The European Union Deforestation Regulation (EUDR) is the most ambitious forest-related regulation in history. With the compliance deadline of December 30, 2024 fast approaching, now is the time to determine if your company is prepared, taking particular note of its broad list of in-scope commodities and products, more holistic definition of a “deforestation-free product,” and stringent supply chain due diligence requirements to ensure that definition is met before a product enters or exits the EU.

It was a busy end to 2023 at the European Commission working to launch the implementation phase of the EUDR. This included providing over 80 FAQs related to implementation, launching the EU observatory on deforestation and forest degradation, and commencing pilot testing of a new Deforestation Information System that will serve as a digital depository for company due diligence statements and supporting geolocation data that must accompany imports and exports of in-scope commodities and derived products to or from the EU.

In addition to these resources, there are a few key considerations worth highlighting about what makes the EUDR so significant, and what it may mean for any company sourcing forest-relevant commodities, whether you do business in the EU or not.

Setting the bar

The EUDR has taken environmental and social issues in forest-related supply chains that companies have previously worked to mitigate via voluntary tools such as corporate sourcing policies and certification schemes and moved them into the regulatory space. The implications for companies doing business in the EU are obvious (see links above), but whether you do business in the EU or not, if your supply chain includes commodities that may impact forests, namely cattle, cocoa, coffee, palm oil, rubber, soy and wood and their derived products, such as leather, pulp and paper, etc., you should be paying close attention.

The EUDR is essentially setting a new bar on what responsible forest sourcing will look like going forward and it is a bar that corporate policies, practices, and disclosures will be measured against in the near term. The potential ripple effect through global supply chains is significant, as companies further up the supply chain with no direct business in the EU field compliance inquiries by downstream customers as they trace their supply chains back to the forest source. It is also just the first in an active forest regulatory landscape, with potential additional similar regulations on the horizon, such as the FOREST Act in the U.S.

Deforestation and forest degradation

The EU’s decision to include “forest degradation” in its definition of a “deforestation-free product” (for wood products only) and to offer an operational definition of what constitutes forest degradation is one of the most significant aspects of the regulation. By essentially capitalizing on both D’s, deforestation and degradation, the EUDR is spurring a global conversation on a critically important issue amidst the global biodiversity crisis that has received less focus in the corporate and governmental policy arena, until now.

The EUDR defines primary forests as “naturally regenerated forest of native tree species, where there are no clearly visible indications of human activities and the ecological processes are not significantly disturbed.”

It then defines forest degradation as “structural changes to forest cover, taking the form of the conversion of: (a) primary forests or naturally regenerating forest into plantation forests or into other wood land; or (b) primary forests into planted forests.”

Said more simply, the EUDR acknowledges that not all forests are created equal in terms of the ecosystem services they are able to provide and prioritizes the protection of the world’s remaining primary forests, which the regulatory preamble refers to as “unique and irreplaceable,” as a critical component of the regulation’s overall aims to mitigate the dual climate and biodiversity crises as part of the European Green Deal.

Since formal adoption of the EUDR, some countries have commenced processes to develop their own national definitions of forest degradation, the results of which will be important to track in the coming months. Regardless of where those new national definitions of forest degradation land, companies can expect the risks related to sourcing from forests known to contain, or likely to contain primary forests and/or intact forest landscapes to increase going forward (see TNFD).

Using geospatial mapping and knowledge of your sourcing footprint to locate where your supply chain may overlap with those types of forests, and the policies and commitments you plan to implement to mitigate those risks will only gain in importance, even if you do not import/export a single matchstick to/from the EU.

What is visible is verifiable

Much of the focus and debate around the EUDR to date has been on its stringent new geolocation requirements, and rightfully so. The EUDR requires companies to provide precise geolocation data (latitude and longitude) coordinates for all plots of land above four hectares (~10 acres) used to produce in-scope commodities and derived products regardless of a production country's risk designation. The old business adage of what gets measured gets managed is the driver here; only in this case, the idea is that what is visible is verifiable.

The EUDR’s geolocation requirements represent a step-change in supply chain traceability and will undoubtedly present significant challenges for companies to address in the coming year. While those challenges are very real, particularly in complex mixed supply chains, they are also very important to overcome. Sustainability and responsible sourcing are at its core a spatial discipline and the larger trend currently epitomized by EUDR is rapidly increasing expectations of companies to know where their materials and products are coming from at ever-increasing resolution in order to credibly assess spatially based environmental and social risks, mitigate those risks, and transparently disclose findings and actions.

Think through your supply chain and ask yourself this question, “do I know all the locations where the raw materials in this product were grown, harvested, or mined?” If the answer is no, then you identified an excellent starting point to work from.

Indigenous rights

While the EUDR, along with the Global Biodiversity Framework, and market initiatives have helped nature start to be a more common priority for corporate ESG agendas, it appears that we still have a ways to go for Indigenous rights to fully claim its rightful spot as a foundational requirement of any regulation related to responsible forest sourcing.

In addition to the deforestation and forest degradation compliance requirements, the EUDR also requires compliance with all “relevant national legislation” in the country of commodity production. The EUDR definition of “relevant national legislation” got an update from its EU Timber Regulation origins to include language specific to Indigenous rights including “the principle of free, prior and informed consent (FPIC), including as set out in the UN Declaration on the Rights of Indigenous Peoples.” And company due diligence systems are required to assess several Indigenous rights-related data points, such as the presence of Indigenous peoples in the country of commodity production and the existence of any “duly reasoned claims” regarding the use or ownership of the area used to produce the relevant commodity, and mitigate any identified risks accordingly.

However, the regulatory text only requires compliance with legislation on the books, meaning if a country of production has no law related to Indigenous rights, they are by the letter of the EUDR regulatory text, not relevant. Compare this to the regulation’s prohibition of both illegal and legal deforestation regardless of related laws in the country of harvest and you start to understand the negative reaction from some Indigenous leaders to the EUDR.

While the EUDR may fall short of putting Indigenous rights on the same plane as deforestation, its signals and due diligence requirements are strong. Companies whose supply chains overlap with and impact Indigenous communities would be wise to start integrating Indigenous rights into their risk assessments and responsible sourcing strategies and commitments. And just as with the conversation about primary forests above, that starts with understanding where those spatial overlaps lie. And don’t be surprised when you find a correlation between the two, given the fact that Indigenous communities tend to call many of the world’s remaining intact ecosystems that EUDR is focused on protecting their homes.

2024 is primed to be an important year for corporate action on forests, nature, and biodiversity. For companies subject to EUDR, the next 12 months will be intense as they ready themselves and their suppliers to meet these and other requirements by the December 30, 2024 deadline. For companies not doing business in the EU but with forest-relevant supply chains, 2024 is an opportunity to get ahead of the curve as expectations on companies to assess, mitigate, and disclose their impacts for the core issues that the EUDR seeks to address ratchets up regardless of where you do business.

For more information, refer to the EUDR official information, including the regulation found here.

Photo by Sergei A on Unsplash