Deforestation is a global issue that has been occurring for decades, with significant impacts on the environment, economy, and social welfare. As one of the leading importers of forest-risk commodities, the European Union (EU) recognizes the need to address the issue with urgency In response to this the EU  recently adopted a new Regulation aimed at promoting sustainable agriculture and tackling deforestation. The Regulation targets products that have contributed to deforestation and forest degradation, such as soy, timber, and palm oil. As a business owner, it is crucial to understand the impact of this new Regulation on your business and the steps you can take to comply with the Regulation. In this blog, we will discuss what businesses need to know and consider about the new EU Regulation on deforestation-free products. 

What is the EU Regulation on Deforestation-free Products and why was it introduced? 

The EU Regulation on deforestation-free products was enacted in June 2023. It aims to ensure that products placed on the EU market come from sustainable sources and do not cause deforestation or forest degradation. The Regulation also addresses the human rights violations that are often associated with deforestation, such as forced labour and land grabbing. The EU introduced the Regulation to promote sustainable agriculture and reduce the impact of deforestation and forest degradation on climate change. 

What steps can businesses take to comply with the EU Regulation? 

To comply with the EU Regulation, businesses must carry out mandatory due diligence and ensure that their supply chain is sustainable. The due diligence process includes mapping the supply chain, assessing the risk of deforestation, engaging with suppliers, and monitoring and reporting on progress. Companies can also work with certification schemes, such as Roundtable Sustainable Palm Oil (RSPO) or Forest Stewardship Council (FSC), to ensure that their supply chain is certified as sustainable. Additionally, businesses can commit to sustainable sourcing policies and adopt environmentally friendly practices to reduce their impact on deforestation. 

Businesses must comply with the new EU Regulation by using deforestation-free supply chains, including tracking systems and due diligence tools. Using these tools, companies can trace the origin of raw materials and ensure their suppliers have not caused deforestation. Article 9 of the Regulation introduces the new geographic digital tools (which are free to use) allowing businesses to fulfil their obligation to provide the geographic coordinates of all the plots of land where the relevant commodities and products were produced. Additionally, the Regulation allows for the use of satellite images to check whether the product is compliant or not.  

What are the benefits of complying with the EU Regulation? 

Complying with the EU Regulations has several benefits for businesses, such as improving their reputation, reducing legal risks, and demonstrating their commitment to sustainability. By sourcing products sustainably, businesses can contribute to reducing deforestation and forest degradation, protecting the environment and promoting social welfare. Sustainable sourcing practices also help businesses to mitigate climate-related risks, reduce costs and improve the resilience of their supply chains. As a business owner, it is essential to understand the impact of the Regulation on your business and take necessary steps to comply with the Regulation. Moreover, adopting sustainable sourcing practices helps businesses improve their reputation, reduce legal risks and demonstrate their commitment to sustainability. 

Businesses of all sizes should recognise the benefits of using sustainable and deforestation-free resources. Investing in sustainable and deforestation-free supply chains can improve the reputation, competitiveness, and profitability of a business. 

Failure to comply. 

The new Regulation states that where a trader is made aware that their relevant commodity or product already made available to  the market is no longer compliant with the Regulation, they must immediately inform the competent authorities of the Member States in which their product is available on the market. 

Companies that fail to comply with the Regulation may face legal or reputational damages that can significantly affect their business operations. Failure to comply can result in dissuasive penalties, fines or the confiscation of the relevant commodities and products. Furthermore, Member States can confiscate revenues or suspend/prohibit of the relevant economic activities. For small and medium-sized enterprises (SMEs), the challenge of complying with the new EU Regulation is significant. Unlike larger corporations, SMEs may have limited resources and may not have sufficient experience or knowledge to implement deforestation-free supply chain systems. 

The new EU Regulation on deforestation-free products is a significant step towards achieving climate change goals and biodiversity protection. Businesses that source palm oil, soy, wood, or any related commodities should be aware of the Regulation’s requirements and the benefits of using sustainable and deforestation-free supply chains. While the new requirements may be challenging for SMEs, these businesses should embrace deforestation-free supply chain systems to protect natural resources, improve their reputation and profitability. Companies that overlook implementing these systems may face legal and reputational damages. In conclusion, businesses should see the new EU Regulation as an opportunity to promote sustainable development and contribute to a better future.