The European Union Deforestation Regulation (EUDR) is among the most significant legislation in the fight against deforestation and forest degradation, which have significant implications for global climate change.  EUDR aims at reducing the impact of deforestation through the application of rigorous due diligence requirements on operators and traders.

The EUDR has already entered into force officially on 29 June 2023. Core obligations, however, are to apply only as of 30 December 2024, giving an 18-month period for companies and EU Member States to implement the requirements and adequately prepare its enforcement.

The regulation, therefore, is not just a legal compliance obligation but a massive move into doing business sustainably to save the planet. Companies whose business activities have links or are linked with commodities that cause deforestation must understand EUDR.

While its full obligations will apply to large and medium-sized enterprises starting 30 December 2024, for small and micro enterprises (SMEs), the applicability date is extended to 30 June 2025.

The Problem of Deforestation

The rate of deforestation is at alarming levels; over half of the tropical forests in the world have been destroyed since the 1960s. According to a 6 November 2021 report by the Food and Agriculture Organization of the United Nations, agricultural expansion accounts for nearly 90% of global deforestation. According to Global Forest Watch in a report dated 27 June 2023, tropical primary forest loss in 2022 reached 4.1 million hectares, resulting in emissions of 2.7 gigatons of carbon dioxide – similar to India’s annual fossil fuel emissions. This is an enormous loss, equivalent to the loss of about 11 football fields of forest every minute.

Definition for Operators and Traders

The definition of the term “operator” in the official text of the EU Deforestation-free Regulation is as follows: “Any natural or legal person who places on the market or exports relevant products in the course of a commercial activity”.

The definition of term “trader” found in the legal text is as follows: “Any (natural or legal) person in the supply chain, other than the operator, who makes relevant products available on the market in the course of a commercial activity”.

The Commodities Listed by the EUDR

The EUDR lists seven key commodities that fall within its provisions.  These commodities are:

1. Cattle (including beef)
2. Cocoa
3. Coffee
4. Palm Oil
5. Rubber
6. Soy
7. Wood

It also applies to a variety of related products based on such commodities, for example: leather, chocolate, and paper.

Date or Time Range of Production

In line with Article 9 of the Regulation, operators (and traders who are not SMEs) should gather information regarding the date or period of production.  This information helps to determine whether a product is deforestation-free.  This requirement, therefore, applies to commodities regulated under the Regulation that are either placed on the market or used in the production of other regulated products.

For all commodities with the exception of cattle, date of production is defined as the date the commodity is harvested.  Time range of production refers to the length of time the production process takes place.  In other words, in the case of timber, for example, it would be the length of time the harvesting operation takes.

Date of production for products other than live cattle includes the entire lifetime of the animal and the date of slaughter.

Key Components of EUDR Compliance

To be EUDR compliant, businesses should establish a set of due diligence measures, which include:

1. Supply Chain Mapping: Knowing who constitutes the whole supply chain is very critical.  Businesses have to know every supplier and their respective roles in production.
2. Data, Information, and Documentation Collection: Companies are supposed to collect comprehensive data on the products they trade in. This involves the description of the product, quantity, country of production, geolocation of plots where production occurs, and supplier data.
3. Risk Assessment: A good risk assessment should be conducted regarding the possibility of non-conformity with the EUDR standard. This includes deforestation and legality risks associated with commodities.
4. Risk Mitigation: Once risks are identified, businesses must take steps to mitigate them. This may involve corrective actions, training, and ongoing monitoring.

Detailed Due Diligence Requirements

Specific information shall be collected and stored by businesses for a period of five years to demonstrate compliance with the EUDR:

1. Product description: This includes the trade name, kind of product, and related commodities.  In the case of wood products, common as well as scientific names of species need to be declared.
2. Quantity of products: Companies must indicate the quantity in kilograms, volume, or number of items.
3. Country of production: The origin of the products needs to be clearly stated.
4. Geolocation of Production: Precise geolocation data for all plots of land where the commodities were produced must be given, together with the date or time range of production.
5. Supplier Information: Collection of the names, postal addresses, and email addresses of all suppliers.
6. Deforestation-Free Assurance: Businesses must be able to provide verifiable information that the products are deforestation-free.

Risk Assessment Focus

The EU differentiates countries into Low-Risk, Standard Risk, and High-Risk. In case the results of a risk assessment reach the conclusion that relevant commodities have been produced in Low-Risk countries, they will be subject to simplified due diligence requirements. This could significantly reduce the burden of compliance for businesses sourcing from such regions.

The risk assessment should prioritise farms or plots of land situated in High-Risk countries, as identified by the EU, that are subject to enhanced scrutiny. It is highly recommended to capture geolocation data using satellite imaging, which will give a reliable means for monitoring the use of land.

This classification must be completed by 30 December 2024.  In the meantime, all countries have been given a default risk level of “standard”.

Risk Mitigation Strategies

The information obtained would need to be rated for the risk factor of non-compliance. This may be carried out through:

1. Desktop Reviews: Conducting thorough reviews of documentation and data.
2. On-Site Follow-Ups: On-site verification to check the validity of information for compliance.

Businesses can do this through internal auditors or seek third-party external auditors. Trustnet.Trade provides Supplier Improvement Checks to audit your business partners and help businesses improve on compliance.

Annual Risk Assessment Requirements

In addition to these standard due diligence measures, businesses should conduct annual risk assessments within eight critical categories:

1. Land Use Rights: Land use rights are to be respected and recorded.
2. Environmental Protection: Environmental laws and regulations are to be followed.
3. Forest-Related Regulations: Regulations pertaining to the management of forests and conservation of biodiversity are to be complied with.
4. Third Parties’ Rights: The rights of third parties who are a party to the supply chain are to be protected.
5. Labour Rights: Good labour practice is to be ensured.
6. Free, Prior, and Informed Consent: Respecting the rights of indigenous peoples according to the United Nations Declaration.
7. Tax, Anti-Corruption, Trade, and Customs Regulations: Any applicable legal framework may be complied with.

Centralisation and Monitoring

Proper compliance management can be ensured if data collection can be centralised, and risk monitoring done on a continuous basis. Technology tools should also be deployed in data collection and analysis. Trustnet.Trade is a digital platform that enhances visibility and intelligence for quality and compliance data.

Engaging Expert Services

This will ensure the risk assessments are accurate for compliance, and expert services can be engaged, like those offered by Trustnet.Trade, to map your supply chain, have risk assessments done, and gather all this information at a central location.

Conclusion

The EUDR represents a paradigm shift in how companies must engage with sustainability and compliance challenges. Through an understanding of the requirements and implementation of proper due diligence measures, companies will not only ensure compliance with the regulation but take specific responsibility for involvement in the international fight against deforestation.  Involvement of expert services like Trustnet.Trade will further simplify the process and ensure that the companies concerned are well-prepared to handle the intricacies associated with the EUDR.

In summary, EUDR is much more than a regulatory duty; it is an opportunity for companies to express their commitment to sustainability and responsible sourcing. Businesses can further safeguard the environment, improve brand reputation, and make positive contributions towards a more sustainable future by taking proactive steps in ensuring compliance with the EUDR.