What Your Business Needs to Know About the EU Deforestation Regulation

June 27, 2024

Article

At the end of 2024, the European Union Deforestation Regulation (EUDR) will take effect, requiring large enterprises to demonstrate that their supply chains for seven commodities — coffee, cocoa, soy, oil palm, cattle, rubber, and wood — and products derived from these commodities do not originate from deforested land after 2020.

Businesses must also confirm the commodities and products have been produced in accordance with the relevant legislation of the country of production (which includes not only compliance with environmental regulations, but also those related to land-use rights, forest management, labor, tax, and/or human rights laws).

While large companies must comply with the EUDR by December 30 of this year, small and medium enterprises (SMEs) have until June 30, 2025.

This article outlines major aspects of the law, the penalties for noncompliance, and ways your organization can prepare to meet EUDR requirements. For a more comprehensive look at this law and how to comply, read our white paper, EU Deforestation Regulation (EUDR) – What You Need To Do.

Understanding the EUDR's Critical Provisions

The EUDR as stated above applies to the seven commodities and products made from them, like beef, leather, chocolate, coffee, palm oil, tires and inner tubes, wood furniture, and more. (See a complete list in Annex I of the regulation.) Enforcement extends to goods produced inside and outside the EU. Packaging materials used exclusively for transport are excluded.

Here’s an overview of key EUDR provisions:

Due diligence statement: Businesses must provide a declaration guaranteeing their products align with the regulation and are free from deforestation and forest degradation activities. The statement must include geographic coordinates of the plots of land where the commodity was produced and relevant information such as product, CN code, quantity, country of production and geolocation coordinates.

Annual risk assessment: Companies need to evaluate supply chain risks, considering factors like country-specific risk levels and the history of deforestation. The risk assessment should include, where applicable, “the process of consultation of indigenous peoples, local communities and other customary tenure rights holders or of the civil society organizations that are present in the area of production of the relevant commodities and relevant products.”

Annual public report: Businesses must publicly report the products, the quantity, the source region, the conclusion of their risk assessment, and mitigation measures taken annually.
Documentation retention: All relevant documentation must be retained for a minimum of five years and made available to authorities upon request.

The Risks of Noncompliance with the EUDR

Failure to comply with the EUDR will result in corrective measures, including fines of up to 4% of a company’s annual turnover in the EU. The European Commission will also publish a list of companies that fail to meet EUDR requirements, with the names, dates, summary of infringements, and the imposed penalties.

Beyond reputational concerns, noncompliance can result in operational disruptions such as import bans, product seizures, and loss of market access within the EU. Companies also jeopardize their sustainability credentials, which can have an impact on their corporate social responsibility goals, reputation, and their financial performance.

The Challenges and Opportunities Ahead

One of the biggest challengers for suppliers preparing for the EUDR is the geolocation detail. For example, over 12 million farmers worldwide must now ensure their produce can be traced back to non-deforested origins.

Considering all the commodities under scrutiny (and products derived from those commodities), the EUDR will impact over 55 countries exporting an average of $100 million of goods to the EU each year. It will not be surprising if European consumers see price increases as a direct result of the new regulation.

However, these challenges also present opportunities for advancements in environmental stewardship. By embracing the EUDR requirements, companies can position themselves as sustainability champions and demonstrate a commitment to deforestation-free practices.

Preparing for EUDR Compliance

With the December 2024 EUDR compliance deadline approaching, organizations can take proactive measures like:

Understanding the material make-up of their products: Do they include any of the impacted commodities or derived products?
Mapping and analyzing supply chains: Develop comprehensive visibility of your supply chain to pinpoint potential risks related to the targeted commodities.

Leveraging cross-industry expertise: Collaborate with industry groups working towards eliminating deforestation, sharing best practices and resources.

Integrating EUDR requirements into processes: Incorporate the necessary compliance checkpoints with other ESG and supply chain risk management efforts.
Investing in technology for compliance: Look into advanced supply chain risk management solutions that offer a robust framework for meeting EUDR requirements. These platforms should facilitate supply chain mapping, risk assessment, and the production of due diligence statements, providing a full audit trail and simplifying the compliance process.

The 1Exiger platform is designed to comply with the EUDR and build on its proven capability to comply with similar regulations, with must-have risk modeling, controls and continuous monitoring capabilities. Contact us to learn more about how Exiger can help your organization comply with the EUDR.

The EU Deforestation Regulation represents a significant step towards sustainable business practices. By ensuring strict traceability and due diligence, organizations can contribute to global efforts to prevent deforestation and protect biodiversity.

To learn more about anticipating and managing the impending EUDR, download our white paper, which includes a practical compliance checklist with a step-by-step guide to assess and adjust your supply chain practices.

More Resources