One action under the EGD is the introduction of an EU regulation on deforestation-free products. The regulation intends to set mandatory due diligence rules for businesses placing certain forest-risk commodities on the EU market. The commodities that are in scope include, but are not limited to, cocoa, coffee, palm oil and soya.
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- No net emissions of greenhouse gases by 2050;
- Economic growth decoupled from resource use; and
- No person and no place left behind.
One action under the EGD is the introduction of an EU regulation on deforestation-free products. The regulation intends to set mandatory due diligence rules for businesses placing certain forest-risk commodities on the EU market. The commodities that are in scope include, but are not limited to, cocoa, coffee, palm oil and soya.
The regulation will require businesses to prove that products are produced on land that was not subject to deforestation or forest degradation after Dec. 31, 2020, and that they are compliant with all relevant laws in the country of production. Businesses will also be required to collect the geographic coordinates of the land where the commodities in scope of this regulation were produced.
The commodities that are in scope include, but are not limited to, cocoa, coffee, palm oil and soya.
EU Requirements
On June 9, 2023, Regulation 2023/1115/EC,2 regarding deforestation-free products, was published in the Official Journal of the European Union. The regulation entered into force on June 29, 2023, and operators have 18 months from that date to implement the new requirements.
This new EU Regulation2 means that prior to placing relevant commodities and relevant products on the EU market, or exporting them from the EU, operators must exercise due diligence.
The new rules mean that to place relevant commodities and relevant products (Annex I to Regulation 2023/1115/EC2), such as oil palm, cocoa, soya, etc., on the EU market, or to export them, the following conditions must be fulfilled:
- They are deforestation-free;
- They have been produced in accordance with the relevant legislation of the country of production; and
- They are covered by a due diligence statement (Annex II to Regulation 2023/1115/EC2), which must be kept for five years from the date it is submitted.
From Dec. 30, 2024, operators must submit due diligence statements to an online information system established by the European Commission.
Operators that, by Dec. 31, 2020, were established as micro-undertakings or small undertakings (defined in Article 31, 2 of Directive 2013/34/EC),3 must submit due diligence statements from June 30, 2025. The regulation2 does not apply to the relevant products listed in its Annex I, produced before June 29, 2023. However, timber and timber products (equivalent to wood and wood products in Annex I2) that are covered by Article 2(a) of the EU Timber Regulation (995/2010/EC),4 must continue to adhere to the EU Timber Regulation if the products were produced before June 29, 2023, and placed on the market from Dec. 30, 2024. Timber and timber products defined in Article 2(a)4 that were produced before June 29, 2023 and placed on the market from Dec. 31, 2027, must comply with the new Regulation 2023/1115/EC2 on deforestation-free products. The EU Timber Regulation is repealed from Dec. 30, 2024.
The information system will assign a reference number for the relevant commodities and relevant products, which must be provided to customs authorities when lodging customs declarations. As mentioned, due diligence statements must be kept for five years from the date it is submitted.
Except for by-products of a manufacturing process, used commodities and products that have completed their lifecycle, and would otherwise be disposed of as waste, as defined in Article 3(1) of Directive 2008/98/EC,5 are excluded from the scope of this regulation.
As per the regulation,2 due diligence must include:
- Collecting the required information;
- Carrying out a risk assessment; and
- If the risk assessment does not show there is no or negligible risk that the relevant commodities and relevant products are non-compliant, carrying out risk mitigation.
Authorized representatives: Operators may mandate an authorized representative to submit the due diligence statement on their behalf. In such cases, the operator shall retain responsibility for the compliance of the relevant product.
Where a natural or legal person established outside the EU places relevant products on the market, the first natural or legal person established in the EU who makes such relevant products available on the market shall be deemed to be an operator for the purposes of this regulation.2
Country benchmarking system: A three-tier benchmarking system will be used to classify countries as "high risk," "low risk" or "standard risk." The assessment will be primarily based on:
- Rate of deforestation and forest degradation;
- Rate of expansion of agricultural land for relevant commodities; and
- Production trend of relevant commodities and relevant products.
On June 29, 2023, all countries were assigned a standard level of risk. The European Commission is assessing countries based on the above criteria. The list of countries that present a low or high risk will be published by means of implementing acts, to be adopted no later than Dec. 30, 2024.
Information requirements: The information required under this regulation is as follows:
- A description, which includes a trade name and type of the relevant products and relevant commodities (Annex I),2or relevant products contained therein or used to make those products. For relevant products that contain or have been made using wood, the common name of the species and their full scientific name must also be included.
- The quantity of the relevant products, expressed in kilograms of net mass or, where applicable, volume or number of items.
- The country of production and, where relevant, parts thereof.
- The geolocation of all plots of land where the relevant commodities that the relevant product contains, or has been made using, were produced, as well as the date or time range of production. Where relevant commodities were produced on different plots of land, the geolocation of all different plots of land must be included.
- The name, postal address and email address of any business or person from whom the relevant products have been supplied.
- The name, postal address and email address of any business, operator or trader to whom the relevant products have been supplied.
- “Adequately conclusive and verifiable” information that the relevant products are deforestation-free.
- “Adequately conclusive and verifiable” information that the relevant commodities have been produced in accordance with the relevant legislation of the country of production, including any arrangement conferring the right to use the respective area for the purposes of the production of the relevant commodity.
Risk assessment: Based on the information collected as outlined, the operator must carry out a risk assessment to establish whether there is a risk that the relevant products intended to be placed on the EU market or exported are non-compliant. The risk assessment criteria can be found in Article 10(2) of the Regulation.2 Operators may only place relevant products on the EU market, or export them, if the risk assessment reveals no or only negligible risk that the relevant products are not compliant.
Wood products that fall within the scope of Regulation 2173/2005/EC6 that are covered by a valid Forest Law Enforcement, Governance and Trade (FLEGT) license from an operational licensing scheme, shall be deemed to have been produced in accordance with the relevant legislation of the country of production.
Risk assessments must be documented and reviewed on at least an annual basis. Operators must be able to demonstrate how the information gathered was checked against the risk assessment criteria and how they determined the degree of risk.
Risk mitigation: If the risk assessment does not show that there is no or negligible risk that the relevant products are non-compliant, risk mitigation must be carried out. Risk mitigating procedures and measures must be adequate to achieve no or only negligible risk, and may include:
- Requiring additional information, data or documents;
- Carrying out independent surveys or audits; and
- Capacity building and investments.
Non-SME (Small and Medium-sized Enterprises) operators must appoint a compliance officer at management level.
Decisions on risk mitigation procedures and measures must be documented and reviewed on at least an annual basis.
Reporting: On an annual basis, non-SME operators must publicly report on their due diligence system. If the non-SME operator also falls within the scope of other Union legal acts that lay down requirements regarding value chain due diligence, the operator may fulfil these reporting obligations by including the required information when reporting in the context of those other Union legal acts. The reporting must include the following information concerning relevant commodities and relevant products:
- A description, which includes a trade name and type of the relevant products, as well as the relevant commodities or relevant products contained therein or used to make those products. For relevant products that contain or have been made using wood, the common name of the species and their full scientific name must also be included.
- The quantity of the relevant products, expressed in kilograms of net mass or, where applicable, volume or number of items.
- The country of production and, where relevant, parts thereof.
- The conclusion of the risk assessment and measures taken for risk mitigation, as well as a description of the information and evidence obtained and used to assess the risk.
- Where applicable, a description of the process of consultation of indigenous people, local communities and other customary tenure rights holders or the civil society organizations that are present in the area of production of the relevant commodities and relevant products.
Simplified due diligence: When placing relevant products on the EU market, or exporting them, operators are not required to carry out a risk assessment or risk mitigation if, after having assessed the complexity of the relevant supply chain and the risk of circumvention of this regulation, or the risk of mixing with products of unknown origin or origin in high-risk or standard-risk countries or parts thereof, they have ascertained that all relevant commodities and relevant products have been produced in countries or parts thereof that were classified as low risk.
Key EU Dates
From Dec. 30, 2024, operators must submit due diligence statements before placing on the EU market, or exporting relevant commodities and relevant products listed in Annex I of Regulation 2023/1115/EC.2
Operators that by Dec. 31, 2020, were established as micro-undertakings or small undertakings (defined in Article 31, 2 of Directive 2013/34/EC)3 must submit due diligence statements from June 30, 2025.
The regulation does not apply to the relevant products listed in Annex I,2 produced before June 29, 2023; however, timber and timber products (equivalent to wood and wood products in Annex I)2 that are covered by Article 2(a) of the EU Timber Regulation (995/2010/EC),4 must continue to adhere to the EU Timber Regulation if the products were produced before June 29, 2023, and placed on the market from Dec. 30, 2024. Timber and timber products defined in Article 2(a) that were produced before June 29, 2023, and placed on the market from Dec. 31, 2027, must comply with the new Regulation 2023/1115/EC2 on deforestation-free products. The EU Timber Regulation is repealed from Dec. 30, 2024.
EU Commission Guidance
The European Commission has published a list of frequently asked questions7 on the following topics:
- Traceability;
- Scope;
- Subjects of obligations;
- Definitions;
- Due diligence;
- Benchmarking and partnerships;
- Supporting implementation;
- Timelines; and
- Other questions.
Action in the UK
The UK government has also been considering implementing due diligence requirements on forest risk commodities. In 2019, the Department for Environment, Food and Rural Affairs (Defra) established an independent taskforce, Global Resource Initiative, to consider actions the UK could take to “make international supply chains greener and leave a lighter footprint on the global environment.”8 In March 2020, the initiative proposed that the UK government should introduce a mandatory due diligence requirement.
Later that year, Defra launched a consultation on a new law designed to prevent illegal habitat conversion from forests, and other important natural areas, to agricultural land. It was proposed that larger businesses would undertake due diligence to assess that the "forest risk" commodities they use have been produced legally. The consultation received more than 63,000 responses, including one from CTPA; over 99% of which were supportive of the government introducing legislation to reduce deforestation.
A follow-up Defra consultation sought views on some of the key areas that could be included in any regulations:
- Which commodities will be in scope of regulations;
- Which businesses will be subject to provisions;
- What businesses in scope will be required to undertake and report on regarding their due diligence exercise; and
- How the requirements will be enforced.
As with the EU Regulation, the UK consultation highlighted several commodities that are relevant to the cosmetics and personal care industry, including palm oil, cocoa and coffee.
This second Defra consultation received more than 16,000 responses, most of which again supported a swift response from the UK government to help tackle illegal deforestation in UK supply chains. The UK government confirmed its intention to lay secondary legislation to implement due diligence regulations at the earliest opportunity.
In December of last year, to coincide with COP28 Nature Day (Dec. 9, 2023), the UK government published an announcement8 relating to upcoming legislation implementing due diligence for forest risk commodities. The legislation will ensure that commodities in scope (palm oil, cocoa, soy, beef and leather) are not produced on land linked to illegal deforestation.
The announcement stated that secondary legislation will be laid that will require businesses to establish and implement a due diligence system for regulated commodities, and products derived from them, that they use in their UK commercial activities.
Businesses will have a grace period to prepare before the beginning of the first reporting period. Guidance is also expected to be issued.
At the time of writing, we are awaiting confirmation and timings of the secondary legislation.
References
1. European Union Commission. (2019). European Green Deal. European Comission. Available at: https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en
2. Official Journal of the European Union. (2023). Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010. European Union. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2023.150.01.0206.01.ENG&toc=OJ%3AL%3A2023%3A150%3ATOC
3. Official Journal of the European Union. (2013). Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC Text with EEA relevance. European Union. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32013L0034
4. Official Journal of the European Union. (2010). Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market. European Union. Available at: https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:295:0023:0034:EN:PDF
5. Official Journal of the European Union. (2008). Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste and repealing certain Directives (Text with EEA relevance). European Union. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32008L0098
6. Official Journal of the European Union. (2005). Council Regulation (EC) No 2173/2005 of 20 December 2005 on the establishment of a FLEGT licensing scheme for imports of timber into the European Community. European Union. Available at: https://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX%3A32005R2173
7. European Union Commission. (2024). Deforestation Regulation implementation Frequently Asked Questions. EU Comission. Available at: https://green-business.ec.europa.eu/deforestation-regulation-implementation_en#frequently-asked-questions
8. Department for Environment, Food & Rural Affairs, Natural England and The Rt Hon Steve Barclay MP. (2023). UK Government has published an announcement relating to upcoming legislation implementing due diligence for forest risk commodities. Defra. Available at: https://bit.ly/3UOFMdQ
