EU’s Deforestation-Free Regulation (EU) 2023/1115

In October 2024, the EU reinforced its commitment to environmental sustainability with amendments to Regulation (EU) 2023/1115. This regulation sets a framework to prevent deforestation and forest degradation through strict due diligence requirements, focusing on specific high-risk commodities. Scheduled for full application by December 2025, it mandates that companies trading in the EU market only engage with products that meet “deforestation-free” standards.

Here’s a deeper look into the regulation's clauses, deadlines, compliance expectations, and the implications for businesses in the EU and beyond.

Key Provisions and Amendments in EU’s Deforestation-Free Regulation (EU) 2023/1115

1. Scope of Commodities Covered:

   • The regulation applies to key commodities with high deforestation risk: cattle, cocoa, coffee, palm oil, rubber, soy, and wood.
   • Annex I lists products derived from these commodities, including leather, chocolate, and furniture, all of which must meet the regulation's deforestation-free standards before being placed on the EU market.

2. Deforestation-Free Requirement:

   • Products must be proven deforestation-free. According to Article 3, operators need to demonstrate that no deforestation occurred after a cut-off date in their supply chain.
   • The requirement covers both the supply chain’s environmental footprint and the production legality in the country of origin. Documentation must confirm compliance with both EU standards and relevant local laws.

3. Due Diligence System Requirements (Article 8):

   • Companies are tasked with implementing a rigorous due diligence system. This includes three pillars: data collection, risk assessment, and risk mitigation.
   • Operators must maintain up-to-date information, including geo-location data for each supply chain segment. This data allows competent authorities to assess compliance easily.

4. Risk Classification and International Collaboration (Article 29):

   • The EU is introducing a risk classification for countries, categorizing them as low-risk or high-risk regions. This classification will guide the level of scrutiny companies must apply to their supply chains.
   • As per the Strategic Framework for International Cooperation, the EU plans to partner with third countries, aligning efforts to combat deforestation globally.

5. Information System and Compliance Tracking (Implementing Regulation of 2024):

   • A new information system will be available to operators, traders, and authorized representatives, enabling efficient submission of due diligence statements.
   • Companies will have early access to this platform before the December 2025 compliance deadline, allowing them to prepare adequately.

Timeline and Transitional Provisions of EU’s Deforestation-Free Regulation (EU) 2023/1115

1. Postponement of Initial Compliance Date:

   • Originally set for December 2024, the application date for many of the regulation’s obligations has been extended to December 2025.
   • This extension gives Member States, companies, and third countries time to develop the necessary infrastructure and adjust supply chains to align with the EU’s deforestation-free standards.

2. Repeal of Regulation (EU) No 995/2010:

   • The prior regulation on timber imports will be repealed on December 30, 2025. However, timber products produced before June 2023 and imported into the EU market have until December 31, 2028, to comply with the updated regulation requirements.

3. Extended Deadlines for Small Businesses:

   • Micro and small undertakings, defined per Directive 2013/34/EU, have an additional six-month grace period, extending their compliance date to June 30, 2026.

Implications for EU Businesses and Supply Chains

The regulation introduces several practical challenges and responsibilities, especially in terms of supply chain transparency and data collection:

1. Enhanced Data Requirements:

   • Operators are required to collect and store detailed geo-location data for supply chain transparency, documenting compliance at every stage.
   • Accurate data collection is crucial for identifying non-compliance risks, particularly for operators working with high-risk countries.

2. Due Diligence Costs and Operational Changes:

   • Implementing the required due diligence system will likely result in additional costs. Companies may need to revise supplier contracts, alter sourcing locations, or restructure supply chains.
   • Training and capacity-building will be essential for staff to manage due diligence processes effectively.

3. Market Access and Reputational Risks:

   • Complying with these requirements is essential for market access in the EU. Failure to comply can result in penalties, loss of market access, and reputational damage.
   • This regulation also positions companies to meet rising consumer demand for sustainable, environmentally friendly products.

Strategic Actions for EU’s Deforestation-Free Regulation (EU) 2023/1115

1. Building a Compliance Framework: Companies must establish a structured compliance framework, incorporating clear policies and procedures for data collection and risk assessment.
2. Supplier Engagement: Regular engagement with suppliers will be necessary to obtain accurate data and ensure alignment with the regulation.
3. Leveraging Technology: Digital tools for supply chain mapping, data analysis, and compliance tracking can streamline the due diligence process and ensure ongoing compliance.