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EU Deforestation Regulation – what needs to be done now?


With the EU Deforestation Regulation (EUDR), the European Union has taken a major step towards a sustainable future. By the end of 2024, traders and “distributors” of products made from certain critical raw materials will be obliged to check the origin of raw materials and prevent ecological damage. This practical checklist is intended to help you keep track of things.

The goal of the EUDR is to ensure that products placed on the EU market or exported from the EU do not cause deforestation or forest degradation and that labor and human rights standards are complied with. Violations are subject to maximum penalties of at least 4% of annual turnover.

Step 1: Is my company affected?

The EUDR applies to the products listed in Annex I of the regulation, which includes products made from wood, rubber, cocoa, coffee, soy and cattle (leather). Even a small component of a product may be enough to fall under the EUDR. The list of affected raw materials is regularly reviewed and expanded by the EU.

The EUDR primarily affects market participants and traders, but can also have an impact on other members of the supply chain.

As a first step, we therefore recommend the following review actions:

  • Analyze your own supply and procurement chains with regard to the raw materials and products listed in Annex I of the EUDR
  • Check your classification as a trader or market participant based on your own role in the supply chain

Step 2: Which due diligence obligations must be observed?

  • Ensuring that the raw materials are free from deforestation in the producing country
  • Verifying that the raw materials were produced in accordance with the legal regulations of the producing country (including environmental, labor and human rights regulations)
  • Submission of a due diligence statement to the EU information system
  • Annual public reporting on your own due diligence arrangements and on the measures taken to fulfill their obligations.

A major challenge in practice is that “deforestation-free” also includes past forest degradation up to December 31st, 2020, even if this was legal in the country of origin. Compliance with the national regulations of the producing country must take into account land use rights, environmental protection, labor and human rights as well as the rights of indigenous peoples. Market participants who have fulfilled the due diligence obligations must submit a due diligence statement to the authorities before placing products on the market or exporting them. A template for this can be found in Annex II of the EUDR. Non-SMEs must publicly report on their due diligence measures on an annual basis.

Step 3: How can legal compliance be ensured in practice?

We recommend implementing the following three-step due diligence process in existing business processes:

Collection of information:

  • Trade name and type of products, list of products and raw materials contained
  • Country/regions of production; geolocation of all production sites of the relevant raw materials contained, including the time of production
  • Reliable, conclusive and verifiable information regarding deforestation-free and legally compliant production
  • Supplier and customer information

Risk assessment:

The information collected must be analyzed and evaluated in detail. Relevant risk factors include:

  • Risk of the producing country as well as the current deforestation and forest degradation situation and the presence of indigenous peoples
  • Concerns regarding corruption, document forgery, lack of enforcement, human rights violations, armed conflicts or sanctions against the producing country, and third-party concerns regarding previous violations

Risk mitigation:

  • Requesting additional information, data or documents as well as conducting independent surveys or audits
  • Implementation of contractual regulations (auditing and monitoring rights, etc.)

If the risk of the business case cannot be reduced to a negligible level, the raw material or product may not be traded within the EU.

Our ESG & compliance expert Thomas Baumgartner will be happy to support you in setting up appropriate internal processes for risk mitigation and implementing due diligence obligations.

Disclaimer

This article is for general information only and does not replace legal advice. Haslinger / Nagele Rechtsanwälte GmbH assumes no liability for the content and correctness of this article.

 

16. September 2024

 
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