A call to balance sustainable and profitable business practices in an interconnected global economy

Understanding the European Union Deforestation Regulation (EUDR)

The EUDR, adopted by the European Union, aims to minimize the EU’s contribution to global deforestation and forest degradation. It requires companies to ensure that commodities placed on the EU market are not linked to deforestation. The regulation mandates comprehensive due diligence, supply chain traceability, and robust documentation to verify the origins of these commodities.

Key takeaways from our recent webcast

In a recent webcast discussing the EUDR several key takeaways were highlighted:

• Commodities covered: The new EU deforestation-free regulation covers commodities such as palm oil, cattle, coffee, cocoa, rubber, wood, and timber and their derivatives. It includes the use of geolocation (e.g., GPS) to connect products to their specific land origin.
• Implementation timeline: The implementation timeline for the new EU deforestation-free regulation has been delayed, with the current timeline set for December 30, 2025, for medium and large companies.
• Compliance requirements: Compliance with the regulation requires a due diligence system, geolocation information, compliance with local legislation, and a due diligence statement.
• Risk assessment: Risk assessment is an important part of placing products in the EU market, with different requirements for low-risk and high-risk countries.
• Global efforts: The EU is not the only jurisdiction tackling deforestation, with the UK expected to have similar legislation soon. Over 140 countries have committed to reducing deforestation.
• Consequences of non-compliance: Non-compliance with sustainability regulations in the EU can result in inspections, fines, and reputational damage.
• Supply chain impact: Compliance with the EU deforestation-free regulation can impact the supply chain, including customs clearance and potential delays or blockages.
• Information and documentation: Organizations need to gather detailed information and documentation, assess their role in the supply chain, and seek legal and compliance advice to ensure compliance with the regulations.
• Risk determination challenges: The lack of a list from the EU identifying low-risk and high-risk countries is a challenge for organizations in determining their risk and making necessary changes to their value chain.
• Due diligence statements: Due diligence statements and compliance with EU regulations are required for importers, retailers, and other operators in the supply chain.
• Exemptions for reclaimed wood: The use of reclaimed wood in furniture production may exempt the furniture from certain regulations, but the addition of new materials may subject it to compliance requirements.
• Increasing transparency: Organizations should work on increasing transparency in their supply chains, embed due diligence within their processes, and enhance supply chain transparency and traceability to meet sustainability objectives.
• Technological solutions: Software tools and platforms are being developed to assist with compliance, but there is currently no comprehensive solution available. Organizations are integrating multiple complementary tools to meet their unique needs.
• Significance of deforestation: Deforestation is a significant issue, with the EU being the second-largest contributor after China. The EU has implemented the EU Timber Regulation (EUTR) to address deforestation, but more work needs to be done.
• Importance of regulatory initiatives: Like the European Union's General Data Protection Regulation (GDPR), the new EU deforestation-free regulation is a critical regulatory initiative that organizations need to be aware of and comply with.

At the heart of the EUDR are principles driving its expectations:

• Economic survival and growth: The need to balance regulatory compliance with economic viability and growth
• Commitment to transparency and accountability: The societal expectation for companies to be open about their practices and take responsibility for their impact
• Interconnectedness of global supply chains: The shared responsibility for sustainable practices across complex, multinational supply chains.

It’s important to note that many companies are still in the process of understanding and implementing the necessary measures to comply with the EUDR. The regulation's requirements for comprehensive due diligence, supply chain traceability, and robust documentation present significant challenges, particularly for companies with complex and global supply chains.

Steps for Canadian companies to achieve compliance.

1. Conduct a compliance gap analysis: Companies should assess their current practices against the EUDR requirements to identify gaps and areas needing improvement.
2. Develop a due diligence system: Implementing a robust due diligence system is crucial. This includes collecting geolocation information, ensuring compliance with local legislation, and preparing due diligence statements.
3. Enhance supply chain traceability: Leveraging technologies such as blockchain can help improve traceability and provide verifiable proof of the origins of commodities.
4. Engage with suppliers: Companies need to work closely with their suppliers to ensure they also comply with EUDR requirements. This may involve training, capacity building, and regular audits.
5. Seek expert guidance: Consulting with experts, such as Deloitte, can provide valuable support in interpreting, adapting, and implementing the regulations.

And the potential sanctions for non-compliance with the EUDR?

In the event of a breach of the Regulation, companies face various sanctions, such as financial penalties (up to 4% of the company's total annual turnover), confiscation of the products concerned, exclusion from public procurement and access to public funding, temporary bans on the marketing of relevant products and commodities, and more.

It’s time to act

The EUDR presents both challenges and opportunities for companies. By understanding how to approach these challenges, companies can not only comply with regulatory requirements but thrive while leading the way in sustainable business practices.