Doubling down on supply chain due diligence to stop EU consumption of palm oil, soy, wood, cocoa, coffee and beef from driving deforestation

Week of 15 November 2021

Doubling down on supply chain due diligence to stop EU consumption of palm oil, soy, wood, cocoa, coffee and beef from driving deforestation

Our key takeaway: The European Commission’s proposal for a regulation would require companies and traders of palm oil, soy, wood, cocoa, coffee and beef to demonstrate that their products are deforestation-free and legal according to the labour, environmental and human rights laws of the country of production, in order to be sold into the EU single market.

On 17 November, the European Commission published its ‘Proposal for a regulation of the European Parliament and of the Council on the making available on the Union market as well as export from the Union of certain commodities and products associated with deforestation and forest degradation.’ Some key elements are highlighted below:

    • What are the drivers behind the proposed law?: “[European] Union consumption is a considerable driver of deforestation and forest degradation on a global scale. The initiative’s Impact Assessment estimated that without an appropriate regulatory intervention EU consumption and production of the six commodities included in the scope (wood, cattle, soy, palm oil, cocoa and coffee) will rise to approximately 248,000 hectares of deforestation annually by 2030.” Reducing deforestation would also contribute to the EU’s commitments to reduce greenhouse gas emissions under the European Green Deal, the 2015 Paris Agreement on Climate Change, and the legally binding commitment under the EU Climate Law “to reach climate neutrality by 2050 and reduce greenhouse gas emissions by at least 55 % below 1990 levels by 2030.” The regulation “should be complementary to other measures proposed [by the EC] in particular: 1) working in partnership with producer countries, to support them in addressing root causes of deforestation, such as weak governance, ineffective law enforcement and corruption, and 2) strengthen international cooperation, with major consumer countries, to promote the adoption of similar measures to avoid products coming from supply chains associated with deforestation and forest degradation being placed on their markets.”
    • Which commodities would be in scope? How does this regulation inter-act with the sustainable corporate governance initiative?: “The Regulation should cover those commodities whose Union consumption is the most relevant in terms of driving global deforestation and forest degradation and for which a Union policy intervention could bring highest benefits per unit value of trade.” Six commodities were identified that “represent the largest share of EU-driven deforestation among the total of eight commodities analysed in [a commissioned] research paper: palm oil (33,95%), soy (32,83%), wood (8,62%), cocoa (7,54%), coffee (7,01%) and beef (5,01%).” When it comes to the sustainable corporate governance initiative (SCG), the regulation notes that “[t]he legislative initiative on deforestation has a very specific objective to limit the placing of deforestation-linked products on the EU market and its requirements will, in some areas, be more specific compared to the general duties under the SCG initiative.” Further, “[w]here the requirements of the SCG initiative go beyond the requirements of the deforestation regulation, they apply in conjunction.”
    • What are the proposed requirements for business under the law?: To be able to be sold into the EU market, products will need to comply with a deforestation-free definition, based on the FAO definition, and products will need to be legal according to the laws of the country of production. The regulation states that “[t]his entails that labour, environmental and human rights laws applicable in the country of production (both national and international) will need to be taken into account when assessing the compliance of products with this initiative. This includes the rights of indigenous peoples, which is expected to contribute to protecting the rights of vulnerable local communities.” To that end, operators are asked to establish and implement due diligence procedures that include three elements: “information requirements, risk assessment and risk mitigation measures. The due diligence procedures should be designed to provide access to information about the sources and suppliers of the commodities and products being placed on the Union market, including information demonstrating that the absence of deforestation and forest degradation and legality requirements are fulfilled, inter alia by identifying the country and area of production, including geo-location coordinates of relevant plots of land.” Human rights are also specifically called out when it comes to the European Commission’s engagement with producer countries concerned by the regulation. These countries will be encouraged to “develop partnerships and cooperation to jointly address deforestation and forest degradation” which “should allow the full participation of all stakeholders, including civil society, indigenous people, local communities and the private sector including, SMEs and smallholders.” These partnerships should “strengthen the rights of forest dependent communities including smallholders, indigenous peoples and local communities, and ensure public access to forest management documents and other relevant information.”

For more, see European Commission, Proposal for a regulation on deforestation-free products (17 November 2021)