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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.
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:
Practical tip: Coordinate with upstream suppliers early on and include information and disclosure rights in
the supply contracts.
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.
Practical tip: The EUDR offers SMEs certain simplifications: They are exempt from the due diligence obligation if it has already been carried out and a due diligence statement has been submitted. SMEs then only have to store information about the supplier, the reference number of the statement, and customer information (name, trade name, postal address, email, and internet address). The reference number must be provided to authorities upon request. The final responsibility remains with the SME market participant.
We recommend implementing the following three-step due diligence process in existing business processes:
The information collected must be analyzed and evaluated in detail. Relevant risk factors include:
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.
Practical tip: Due diligence obligations must be applied before placing products on the market and kept up to date at all times. Comprehensive integration into the company organization is necessary. Established risk assessment measures include open-source research, media screening, statements from industry associations, and compliance declarations from suppliers. Certification systems such as PEFC™ or FSC can provide support, but do not replace a company’s responsibility under
the EUDR (no “safe harbor”).
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.
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