In today’s global economy, supply chains are often complex and far-reaching, extending across continents and involving numerous stakeholders. While this complexity can bring many benefits, it also creates significant challenges, particularly around sustainability and environmental protection. Recently, the European Union (EU) has taken a major step forward in this area with the introduction of a new law aimed at tackling deforestation. This law has important implications for businesses operating in the EU, as well as those who supply goods and services to the region. In this article, we will explore what the EU’s new deforestation law means for your supply chain, and how you can ensure that your business is compliant and well-positioned to meet evolving environmental standards. Whether you are a supplier, manufacturer, or retailer, understanding the implications of this law is essential for maintaining a sustainable and responsible supply chain. So, let’s dive in and explore what this new law means for you.
What is deforestation and why is it a concern?
Deforestation is the process of clearing forests or trees from a land area, often for agricultural or commercial purposes. It has been estimated that deforestation accounts for around 10% of global greenhouse gas emissions, making it a significant contributor to climate change. Deforestation also has many other negative impacts, such as loss of biodiversity, soil erosion, and disruption of local communities.
The scale of deforestation is staggering. According to the World Wildlife Fund, we lose around 18.7 million acres of forests each year, which is equivalent to 27 football fields every minute. This issue is particularly pressing in tropical regions, where deforestation rates are highest.
Given the environmental, social, and economic impacts of deforestation, it is clear that action is needed to address this issue. That’s where the EU’s new deforestation law comes in.
Overview of the new EU law and its scope
The proposal for the EU’s new deforestation law was launched in November 2021 and is set to come into effect in 2023. The law is intended to tackle deforestation and forest degradation associated with the production of certain agricultural commodities, such as soy, palm oil, and beef. These commodities are often linked to deforestation in tropical regions like the Amazon, the Congo Basin, and Southeast Asia.
The law establishes a due diligence obligation for EU-based companies placing certain commodities on the market. This means that companies will be required to identify, prevent, mitigate, and account for the risks of deforestation and forest degradation associated with their supply chains. The law covers both direct and indirect suppliers, meaning that companies will need to look beyond their immediate suppliers to assess the risks and impacts of their entire supply chain.
The scope of the law is significant. It applies to all companies placing the specified commodities on the EU market, regardless of where they are produced. This means that companies based outside the EU will also be subject to the law if they want to sell their products in the EU.
Implications for businesses and their supply chains
The EU’s new deforestation law has important implications for businesses and their supply chains. Companies that rely on the specified commodities will need to take steps to ensure that their supply chains are free from deforestation and forest degradation. This may involve working with suppliers to implement more sustainable practices, such as agroforestry or zero-deforestation policies.
Businesses will also need to establish robust due diligence systems to identify and mitigate the risks of deforestation in their supply chains. This could include mapping the origin of their commodities, assessing the environmental and social risks associated with different suppliers and regions, and implementing measures to prevent deforestation and forest degradation.
The law also has implications for the wider business environment. Companies that are unable to demonstrate compliance with the law may face reputational damage, loss of market access, and legal or financial penalties. On the other hand, companies that can demonstrate their commitment to sustainability and responsible business practices may gain a competitive advantage in the market.
Key requirements of the new law
To comply with the EU’s new deforestation law, companies will need to meet a number of key requirements. These include the following:
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Identification of risks: Companies will need to identify the risks of deforestation and forest degradation associated with their supply chains, including both direct and indirect suppliers. This will involve mapping the origin of their commodities, assessing the environmental and social risks associated with different suppliers and regions, and establishing due diligence systems to prevent deforestation.
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Prevention of risks: Companies will need to take measures to prevent deforestation and forest degradation in their supply chains. This may involve working with suppliers to implement more sustainable practices, such as agroforestry or zero-deforestation policies, and monitoring supplier compliance.
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Mitigation of risks: Companies will need to establish measures to mitigate the risks of deforestation and forest degradation in their supply chains. This may involve supporting reforestation efforts or investing in alternative, more sustainable commodities.
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Reporting: Companies will need to report on their due diligence efforts and the measures they have taken to prevent deforestation and forest degradation in their supply chains. This information will need to be made publicly available and updated regularly.
Steps businesses can take to comply with the law
To comply with the EU’s new deforestation law, businesses can take a number of steps. These include:
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Conducting a supply chain assessment: Companies should conduct a comprehensive assessment of their supply chains to identify the risks of deforestation and forest degradation associated with their commodities.
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Mapping the origin of commodities: Companies should map the origin of their commodities to identify the regions and suppliers that pose the greatest risk of deforestation.
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Establishing due diligence systems: Companies should establish robust due diligence systems to identify, prevent, and mitigate the risks of deforestation in their supply chains.
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Working with suppliers: Companies should work with their suppliers to implement more sustainable practices, such as agroforestry or zero-deforestation policies, and monitor supplier compliance.
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Investing in sustainable commodities: Companies should consider investing in alternative, more sustainable commodities that are less likely to be associated with deforestation, such as regenerative agriculture or agroecology.
Risks of non-compliance and potential penalties
Non-compliance with the EU’s new deforestation law can have serious consequences for businesses. Companies that fail to comply with the law may face reputational damage, loss of market access, and legal or financial penalties.
The law includes provisions for fines and other penalties for non-compliance, including the possibility of exclusion from public procurement procedures. Companies that are unable to demonstrate compliance with the law may also face legal action from NGOs or other stakeholders.
Given the potential risks associated with non-compliance, it is essential that businesses take the necessary steps to ensure that their supply chains are free from deforestation and forest degradation.
Case studies of companies impacted by deforestation
There are many examples of companies that have faced reputational damage or legal action as a result of their involvement in deforestation. One high-profile case is that of Nestle, which faced a consumer boycott in the 2000s over its use of palm oil linked to deforestation. The company subsequently adopted a zero-deforestation policy and committed to sourcing sustainable palm oil.
Another example is that of Cargill, which has faced criticism for its involvement in deforestation in the Amazon. The company has since committed to ending deforestation in its supply chains and has established a number of initiatives to promote sustainability in the palm oil and soy sectors.
These cases highlight the importance of taking action to address deforestation in supply chains and the potential risks of non-compliance.
Collaborative initiatives to combat deforestation
Collaborative initiatives have emerged in recent years to tackle deforestation in supply chains. One example is the Soy Moratorium in Brazil, which was established in 2006 to prevent the expansion of soy production into areas of the Amazon that are at high risk of deforestation. The moratorium has been successful in reducing deforestation associated with soy production in the region.
Another example is the Roundtable on Sustainable Palm Oil (RSPO), which was established in 2004 to promote the production and use of sustainable palm oil. The RSPO has developed a set of standards for sustainable palm oil production and has certified over 19% of global palm oil production as sustainable.
Collaborative initiatives like these can help to promote sustainability in supply chains and reduce the risks of deforestation and forest degradation.
Conclusion and call to action for businesses to act now
The EU’s new deforestation law is a significant development in the global effort to address deforestation and forest degradation. It represents an important step forward in promoting sustainability and responsible business practices in supply chains.
For businesses operating in the EU or supplying goods and services to the region, understanding the implications of this law and other regulations is essential. By taking steps to identify and mitigate the risks of deforestation in their supply chains, companies can ensure that they are compliant with the law and well-positioned to meet evolving environmental standards.
The risks of non-compliance are significant, and the potential benefits of sustainable and responsible business practices are equally great. By taking action now, businesses can help to promote sustainability, protect the environment, and meet the growing demand for responsible and ethical products and service.