EUDR: what is the EU regulation on deforestation and what companies need to know

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What is the EUDR regulation

The regulation EUDR (EU Deforestation Regulation) It is the new European legislation designed for prevent deforestation And the forest degradation related to the production and trade of certain raw materials.

As defined by the regulatory text, the deforestation It is understood as the conversion of forests to agricultural use, whether directly or indirectly induced by human activity. The forest degradation, on the other hand, includes structural alterations in forest cover, such as the transformation of primary or naturally regenerated forests into plantations or other types of wooded areas.

THEEUDR It was published on 9 June 2023 and it officially came into force on 29 June 2023, with a Transitional phase designed to allow companies to conform to the new provisions. Initially, the regulation should have started its application period starting from December 30, 2024, but later it was Delayed by one year.

Let's see what are the new deadlines.

• December 30, 2025: entry into force for large companies and merchants.
• 30 June 2026: entry into force for Small and Medium Enterprises (SMEs).
  
  

The EUDR is part of the context of European Green Deal, the EU strategy for a ecological transition which has as its objective the Carbon Neutrality by 2050. Along with measures such as the Carbon Border Adjustment Mechanism (CBAM) And the Plastic Tax, represents one of the fundamental pieces of European environmental policy.

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What are the objectives of the EUDR regulation?

The EUDR will replace the EUTR (EU Timber Regulation), in force since 2013, which required companies to ensure that wood and derived products placed on the EU market had been collected legally, in accordance with the laws of the country of origin.

With the new regulation, theScope is expanding: legality is no longer enough, but it is necessary prove that the goods are in no way connected to deforestation or forest degradation, regardless of whether they were legally produced in the country of origin.

This is a central measure in the European path towards greater sustainability, which aims to break the link between consumption of materials premiers within the EU and the destruction of ecosystems forestry in producing countries.

In detail, the objectives set out in the regulation are:

• reduce at a minimum the deforestation And the forest degradation caused by the EU at global level and the loss of biodiversity;
  
  
• Lower of at least 32 million tons per year carbon emissions related to these processes;
  
  
• lessen the use and consumption of products that participate in deforestation And to forest degradation;
  
  
• promote sustainability and environmental responsibility along the supply chain.

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On which products does the EUDR regulation apply?

The EUDR regulation applies to a series of raw materials considered to be high risk of deforestation, in addition to derivative products that contain them or that have been manufactured using them.

Currently, the 7 raw materials directly covered by the regulation are:

• wood;
• rubber;
• cattle;
• coffee;
• cocoa;
• oil palm;
• soybean.
  
  

The regulation also applies to products derived from these raw materials, the full list of which can be consulted inAnnex I of regulation (EU) 2023/1115.

However, goods placed on the market or exported on a non-commercial basis are excluded.

La European Commission She reserved the opportunity to Expand in the future the list of regulated raw materials, based on new scientific evidence or trends in the markets global.

Finally, it should be noted that the EUDR does not cancel any traceability initiatives already in place, but it can go hand in hand with them. An example is the FLEGT (Forest Law Enforcement, Governance and Trade) license, already planned for certain products in wood and paper coming from EU partner countries.

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The 3 operational phases of the EUDR regulation

In order to place on the European market or export a product subject to the EUDR regulation, it is mandatory to carry out a structured due diligence process.

This process is designed to vouch that the raw materials and products concerned are not associated with deforestation or forest degradation and that they were produced in respect for lawsi of the country of origin.

Specifically, the 3 phases of the process are:

1. verification of the relevance of the product;
2. exercise of due diligence;
3. due diligence statement.

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Verification of the relevance of the product

First of all, the operator must verify if the product falls within the scope of the regulation.

The full list of affected products is available in Annex I of regulation (EU) 2023/1115 and is based on the combined customs nomenclature (NC codes).

Are excluded the goods produced before 29 June 2023 (with the exception of wood products placed on the market after 31 December 2027) and recycled materials.

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Exercise of due diligence

Once the relevance of the product has been verified, we move on to the actual exercise of due diligence, which is divided into 3 mandatory sub-phases.

1. Gathering Information

The operator must collect, organize and store for at least 5 years a series of detailed information for each product concerned. Let's see what they are:

• product description;
• quantity expressed in net kilograms, net volume or unit of measure provided for by the nomenclature;
• Country of production;
• geolocation of all the plots of origin with indication of the latitude and longitude coordinates for each production site (for cattle, geolocation refers to all the establishments where the animals were raised);
• period of production of raw materials;
• names, addresses and contacts of suppliers and customers;
• verifiable evidence of the absence of deforestation (after 31 December 2020) and of compliance with the legislation of the country of origin, including land use authorizations.
  
  

2. Risk assessment

After collecting all the information, the operator must Assess the risk That the product is not in accordance with Article 3 of the regulation. Let's see the criteria to consider:

• the country's level of risk, which will be classified by the Commission as low, standard or high;
• the presence of forests in the production area;
• the reliability and source of the information collected;
• factors of instability in the country such as corruption, conflicts, poor law enforcement or human rights violations;
• the complexity of the supply chain and the risks of mixing with non-compliant raw materials;
• the presence of reports or previous episodes of non-compliance.
  
  

3. Mitigation of risk

If the risk results Higher than zero, the operator must adopt concrete measures to reduce it at a zero or negligible level before proceeding. Here are the possible actions to take.

• request additional information or documents from suppliers;
• carry out independent audits or audits;
• strengthening traceability systems along the supply chain;
• support suppliers, in particular small producers, in the development of compliant practices;
• appoint a compliance officer and set up an internal audit function (only for non-SME operators).
  
  

All measures taken must be documented and reviewed periodically.

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Due Diligence Statement

Once the process has been concluded and established that the risk of non-compliance is zero or negligible, the operator is required to submit to the authorities a official due diligence statement.

This statement, to be transmitted through the European information system being defined, it must contain:
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• identification data of the operator;
• NC code, description and quantity of the product;
• country of production and precise geolocation of the plots/plants;
• any reference to previous statements;
• a formal statement from the operator attesting to the exercise of due diligence and the absence of significant risk.
  
  

The statement must be kept for At least 5 years. By sending it, the operator assumes the full responsibility of the product's compliance with the EUDR regulation.

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What are the prohibitions and sanctions provided for by the EUDR regulation

One of the central elements of the EUDR Regulation is the Absolute prohibition to enter, make available on the market or export interested raw materials and products. This prohibition applies when they are not met jointly 3 basic conditions.
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• Be at zero deforestation: raw materials must come from land that has not been subject to deforestation after 31 December 2020. For wood products, there is also the obligation that the wood has not been collected in such a way as to cause forest degradation after that date.
  
  
• Comply with the legislation of the country of production: compliance with all applicable regulations in the country of origin, including environmental, forest, fiscal, commercial and customs regulations, as well as the rights of indigenous peoples, is required.
  
  
• Be accompanied by a due diligence statement: operators, and in some cases even merchants who do not fall into the SME category, must submit a formal statement certifying that they have carried out a complete due diligence process, demonstrating compliance with the two previous criteria.
  
  

On the front of sanctions, the regulation provides that each member state is responsible for the definition and application of Punitive measures.

However, it sets common minimum criteria, establishing that sanctions must be effective, proportionate and dissuasive.

The maximum amount of fines cannot be less than 4% of the annual turnover of the operator or merchant responsible for the violation, calculated onprevious financial year.

Penalties may also include:

• the confiscation of non-compliant products;
• the blocking of access to the market;
• the recovery of expenses incurred by the authorities for control activities.

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The 5 advantages for companies of complying with the EUDR regulation

Adapting to the EUDR regulation is not just a regulatory obligation, but also astrategic opportunity for companies that intend to undertake a path of corporate sustainability.

In addition to reducing the risk of sanctions, compliance can generate real value throughout supply chain. Here are the 5 key benefits.

1. Strengthening sustainable practices: demonstrating that its products do not contribute to deforestation or forest degradation reinforces the company's environmental commitment and aligns activities with international standards increasingly required by stakeholders, customers and investors.
   
   
2. Reducing the risk of sanctions: complying with the provisions of the regulation means avoiding fines, commercial blocks or economic damage related to non-compliance, reducing exposure to legal and operational risks.
   
   
3. Greater transparency along the supply chain: the due diligence process obliges companies to map their supply chain in detail, improving traceability and encouraging more effective supplier management.
   
   
4. Strengthened business reputation: adopting responsible procurement practices helps to build a positive image of the company, increasing trust on the part of consumers, partners and investors.
   
   
5. Access to new markets and business opportunities: the growing global demand for sustainable products opens the door to new commercial channels and strategic partnerships. Compliance with the regulations can become a competitive advantage, especially in regulated markets or markets with high environmental sensitivity.