Know your deforestation risks? Getting to grips with the EU Deforestation Regulation

The recently adopted European Union’s Deforestation Regulation (EUDR) prohibits relevant commodities and products from being placed on the EU’s market unless they are deforestation-free. As of 30 December 2024, companies are obliged to exercise detailed due diligence to demonstrate that their commodities and products are compliant.

Global deforestation and forest degradation needs to be reduced

We all depend on the ecosystem services and resources of healthy forests. The extraction of commodities, upon which many companies’ business models rely, often degrades forest land, or sees it converted into farmland. This applies in particular to companies active in, for example, the agriculture, chemicals, cosmetics, foods and/or furniture sectors.

While forest-resources are renewable, deforestation activities are occurring at a pace where the natural recovery and health of forests is at risk. According to the Food and Agriculture Organization of the United Nations (FAO), about 10% of the world’s remaining forests have been lost between 1990 and 2020.  This is also driving global warming and biodiversity loss.

The EUDR will reshape the market by imposing extensive due diligence obligations

On 29 June 2023, the EUDR (see note 1) came into force. It prohibits relevant commodities and products from being placed on the EU’s market unless they are deforestation-free. This is not the first initiative of the EU to address its responsibility as a major importer and consumer of deforestation-linked commodities and products. The EU Timber Regulation (see note 2) was defined back in 2003, focussing on illegally harvested timber and timber products. The EUDR repeals the Timber Regulation and expands the scope to a larger group of commodities highly exposed to deforestation.

Who? The EUDR applies to companies established in the EU that handle defined commodities and derived products

As of 30 December 2024, any operator or non-SME trader established in the EU needs to fulfil the EUDR’s due diligence requirements before it places or makes available any of the following commodities (and derived products) on the European Union market or exports them from there (see note 3).

 
Specifically, the EUDR not only applies to import/export companies established in the EU, but also to those manufacturing commodities into products for B2B or B2C distribution and retailers re-selling relevant products. Financial institutions are not yet obliged to carry out deforestation due diligence. However, they may be exposed to deforestation risks through their portfolios and the Commission will assess by 30 June 2025 the need to include them within the scope.

What? Companies must implement a three-step due diligence approach and submit a due diligence statement

In-scope companies need to demonstrate that their products are compliant with the EUDR, i.e.

• deforestation-free (see note 5);
• produced in accordance with relevant legislation of the country of production; and
• covered by a due diligence statement.

To do so, they need to exercise due diligence based on three key elements:

• collection of information, data and documents to provide poof on compliance of products;
• risk assessment to assess risk of product’s non-compliance with the EUDR;
• risk mitigation measures in place to mitigate risks to negligible levels.

As part of their due diligence, companies are required to trace back the commodities used to the exact geolocation of the plots of land of production at the time of cultivation. The risk assessment must take into account the presence of indigenous peoples in the country of production and engagement with them.

Compliance with EUDR can be challenging and burdensome, but non-compliance results in withholding or suspension of product releases

Ensuring compliance amidst these challenging requirements can feel overwhelming and be burdensome and costly. Suppliers may not be sufficiently aware or ready to provide necessary data. Companies often lack the transparency into their deeper supply chain. Choosing the best technologies to increase supply chain transparency and trace back products to individual plots of land may be challenging. Moreover, the effectiveness of existing mitigation measures needs to be carefully revised and adjusted. Nevertheless, companies should not ‘wait and see’. Insufficiently meeting the requirements can have substantial consequences: withholding or suspension of product releases, fines of 4% of annual turnover or confiscation of revenue. Controls will be carried out by the national competent authorities at regular intervals.

What next? LRQA can support you in exercising your due diligence

With over 70 consulting experts worldwide and more than 15 years of experience, LRQA can help your organization navigate through the EUDR’s requirements and implement the necessary actions. Drawing on our expertise and tools for environmental and human rights due diligence topics, we are looking forward to supporting you with:

• Preparation – e.g. through detailed gap analyses of existing due diligence management systems and identification of improvement areas
• Implementation – e.g. developing roadmaps leading to strong due diligence management processes and systems
• Risk analysis – e.g. identifying risks within your supply chain
• Strategy and reporting – e.g. enhancing the necessary internal and external communication, including updates of policies, targets and commitments

Want to know more?

Feel free to register for our upcoming webinar “Know your deforestation risks? Getting to grips with the EU Deforestation Regulation (EUDR)”, taking place on 28 September, from 10:00 to 11:00 am CET. After the webinar you should be able to navigate through the EUDR’s key elements, understand whether/why requirements should be addressed within your company and have a first idea on how to practically implement necessary next steps. Sign up here.

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Notes

(1)  Regulation (EU) No. 995/2010 laying down the obligations of operators who place timber and timber products on the market.

(2)  For micro- or small undertakings the requirements apply as of 30 June 2025.

(3) For a full list of derived products in scope of the EUDR, see Annex I of the Regulation

(4)  ‘deforestation-free’ means: (a) that the relevant products contain, have been fed with or have been made using, relevant commodities that were produced on land that has not been subject to deforestation after 31 December, 2020; and (b) in the case of relevant products that contain or have been made using wood, that the wood has been harvested from the forest without inducing forest degradation after 31 December, 2020