The EU Deforestation Regulation (EUDR), effective as of June 2023, is the EU’s first major legislative effort to combat deforestation. This regulation prohibits products linked to deforestation or forest degradation from entering the European market, making it essential for companies to review their supply chains to ensure compliance. Here’s a guide to help businesses prepare and meet these new requirements.

Key Compliance Dates

The EUDR comes into effect for larger companies on December 31, 2024, and for small and medium enterprises (SMEs) on June 30, 2025. However, a proposal from the European Commission may delay these dates by 12 months, which would extend the deadline for larger companies to December 2025 and for SMEs to June 2026. Regardless, businesses are encouraged to begin preparations as soon as possible to minimize any impact on their operations.

Purpose of the EUDR

The regulation is designed to reduce global deforestation linked to European imports. To comply, companies must ensure that relevant commodities and products are:

1. Deforestation-free: Produced on land not subject to deforestation since December 31, 2020.
2. Legally produced: In alignment with laws of the production country.
3. Accompanied by a due diligence statement: Verifying compliance with EUDR standards.

Identifying “Relevant” Commodities and Products

The EUDR initially applies to seven key commodities: cattle, cocoa, coffee, oil palm, rubber, soya, and wood, along with products derived from these. Companies are advised to refer to Annex I of the EUDR for a full list of regulated items, which may expand in future updates.

Who Needs to Comply?

The EUDR applies to operators who place products on the EU market and traders who facilitate their availability. Indirect suppliers may also need to provide information to support compliance efforts.

Setting Up a Due Diligence System

Non-SME operators and traders are required to implement a due diligence system to gather, verify, and document information proving EUDR compliance. This includes:

• Detailed product specifications and quantities.
• Production country and geolocation data of production sites.
• Verification that products are deforestation-free and legally produced.

Additionally, risk assessments will be conducted for supply chains based on criteria such as complexity, involvement of indigenous communities, and country risk classification (high, standard, or low).

Risk Mitigation and Annual Review

If there is more than a negligible risk of non-compliance, companies must implement risk mitigation procedures, which may involve additional documentation, audits, or independent surveys. Companies should review these procedures annually to ensure alignment with EUDR standards.

Penalties for Non-Compliance

Member states will establish penalties, which may include fines up to 4% of annual EU turnover, confiscation of products, exclusion from public funding, and temporary prohibition from the market.

Steps to Take Now

1. Assess Products and Supply Chains: Identify whether your products are within the scope of the EUDR.
2. Establish Monitoring Systems: Collaborate with suppliers to implement geolocation tracking, forest monitoring, and data verification for deforestation-free products.
3. Update Due Diligence Policies: Invest in technology or internal capabilities to support data collection and reporting.
4. Leverage ESG Synergies: Companies already complying with other EU sustainability directives (CSRD, CSDDD) may adapt existing systems for EUDR compliance.

In taking these steps, companies will be better equipped to align with the EUDR and support the EU’s environmental goals, fostering responsible trade practices and contributing to global deforestation reduction.