforestation laws may be less stringent than the EUDR requirements. Legal deforestation laws specify a level of acceptable deforestation. However, the EUDR will take precedence over less exacting local laws, and the EU will expect businesses to meet the new regulation’s deforestation-free requirements.  

Next Steps

The EUDR was successfully passed and put into force at the end of June 2023, giving operators and traders a minimum of 18 months to put their comprehensive due diligence processes in place. The regulation is expected to have long-reaching impacts across industries when it comes into full effect on its final deadline of June 30, 2025. Large operators and traders will be affected earlier and must prove their compliance with the regulation starting on Dec. 30, 2024.  

Figure 2: EUDR timeline from initial pass to final deadline when the regulation takes full effect

If your company will be affected by the EUDR, your supply chain management teams should be searching for the best solutions to ensure compliance. Solutions such as Everstream Discover, for example, can automatically highlight key emerging and ongoing risks within your supply chains. Pulling from several different data streams, the Discover feature allows your company to verify potential issues, giving your team the opportunity to mitigate them quickly and effectively.   

Ultimately, compliance with green legislations such as the EUDR is not just wise for business but can also help you find and retain customers. Finding the right solutions now to prove your company’s compliance with the EUDR will help you prevent costly penalties, such as hefty fines and reputational damage. Make sure you understand where your key commodities are coming from now to create long-term sustainable practices that keep both the EU and consumers happy.