With the start of the new European mandate, businesses can expect a review of several green legislations approved in the previous term to better match the EU’s environmental ambitions with a call for protecting the competitiveness of the industries operating in Europe. This is the case with the EU Deforestation-free Products Regulation (EUDR).
As a key component of the European Green Deal, the Regulation is expected to significantly impact the operations and supply chain of those businesses operating in or trading with the EU. These businesses provide commodities or products usually related to deforestation, which presents both challenges and opportunities for them.
In this blog post, Publyon provides a deep dive into the EU Deforestation-free Products Regulation. We will explore its purpose and broader scope, along with the most recent developments in the legislation. Most importantly, we will highlight the impact of the EUDR on businesses placing commodities or products linked to deforestation in the European market. We will also provide strategies for thriving in this evolving regulatory environment.
What is the EU Deforestation-free Products Regulation?
On 29 June 2023, the Regulation on deforestation-free products entered into force. The Regulation aims to control EU imports linked to deforestation, with the goal to minimise the impact of the EU economy on deforestation and forest degradation, but also to bring down greenhouse gas emissions and biodiversity loss.
The main driver of these processes is the expansion of agricultural land that is linked to the production of commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber, and some of their derived products, including leather, chocolate, tyres, or furniture. The Regulation specifically addresses the commerce of such commodities and derived products, which will have to pass thorough due diligence checks before being placed in or exported from the European market.
What is the status of the EU Deforestation-free Products Regulation?
On 2 October 2024, European Commission President Ursula von der Leyen announced a proposal to delay the implementation of the EUDR by 12 months, thus making the EU Deforestation-free Products Regulation applicable starting from the end of December 2025 instead of 30 December 2024.
According to President von der Leyen, the extra 12 months can serve as a phasing-in period to ensure proper and effective implementation and for businesses to have enough time to prepare. The decision was taken after months of calls from numerous industry stakeholders, EU member states, trading partners and EU policymakers, to delay the implementation of the legislation to allow more time to prepare for the new rules. The calls were moved by the delay from the European Commission in releasing technical documents and information on how businesses and commodity-exporting countries can best align with the EUDR requirements.
To respond to the industry’s call, on the same day of the announcement of the 12-month delay, the European Commission also published a guidance document and updated the FAQ section of its website to provide additional information to the industries on how to best prepare for the implementation of the law.
The European Commission has called on both the European Parliament and the Council of the EU to approve the proposal for the delay ideally by the end of the year. The Council already signalled its willingness to approve the proposal without further changes to the text, while the European Parliament is set to decide during the plenary session in November 2024. Should the extension not be approved by the co-legislators, the EU Deforestation-free Products Regulation would maintain its original deadline and thus apply at the end of 2024.
Who is affected by the EU Deforestation-free Products Regulation and what are the implications for your business?
The Regulation introduces mandatory due diligence rules for businesses placing and making available on the Union market as well as exporting from the Union relevant commodities or related products usually linked to deforestation and forest degradation.
Within these specific businesses, the EU Deforestation-free Products Regulation makes a distinction between two types of actors which are affected by due diligence obligations:
- Operators, who place relevant commodities or products on the European market for the first time or export them;
- Traders, who make relevant commodities or products available on the European market.
Obligations under the EU Deforestation-free Products Regulation
While there is a distinction in definitions between operators and traders, both actors have to follow the same due diligence obligations, which can be divided into three steps to follow:
1. Collection of information
Documents and data showing that the product is deforestation-free and legal, such as geolocation coordinates, quantity, country of production, etc.
2. Risk Assessment
Assessment of whether there is a risk the product does not comply with the rules laid down in the Regulation.
3. Risk mitigation
Adoption of risk mitigation procedures and measures if there is a significant risk the product does not comply with the rules.
In addition, both operators and traders have to submit a Due Diligence Statement electronically via a new Information System to competent national authorities. The Information System will welcome registrations in November 2024, and it will be opened to all users in December 2024.
Should the 12-month extension be granted by EU policymakers, all of these obligations will start to apply from 30 December 2025, instead of the original deadline of 30 December 2024.
A different scenario opens for those operators and traders that are small and medium enterprises (SMEs). In the case of SME operators or SME traders, both actors have fewer obligations and can rely on due diligence already carried out by traders or operators in their supply chain. However, SME operators still retain legal responsibility in the event of a breach of the EU Deforestation-free Products Regulation. SME operators and traders will also have more time to adapt to the new requirements under the Regulation, as these will start applying from 30 June 2026 (should the extension be granted).
Finally, operators sourcing commodities entirely from areas classified as low risk will be subject to simplified due diligence obligations, as they will only need to collect information and documents proving that the commodities are deforestation-free and legal.
Non-compliance with the EU Deforestation-free Products Regulation
Member States are mandated to implement the obligations set out in the legislation and establish penalties for violations of the Regulation’s provisions. According to the EU Deforestation-free Products Regulation, penalties must be effective, proportionate, and dissuasive, and Member States are responsible for implementing and notifying the EU Commission of these penalties, which can include:
- Fines: Companies can face significant fines proportional to the environmental damage caused and the value of the products involved. These fines can be at least 4% of business’ annual EU-wide turnover from the previous financial year.
- Confiscation: Authorities can confiscate both the non-compliant products and the revenues generated from these products.
- Temporary Exclusions: Non-compliant companies may be excluded from public procurement and access to public funding for up to 12 months.
- Market Restrictions: In cases of serious or repeated violations, companies may be temporarily banned from selling or exporting their products.
- Due Diligence Restrictions: Non-compliant companies can lose the right to simplified due diligence procedures for serious or repeated infringements.
Challenges and opportunities of the EU Deforestation-free Products Regulation
In terms of challenges, numerous industries and EU member states raised their concerns about the apparent lack of clarity from the European Commission in terms of the legislation’s implementation. While the European Commission recently published additional guidance, industry stakeholders complain about the unclarity of the documents issued and are worried about the additional bureaucracy that they will be facing to comply with the legislation.
Apart from these challenges, the EU Deforestation-free Products Regulation could be beneficial for those businesses that are already prepared to align with the Regulation’s requirements as soon as the text enters into application. This would make these businesses sustainable frontrunners within their specific sector, thus enhancing their reputation and market positioning vis-à-vis competitors.
What are the next steps?
Businesses within the scope of the legislation are advised to assess the requirements laid down under the Deforestation-free Products Regulation while seizing opportunities to drive sustainable growth and resilience in the market. At the same time, they should closely monitor the latest developments of the Regulation, as a 12-month phase-in period may allow for additional time for organisations to comply with the legislation and align their business operations with the greening aspirations of the European Union while continuing to secure their license to operate in the Single Market.
Publyon offers tailor-made solutions to navigate the evolving policy environment at EU level and anticipate the impact of the most relevant EU sustainable policies and political developments on your organization. Publyon advises organisations to:
- Ensure compliance with EU regulations by assessing their impact on operations: Publyon’s Policy Impact Scans provide organisations with a roadmap for navigating complex legislation and identifying the key EU and international policies that affect their business. This enables you to develop or adapt your business strategy with confidence and clarity, from day-to-day operations to the boardroom.
- Implement an EU funding strategy: Working with our partner Hezelburcht, we secure optimal grant support to achieve strategic, financial and innovative goals.
- Shape the future EU agenda: Organisations need to be well-informed about policy developments in Brussels. Equipping yourself with the tools to strategically position your organisation in the evolving political landscape is key.
- Develop a public affairs strategy to have a say in the Commission’s programme: Publyon provides expert advice and guidance to help you understand legislation and its potential impact. Together we can tailor strategies to your organisation, influence the legislative process and build relationships with key decision-makers. Keeping abreast of EU sustainability developments ensures that you are well placed to take advantage of the opportunities presented by the ongoing green transition.
At Publyon, we have a proven track record and extensive network that can help you realise your ambition to access policymakers by influencing and contributing to the political agenda.
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