New EU Deforestation Regulation requires new due diligence efforts to tackle deforestation and forest degradation

As an element of the European Green Deal, the European Parliament and the EU Council adopted on 31 May 2023 the new Regulation (EU) 2023/1115 (“Deforestation Regulation) that seeks to prevent EU consumption from contributing to worldwide deforestation and forest degradation caused by agricultural expansion associated with the commodities in question. The present rate of degradation and deforestation serves as the impetus behind the Deforestation Regulation. According to sources within the European Union, 420 million hectares of forest have been lost globally between 1990 and 2020; 10% of these losses are attributed to EU consumption. Thus, the purpose of the Deforestation Regulation is to ensure that goods purchased in the EU do not contribute to deforestation and forest degradation on a global scale, as guaranteed to EU consumers.

The Deforestation Regulation replaces and repeals the due diligence regime established by the EU Timber Regulation (995/2010/EU), which was applicable to specific categories of timber products and timber itself. In addition to timber, the Deforestation Regulation encompasses a much wider range of commodities that are linked to deforestation, as enumerated in Annex I and includes soya, cocoa, coffee, leather, chocolate, furniture, palm oil and palm-oil derivatives as well as numerous paper-based products. Thus, the extant framework for due diligence that was previously applicable to timber products is expanded by the Deforestation Regulation.

Consequently, companies will be required to conduct thorough research to determine whether products falling within the scope of regulation are “deforestation-free” according to the prerequisites of the Deforestation Regulation and to create a due diligence statement in a newly created “Information System” that shall verify that the relevant checks have been conducted. By doing so, organizations will however be able to refer to due diligence statements that have been generated by upstream suppliers. The extent of the required due diligence checks is determined by a benchmarking system that the EU Commission intends to implement. This system will evaluate nations (or portions thereof) to ascertain the degree of risk associated with deforestation and forest degradation.

The Deforestation Regulation shall apply from 30 December 2024. The EU Member States shall lay down rules on penalties applicable to infringements of the Deforestation Regulation, which, however, defines the framework conditions. Thus, failure to comply with the Deforestation Regulation may result in the seizure of products and denial of access to the EU market as well as penalties, with a maximum fine equal to 4% of the total annual revenue in the EU.

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Thursday, 21 March 2024
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