Quick summary: Unlock the secrets to navigating the EU Deforestation Regulation (EUDR) effortlessly. Delve into our insightful blog to understand the complexities of EUDR compliance, explore effective strategies, and discover innovative solutions. Stay ahead in the sustainability game and ensure your business aligns seamlessly with the evolving regulations. Read now to ease your journey towards a deforestation-free future.
Navigating the complexities of global trade is challenging. If you are in the business of importing or exporting goods, the last thing you would want is to face legal trouble, reputation damage or supply chain disruptions due to non-compliance with regulations. So, what does EUDR Compliance entail?
The EU Deforestation Regulations (EUDR) requires businesses to undertake a thorough due- diligence process, ensuring their products are sourced ethically and sustainably, free from deforestation. It’s your road map to navigating the complexities of sustainable global trade.
According to WWF, EU is the second biggest importer of deforestation after China. In 2017, the EU was responsible for 16% of deforestation associated with international trade, totalling 203,000 hectares and 116 million tonnes of CO₂.
In this blog, we will break down the intricacies of EUDR compliance, offering insights into data collection, risk assessment and risk mitigation steps businesses must take. Stay tuned to ensure your business sails smoothly through waters of ethical and sustainable trade.
The EU Deforestation-Free Regulation (EUDR) marks a fresh EU endeavour aimed at curbing global deforestation resulting from forestry and agricultural practices. Introducing mandatory due diligence requirements for EU businesses by 2024, this regulation significantly broadens the scope of, and is poised to eventually supplant, the existing EU Timber Regulation (EUTR).
Being a major importer of commodities associated with deforestation, and recognizing its influential role, the deforestation regulation seeks to diminish the impact that products purchased by EU citizens have on global forests and woodlands. This initiative is integral to the journey toward achieving net-zero, and the EU aspires to set an example, potentially paving the way for similar regulatory requirements in other markets, including the UK.
Under the EU Deforestation-Free Regulation (EUDR), entities obligated to comply are categorized as ‘operators’ and ‘traders.
Operators, representing companies introducing products into the single market, are mandated to execute due diligence within their supply chains, ensuring freedom from deforestation and forest degradation.
On the other hand, traders are tasked with the responsibility of storing and disseminating supply chain information to operators.
The regulation affects seven specific commodities (cocoa, coffee, soy, palm oil, wood, rubber, and cattle) and their derivatives, as well as products made using these commodities (e.g., leather, cosmetics, chocolate etc.).
The upcoming Regulation will necessitate that any company engaged in the import or export of these commodities from the EU substantiate that their products are free from deforestation. This requirement is applicable to all companies, irrespective of their EU-based status, and pertains to both legal and illegal sources of deforestation, whether within Europe or overseas.
To comply with the EUDR, companies must gather comprehensive data regarding the commodities or products they intend to sell. This data should encompass details such as the quantity, supplier, country of origin, and proof of legally compliant sourcing. Additionally, companies are obligated to acquire geographic coordinates pinpointing the specific land plots where these commodities are cultivated. These geolocation coordinates must be included in the due diligence statements submitted by operators prior to introducing their products to the Union market or exporting them. In essence, a due diligence statement, complete with traceability coordinates, must be filed before products can be made available in the market.
The second phase entails conducting a comprehensive risk assessment based on the data gathered in the initial step. This assessment’s primary objective is to validate and appraise the likelihood of non-compliant products infiltrating the supply chain.
The last step necessitates businesses to actively address and mitigate any risks pinpointed during the second step. Subsequently, they must thoroughly document all measures and actions taken in this regard.
The actions to be taken following the benchmarking system are contingent on the risk level attributed to the sourcing country and the outcomes of the preceding steps.
Step 1, securing trusted data, is obligatory and serves as the fundamental basis for subsequent steps. However, it also presents the most formidable challenge.
Countries are categorized into three risk levels: low, standard, and high. If a country is classified as low risk, there is no need to undertake the risk assessment, which constitutes step 2.
Completion of step 2, the risk assessment, without identifying evident risks obviates the necessity for step 3, risk mitigation, as there are no risks to address.
Upon the regulation’s enforcement, all risk levels will be standardized, gradually assigning risk levels to each country over time.
The regulation became effective for medium and large-sized companies on June 29, 2023, and the obligation will commence 18 months after this date, precisely on December 30, 2024.
Any commodity produced and crossing the EU border following the legislation’s enforcement will be subjected to the regulation (both import and export). The 18-month moratorium for “activation” implies that, for instance, any cocoa harvested for the main crop in 2024 will fall under the regulation.
For Small and Medium Enterprises (SMEs), the regulation’s obligation will begin 24 months after it became effective, indicating June 30, 2025.
Penalties for non-compliance will be established in accordance with national law. Eventually, the objective is for violations of the EUDR to result in criminal penalties. However, within the EUDR framework itself, penalties may include:
Traceability solutions ensure transparency and compliance with EUDR regulations by providing accurate, real-time, and granular information about the origin and journey of products in the supply chain.
Traceability solutions for EUDR compliance involve leveraging advanced technologies like blockchain technology and Satellite Imagery to trace, monitor and validate the entire journey of products throughout the supply chain.
TraceX, with its blockchain traceability solutions, offers an advanced platform designed to assist businesses in navigating the intricacies of the EUDR. This next-generation solution enables companies to seamlessly comply with the EUDR’s due diligence requirements and streamline reporting on supply chain deforestation.
What distinguishes TraceX is its comprehensive nature as an all-in-one platform. It is adaptable to various ESG compliance regulations and frameworks, extending beyond the EUDR. Utilizing field-based interventions and stakeholder engagement, TraceX facilitates direct action and communication at the source.
TraceX captures real-time data directly from the field, consolidating information from diverse sources to provide a holistic view of each supply chain, regardless of complexity or the number of involved parties. The platform’s interoperability and scalability make it flexible to evolving business needs and compatible with third-party systems. Notably, its traceability granularity allows commodities to be directly linked to the specific plot of land of origin. An alert mechanism promptly notifies businesses of any forest encroachment activities in their sourcing areas, enabling swift and targeted action.
In conclusion, navigating EUDR compliance is a complex yet imperative journey for businesses committed to ethical and sustainable sourcing practices. The adoption of advanced traceability solutions, such as geographic polygon mapping and real-time data capture, not only ensures adherence to EUDR regulations but also fosters transparency and accountability throughout the entire supply chain. The granularity of traceability, coupled with simplified visualization and reporting, empowers businesses to make informed decisions, identify risk areas, and demonstrate a commitment to combating deforestation. By embracing digitalization from the first mile and leveraging comprehensive traceability technologies, companies can confidently navigate the intricate landscape of EUDR compliance, contributing to a more sustainable and responsible future.