The EU Deforestation Regulation entered into force on 29 June 2023. This new regulation repeals the EU Timber Regulation (EUTR) and aims to reduce the impact of the EU market on global deforestation and forest degradation. The EUDR covers an unprecedented range of products, requires affected companies to conduct extensive due diligence along the supply chain to ensure their goods do not originate from recent (after 31 December 2020) deforestation or have contributed to forest degradation, and are in full compliance with the local social and environmental laws. By the end of December 2024 (or June 2025 for micro and small businesses), operators and traders in the relevant value chains will have to comply with the due diligence requirements or face significant sanctions.
According to the Food and Agriculture Organization (FAO) , an estimated 420 million hectares of forest – about 10 % of the world’s remaining forests, an area larger than the European Union – have been lost globally in the last 30 years.1
As the second largest importer of tropical deforestation and associated emissions only after China2, and as a major economy and consumer of deforestation-related commodities, such as cattle, cocoa, coffee, palm oil, rubber, soy and wood, as well as their derived products, the EU has a critical responsibility to reduce its footprint and ensure that the products consumed by its citizens do not contribute to the alarming scale and pace of deforestation and associated biodiversity loss. In this context, the EUDR is a fundamental element of the EU Green Deal and an integral part of a broader plan of forest protection initiatives.
The EUDR and its predecessor, the European Union Timber Regulation (EUTR), are two key regulations that are relevant to the EU’s efforts to combat deforestation. Navigating the nuances of these two regulations is critical for understanding the changing implications, meeting compliance standards, and advancing sustainability goals.
Implemented in 2010, the EUTR was introduced to combat illegal logging, a major contributor to deforestation and climate change and applies primarily to timber and timber products imported into the EU or produced domestically. While sharing a common objective of preventing deforestation and promoting sustainability, the EUDR was designed for a broader legislative objective, targeting deforestation and forest degradation regardless of its legality.
The new regulation also aims to cover a wider scope of commodities that contribute to deforestation as listed above, prohibiting the placement on the market or export from the EU of certain goods and products, unless they are deforestation-free; have been produced in compliance with the laws of the country of production (i.e., regarding land use, labour rights, human rights); and are covered by a due diligence statement.
Although both the EU Timber Regulation and the EU Deforestation Regulation require due diligence, the EUDR imposes significantly greater transparency requirements, emphasising the geo-location and traceability of raw materials from source to the point of sale. A wider operational scope obligates operators to collect detailed information that demonstrate the products’ compliance with the EUDR; conduct thorough risk assessments that reflect numerous factors including the risk category of the country of production; mitigate detected risks by carrying out independent surveys and audits or gathering additional documentation; and issue annual statements of due diligence that are accessible to authorities, traders, and to a more limited extent the general public.
It is important to note that today’s production will shape tomorrow’s compliance. While the main obligations of the EUDR do not apply until 30 December 2024, companies will have to provide retroactive proof that their raw materials have been deforestation-free since 31 December 2020.
The Deforestation Regulation sets out clear sanctions for non-compliance, including fines of up to 4% of the company’s annual EU turnover. In addition, the relevant product or the proceeds of a related transaction may be confiscated. Other sanctions may include temporary exclusion from public procurement procedures and access to public funds, temporary prohibition from placing, making available or exporting relevant goods or products, and prohibition from using the simplified due diligence procedure.
The EUDR addresses an area that is not yet transparent for many companies: their deep supply chain. Commodities often pass through complex, multi-tiered structures, that make it difficult to achieve the transparency and traceability required by the new regulation. This challenge intensifies when dealing with commodities produced by smallholders involving multiple agents and sub-agents in the country of origin. Against this backdrop, three key questions are at the forefront of companies' preparations for EUDR:
1. How can origin information be obtained?
2. How do you verify production compliance with local legislation? This involves communicating and verifying social and environmental regulations, potentially collaborating with certification bodies and local audit firms.
3. How do you assess risk? Risks related to geolocation and supplier behaviour must be evaluated and documented for the due diligence statement.
The complexity and immense amount of data required for complying with the EUDR demands affected companies to rethink their methods of obtaining, processing, analysing and managing data. A software solution that digitises and automates these processes is essential for achieving full compliance in a timely and simple manner.
Drawing from the extensive experience of building other solutions along the supply chain, such as for the German Supply Chain Due Diligence Act (LkSG) and supply chain traceability at various levels, the osapiens SaaS solution comprises of different components, supporting all stakeholders across the supply chain. It aids farmers in determining and communicating geolocation, enables exporters to collect and communicate relevant information, and assists operators and traders in requesting and sharing data, conducting risk assessments, preparing due diligence statements as well as taking measures to minimise risks.
The solution osapiens HUB for Deforestation Regulation is being developed in collaboration with the German law firm Graf von Westphalen, which specialises in the legal aspects of sustainability reporting, to ensure the greatest possible legal certainty. Cooperation and compatibility with the IT systems provided by the EU, such as the information system (IS), which contains all due diligence declarations, and the EU Single Window Environment, which is responsible for exchanging customs information in real time, is also key. Once the API is available, it will connect to the above-mentioned IT systems and automatically include data points in the risk assessment. osapiens HUB for Deforestation Regulation will provide reliable support for companies to fulfil the requirements of the EUDR promptly and efficiently and will also serve as an instructive example for compliance with future ESG regulations - an important step towards sustainable corporate practices.