EU publishes draft legislation to tackle raw material imports linked to deforestation and forest degradation

On November 17, 2021, the EU published a draft regulation to introduce new due diligence requirements to tackle deforestation and forest degradation (see press release here).

As stated in the proposal, deforestation and forest degradation have an impact on climate change and biodiversity loss and, as a consumer of raw materials related to this problem, the EU is contributing to the problem.. The proposal is part of the EU’s Green Deal initiative and aims to complement the EU’s sustainable corporate governance initiative, under which horizontal due diligence requirements are expected with regard to rights human rights and negative environmental impacts in business value chains in general. See previous customer alerts on this topic here and here.

The aim of the proposal is to ‘minimize the consumption of products from supply chains associated with deforestation or forest degradation and increase the EU’s demand for and trade in raw materials and legal products and “without deforestation” ”. The bill notes that the main driver of deforestation and forest degradation is the expansion of agricultural land to produce commodities such as livestock, timber, palm oil, soybeans, cocoa. and coffee.

The proposal will repeal and replace the current EU Timber Regulation (“EUTR“) which has imposed due diligence obligations on certain wood products for several years now. As indicated above, the proposed new regulation will have a wide scope covering not only wood, but the other types of products listed above It will adapt and replace the due diligence procedure of the EUTR by including measures such as:

  • the presentation of a due diligence statement to the competent authority confirming that due diligence has been exercised before placing goods and products on the Union market or exporting them from the market;
  • a requirement for geographic information that will relate the commodities and products to the plot of land on which they were produced. This will allow the use of satellite images to confirm whether the commodity or product is compliant;
  • increased cooperation with customs; and
  • benchmarking by country.

The sanctions to be established at Member State level for companies that violate the regulation include: fines proportional to the environmental damage and the value of the goods or products concerned, with a maximum amount of up to 4% of the annual turnover of companies; confiscation of the goods and products concerned; confiscation of income; the suspension or prohibition of the economic activities concerned; and exclusion from public procurement processes.

MEPs have already called for the range of products covered by the proposal to be widened to include, for example, rubber and corn and for the human rights approach to be strengthened.

The initiative is still at the proposal stage and is subject to further consideration and modification by the European Parliament and the Council of the European Union. The ordinary legislative process to pass the regulation is unlikely to end before the end of 2022.

It should be borne in mind that the UK is also committed to addressing this issue. On Wednesday 10 November 2021, the UK Environment Act 2021 entered into force (the “ActThe law aims to tackle deforestation and protect tropical forests by banning “forest risk products” related to illegal deforestation and requiring companies to do due diligence. Secondary legislation to put these requirements have yet to be adopted.

These developments reflect increased attention to deforestation and forest degradation. Companies must therefore be prepared to apply effective due diligence practices to mitigate potential risks in their supply chains and business operations.

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