Last month the European Council gave the final go-ahead to a regulation seeking to minimise the risk of deforestation and forest degradation.
On May 16, 2023, the European Council agreed to bring into law historic new legislation banning the sale of several commodities linked to deforestation around the world, becoming the first international trading bloc to do so.
The list of outlawed goods spans consumer favourites such as coffee, cocoa, beef, soy, palm oil, rubber and timber grown on land deforested after 2020, including some derived products like leather, chocolate and furniture.
The new rules were first agreed by the EU on December 6, 2022, before being adopted by the European Parliament on April 19, 2023. Now that the Council has in turn adopted the regulation, it will be published in the EU’s Official Journal and enter into force 20 days after.
The EU is responsible for about 10 percent of global deforestation, so while this policy won’t solve the problem worldwide, it does set a precedent that other economic regions can choose to follow or not.
The regulations are a big win for consumers in the EU, who will be able to relax safe in the knowledge that what they purchase is not contributing to future deforestation. For businesses, on the other hand, the picture is a little more complicated.
How will compliance work?
The way these new laws work is by enforcing mandatory due diligence upon businesses looking to sell goods using the targeted commodities into European markets. That means companies will be legally responsible for producing a statement showing that their supply chains are not contributing to the destruction or degradation of forests.
To provide the “verifiable” evidence that EU legislators are looking for, multinationals will need to know the provenance of every beef burger, chair leg and coffee bean. That will require much higher levels of engagement with farmers on the ground than is currently common practice (many companies deal almost exclusively with brokers who buy from the farmers), not to mention more high-tech solutions, like satellite monitoring and DNA testing, that will likely be needed to trace produce origins.
European countries where these commodities are sold will be responsible for carrying out spot checks on traders, with the maximum penalties for non-compliance set at a hefty 4% of net turnover made within the member states where infringements have occurred.
There will be plenty of time to adjust, however. Both the EU Parliament and Council have six weeks from the date of agreement to formally approve the resolution, after which large multinationals will have 18 months to comply; small and medium-sized enterprises (SMEs), defined by the European Commission as companies with less than 250 employees and annual turnover under €50 million, will have up to 24 months.
Are businesses already doing this?
The announcement was, on the whole, met with a warm reception from corporations, many of whom said they are already making efforts to clean up their supply chains.
However, while some companies are leading the way on this issue, the same cannot be said across the board. A lot of hollow pledges have been kicked around by these industries; in 2010, The Consumer Goods Forum, whose 400 members include some of the industry’s biggest players, agreed to end deforestation by 2020. This target was subsequently missed and replaced with “The Forest Positive Coalition for Action.” a scheme which does not have a target date to end deforestation attached to it at all.
Another key issue is that most assessments on deforestation are self-regulated, either by trade bodies or companies themselves, making it difficult to know for certain who has actually been putting in the work. A 2021 report by Greenpeace showed that the majority of certification schemes fall far short of protecting forests, often having standards that are poorly implemented or processes that lack proper transparency. The EU legislation seeks to “create a level playing field” for companies when it comes to acting on deforestation — empty promises aren’t going to cut it anymore.
What are the roadblocks?
Not everyone was thrilled about the new laws, with notable objections coming from countries including Brazil, Indonesia, Colombia and Canada, which argue that the new rules will be burdensome and costly.
It’s inevitable that this policy will increase costs for some companies, due diligence takes time and effort, especially where supply chains span multiple countries. The benefit, however, is that frontrunners will no longer have their profits penalised for taking the first steps, and since this will happen at a market-wide level, extra costs will be diluted by the 500 million or so consumers who live in the EU.
The real test will come with implementation. Is it possible to trace the exact source of every one of these products? Will the spot-checking processes be enough to capture the whole picture? These are questions for a few years’ time when the rules have properly taken effect, but their answers will be crucial to whether we see other nations and trading blocs adopt a similar approach to tackling deforestation.
As Virginijus Sinkevičius, European Commissioner for Environment, said about the law back in 2021 when it was still a proposal: “No single market can deliver the changes on a scale we need … If we get this initiative right, the snowball effect could bring about genuine transformation on a massive scale.”