The 2019-2024 European legislative term is soon coming to an end, but some legislations adopted in the past five years will start to apply very soon. This is the case of the EU Deforestation-free Products Regulation (EUDR), which will start applying on 30 December 2024.
As a key component of the European Green Deal, the Regulation is expected to have a significant impact on the operations and supply chain of those businesses operating in or trading with the EU to provide commodities or products usually related to deforestation, thus presenting both challenges and opportunities for such organisations.
In this blog post, Publyon provides a deep dive into the EUDR exploring its purpose and broader scope. Most importantly, we will shed light on the impact of the EUDR on businesses placing commodities or products linked to deforestation in the European market, and we will highlight the strategies needed to thrive 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 aim of the Regulation is 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.
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 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. All of these obligations will start to apply from 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 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 2025.
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 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 the 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, while the Regulation has been already in force since June 2023, numerous industries and EU member states raised their concerns about the apparent lack of progress and clarity from the European Commission in terms of the legislation’s implementation. Some countries such as Austria, Latvia, Finland, and Germany have been asking for the entry into application of the new rules to be postponed. Businesses have also been asking for clarification on how they will be able to prove compliance with the legislation. On the other hand, the European Commission plans to continue with the rollout of the Regulation as planned, and it does not foresee delays or suspensions of the legislation.
Apart from the challenge posed by the current uncertainty around the legislation’s implementation, which the European Commission plans to clarify as soon as possible with additional guidelines, the 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 additional guidance from the European Commission is expected to provide clarity on how companies can best comply with the legislation, so as to 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, 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: It is vital for organisations 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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