EU Deforestation-free Regulation (EUDR)

Over the past three decades, an area larger than the entire European Union has been deforested. This has had vast impacts felt across the globe, contributing to the 69% decline in wildlife populations we have seen in the last 50 years¹, and the removal of carbon sinks that help to absorb carbon dioxide from the atmosphere. Importantly, up to almost 4.2 billion people live within 5 kilometres of a forest, and are dependent on them for their homes, livelihoods and sources of food.

The agriculture sector causes 80% of tropical deforestation². It is therefore important that issues relating to deforestation are addressed in countries where goods are consumed, given that they drive demand down the supply chain.

On 29 June 2023, the EU Deforestation-free Regulation (EUDR) came into force. This regulation establishes strict due diligence requirements for companies that place on, or export from the EU market certain commodities linked to deforestation. The new obligations will apply from 30 December 2024.

The EUDR scope covers seven specific commodities: cocoa, coffee, soy, palm oil, wood, rubber, and cattle, and their derivatives, as well as the products made or fed with these commodities (including beef, leather, cosmetics, chocolate, and furniture). Given the breadth of commodities within scope, many industries will be impacted, including automotive, food products, fashion, manufacturing and pharmaceuticals.

For example, palm oil alone is present in nearly 50% of packaged products in the UK, covering products from a beloved chocolate spread to the soap we consume daily, with most of the volume sourced from parts of Indonesia and Malaysia (85% of global supply)³.

A review will be carried out by the Commission over the next two years to determine if additional products are added to this list.

The new Regulation will require any company importing or exporting the seven commodities from the EU to prove the products are deforestation-free. This applies to any company, regardless of whether or not it is based in the EU, for deforestation activities in Europe and overseas. It applies to both legal and illegal deforestation.

Large and medium-sized operators and traders will have until 30 December 2024 to demonstrate compliance with the EUDR, while micro and small enterprises will have until 30 June 2025.

There is no minimum threshold volume or value for the respective commodities or products to fall in scope of the Regulation.

By the time companies need to comply with these respective dates, they must ensure that: 

1. The product itself, its ingredients or its derivatives are not produced on land that was deforested or degraded since December 31, 2020.
2. The commodities are produced in accordance with the laws in the country of production, including on human rights, and that the rights of affected indigenous peoples have been respected.

The respective authorities for each Member State are responsible for implementing the obligations of the Regulation through inspections and sanctions, where necessary. An online system will be set up to facilitate the exchange of information on products placed on the EU market, which will be operational by the time the Regulation is applicable for companies.

A full list of commodities and products in scope of the EUDR can be accessed in Annex 1 of the full regulation.

Companies will have to ensure the following due diligence procedures are in place by the applicable compliance timeline:

1. Gather information
   Companies must provide detailed information about raw materials, quantities, origin countries, and suppliers. Geolocation of cultivation areas and evidence of deforestation-free status and regulatory compliance are essential⁴.
2. Risk assessment
   Comprehensive risk assessment involves considering criteria such as country of origin, forest resources, indigenous communities, deforestation prevalence, and more. Complexity of the supply chain and processing also play a role⁵.
3. Risk mitigation measures
   Companies must develop adequate strategies, controls, and procedures to mitigate non-compliance risk. Before in-scope products are placed on the market or exported, companies will need to submit a due diligence statement⁶ via an information system, and their compliance policies must be reviewed and updated annually,
   
   Companies not classified as SMEs must publicly disclose their due diligence, including risk assessments and implemented measures. Relevant records must be retained for five years and made available to the authorities upon request.

Companies must retroactively provide evidence of the deforestation-free status of their raw materials back to December 31, 2020.

Penalties for non-compliance:

• Confiscation of products and revenue.
• Fines of up to 4% of annual turnover.
• Temporary exclusion from public procurement.
• processes and commercial activities within EU.
• For serious or repeated infringements, temporary prohibition from dealing those items in the EU.

The EUDR applies to all UK companies wishing to import or export in-scope commodities from the EU, regardless of legal form or entity size, and includes traders supplying such products in the supply chain⁷. As mentioned above, micro and small enterprises will have until 30 June 2025 to comply, while large and medium-sized companies will have a shorter transition period, until 30 December 2024.

Contact our team of experts to if you’d like to learn more about how we can help with EUDR Compliance.