EU Deforestation Regulation: A beginner’s guide

The European Union’s Deforestation Regulation (EUDR) is a major milestone in global efforts to combat deforestation and promote sustainable trade practices. As a key component of the European Green Deal, the EUDR aims to reduce the environmental impact of EU consumption on global forests and encourage responsible supply chain management.

Originally slated to come into effect from 31 December 2024, it’s likely the EUDR reporting deadline will be pushed back by 12 months to give companies more time to prepare. Given the scale of the changes potentially required for compliance, however, companies should start preparing now to give themselves sufficient time to comply.

So what exactly is the EUDR and what does it mean for businesses?

What’s the purpose of the EUDR?

Deforestation is a major contributor to climate change, biodiversity loss, and ecosystem disruption. Recognising the EU’s role as one of the world’s largest importers of commodities associated with deforestation, the EUDR aims to address these environmental concerns by ensuring that products placed on the EU market or exported from it do not contribute to deforestation or forest degradation.

The EUDR goes beyond previous regulations by targeting both illegal and legal deforestation, reflecting the fact that even legally produced commodities can contribute to forest loss. The regulation also goes much further than focusing on wood and timber themselves. It covers seven key commodities and their derived products that have a significant impact on global deforestation:

1. Cattle
2. Cocoa
3. Coffee
4. Oil Palm
5. Rubber
6. Soy
7. Wood

What are the main challenges for businesses?

Businesses looking to implement the EUDR face a number of challenges, depending on their size, scope and complexity.

One of the first issues to address is supply chain management. Many businesses will need to undertake significant overhauls of their existing systems to ensure compliance with the new regulations. This process is further complicated by the stringent requirements for data collection and management. The EUDR demands detailed geolocation data and comprehensive due diligence information. Obtaining and managing this data needs robust data management systems that can handle this level of detail.

Risk assessment presents another hurdle. Companies must develop and implement effective methods to assess and mitigate risks of non-compliance throughout their entire supply chains. This task is particularly daunting given the global nature of many supply networks. Closely related to this is the challenge of supplier engagement. Ensuring that all suppliers, including those in remote or less developed regions, can provide the necessary documentation and meet EUDR standards could be a complex and time-consuming process.

The financial implications of compliance shouldn’t be overlooked. Implementing new systems, conducting thorough due diligence, and potentially restructuring supply chains could lead to significant costs, at a time when many companies are already facing economic pressures.

The financial implications of not complying, though, could be significantly greater, with the potential for heavy fines – up to 4% of annual turnover in the EU – and significant reputational damage.

How can business best prepare for compliance?

Even with the 12-month deadline extension, given the scale of the potential challenges they face, businesses need to move fast to ensure their compliance.

At Peterson Solutions, our specialist team has considerable experience supporting companies across the world to comply with a wide range of standards and regulations, including the EUDR. Based on these practical insights, we have identified six key steps to help make the EUDR compliance journey as smooth as possible for businesses.

1. Comprehensive supply chain assessment. This will help identify potential risks and gaps in compliance, providing a clear picture of the work that needs to be done.
2. Invest in robust traceability and data management systems. These must be capable of handling the detailed information required by the regulation, including geolocation data, and due diligence records.
3. Engage early with suppliers. Initiate conversations with your suppliers to ensure they understand and can meet EUDR requirements, potentially providing support or guidance where necessary.
4. Develop comprehensive due diligence processes that align with EUDR standards. These processes should be thorough, documented, and integrated into the business’s overall operations.
5. Train staff on the new requirements. Establish clear roles and responsibilities for EUDR compliance, ensuring all relevant personnel are well-versed in the regulation’s demands.
6. Stay informed and updated as the EUDR continues to evolve. This may involve dedicating resources to monitoring regulatory developments, participating in industry forums, or engaging with consultants who specialise in EUDR compliance.

By taking these preparatory steps, companies can position themselves to navigate the challenges of EUDR compliance successfully and contribute to the critical goal of combatting global deforestation.