Imagine being in the exam room, waiting for the papers to be printed, unsure of what is required to pass. That is how it can feel like to have to comply with EU’s Deforestation Regulation (EUDR) by the end of 2024.
In this article, I will answer 4 questions to hopefully make you feel more prepared:
- What is the EUDR?
- Does your company need to do anything?
- What is the responsibility of your company?
- What is a due diligence report for EUDR?
- What should you do next?
What is the EUDR?
EUDR mandates that businesses involved in importing, selling, exporting, or distributing products with high deforestation risk, must provide detailed reports on their due diligence for each relevant product.
The aim is to enhance transparency of the environmental impacts of European goods. While currently limited in scope, the regulation signifies the initial phase of a longer journey that will necessitate companies to gather and disclose comprehensive data on their supply chains.
Does your company need to do anything?
Large and medium-sized companies (Figure 1) must adhere to the regulation by December 30th, 2024, while smaller companies have until June 30th, 2025.
If you deal with cattle, cocoa, coffee, oil palm, rubber, soy, wood, or specific derived products, they will likely fall under the regulation. The EU provides a straightforward way to determine coverage by listing HS-codes for all products in scope (Annex 1). If your products do not match these codes, they are not covered. It does not matter that your product is composed of ingredients that are themselves covered in Annex 1.
A few exceptions to be attentive to are codes starting with ‘ex’, which only apply if your product matches the HS-code (Figure 2) and contains the relevant material, such as wood.
What is the responsibility of your company?
If you have products that are within scope of the EUDR, then you must perform a due diligence process for each relevant product and submit an EUDR due diligence report.
Failure to comply with these regulations may result in penalties, including the removal of your product from the market and fines of up to 4% of your EU-revenue for repeated non-compliance.
When performing due diligence, you need to do the following:
- Obtain supplier information: Collect detailed information about the origin of your relevant product. If you are making a chair of wood from three different suppliers, then you need to know the exact source (with geo-location) of each of them.
- Evaluate risk: Assess the potential risks associated with each sourcing location to determine if there is a risk of deforestation linked to the product materials or the product itself.
- Take risk mitigation measures: If any risks are identified, such as sourcing from an area with a history of illegal logging, it is crucial to define and outline the measures you will take to mitigate these risks.
- Report on collected information
What is a due diligence report for EUDR?
A comprehensive report on due diligence should include 5 components:
- Details about the operator, including the company name, address, and the products being dealt with.
- Identification of the HS-code for the product, along with a detailed description and quantity.
- Origin country of each relevant material in the product, as well as the location of the land allotments where these materials are sourced.
- References to any prior due diligence reports related to the products, if applicable.
- A statement confirming that due diligence has been conducted, and either no significant risks have been identified or they have been addressed.
Due diligence reports must be submitted to an information system that will be operational by December 30, 2024.
What should you do next?
Step 1: Identify which products are within scope (if any). For derived products compare HS codes with Annex I. If your products are affected, familiarise yourself with the requirements in detail.
Step 2: Determine whether any of your suppliers/sub-suppliers need to submit a due diligence report. You can reference their report in your own submission. If you did not import or produce the product, ask your supplier for their due diligence report.
Step 3: If you are the first to introduce the product to the European market, determine if you need to specify a single supplier. For example, if you import a wooden chair and the wood comes from one location, reporting that single location is adequate. Otherwise, you must report each distinct origin of the materials used for the chair (source).
Step 4: Prepare your due diligence reports by obtaining supplier information and performing a risk assessment. Reports must be submitted to the the dedicated information platform (expected to be launched later this year).
Part of a broader EU due diligence push – stay tuned for more
This EUDR is part of a broader set of legislation aimed at reducing impacts of European consumption – within and outside the EU. These include:
- Corporate Sustainability Due Diligence Directive (CSDDD)
- Forced Labour Ban Regulation
- Critical raw materials act
Follow us to read our upcoming posts where we dive into each of them!
Author details
Thomas Thorin
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