Sustainable supply chains – one step closer to UK legislation on deforestation risks

In September the UK Government proposed a far-reaching consultation on due diligence requirements for companies whose supply chains might be contributing to deforestation. Read more here. On 11 November the UK Government released its speedy response, culminating in fast-tracked legislation via amendments to the Environment Bill 2019-21, currently being debated in the House of Commons.

If passed, the law requires companies carrying out commercial activities in the UK with a certain turnover threshold, to:

• only use ‘forest risk commodities’, produced anywhere in the world, in accordance with local laws;
• carry out supply chain due diligence to check for risks of illegal deforestation in their supply chains; and
• publicly report on their due diligence.

Companies that do not comply with these rules will be subject to fines.

 Reactions to the consultation 

Although the consultation received a massive 63,719 responses, 59,228 of those were identical pro-forma responses received through a WWF campaign. That said, the recently released report highlights some very strong trends in the remaining responses: 99% of respondents agreed that legislation should be introduced to make forest risk commodities more sustainable, 90% encouraged the Government to go further than the current proposals (for example to protect other ecosystems, to require more than compliance with local laws or to include the financial sector) and 96% said that all businesses, not just larger ones, should be captured.

In its response the Government has taken some of that on board but has resisted calls to go further:

• When it comes to determining which businesses are within scope, the proposal to use an employee number threshold has gone, with a turnover threshold (currently undefined) to be applied instead.
• One new development is the introduction of a new de minimis threshold. This would exempt larger companies who might use only very small quantities of forest risk commodities (for example, in refreshments served at meetings).
• Financial services will not be within scope (on the basis that a different system tailored to their position in the marketplace would be needed).

What companies can expect

Many of the questions we noted in September remain, but the new Schedule to the Environment Bill provides some indications of direction:

• Companies carrying out a ‘commercial activity’ in the UK and meeting the turnover threshold would be captured along with any subsidiaries. Commercial activities are broadly defined and capture both the production end of supply chains as well as the distribution of products. Most companies who use forest risk commodities at any point in their supply chain are therefore likely to meet this definition.   
• ‘Forest risk commodities’ will be defined in secondary legislation in due course. Examples given to date are: beef, cocoa, leather, palm oil, rubber and soya.  Products which are derived (in whole or part) from a forest risk commodity will also be caught. Interestingly, in the case of animals, this will include any product of an animal fed on a forest risk commodity. Parliamentary discussions in this area cited the popular use of soya in animal feed as an example.
• The requirement that the production of the commodity be done in compliance with ‘local law’ remains the key test - defined as those of the country or territory where the source organism was grown, raised or cultivated.
• We know that due diligence reports will need to be made available to the public, and that the reporting period and deadline will be aligned with that of the Modern Slavery Act’s transparency in supply chains requirement (i.e. businesses will have six months to report after the end of the UK financial year). However, we don’t yet know what form the reports will take.
• Businesses can be fined for non-compliance but demonstrating that all reasonable steps to implement a due diligence system in relation to the commodity in question were taken will act as a complete defence to the prohibition on use.

More to come

It is unsurprising that the UK Government has acted swiftly following the conclusion of the consultation, given the focus throughout the private and public sectors on greater environmental protection in terms of tackling deforestation in key sourcing locations. The International Environment Minister, Lord Goldsmith, noted that:  “Our new due diligence law is one piece of a much bigger package of measures that we are putting in place to tackle deforestation. Our intent is not just to take world-leading domestic measures, but to build a global alliance of countries committed to working together to protect the world’s precious forests.”

While many of the respondents to the consultation would have liked to have seen the new laws go further, they are widely viewed as an important step in the right direction - albeit there is still plenty of work to do to ensure comprehensive and standardised reporting up and down the supply chain.

We should expect the Bill to be passed in early to mid-2021. DEFRA has also promised further discussions with key stakeholders and a formal consultation for the secondary legislation, to be introduced in late 2021 following input from COP26 attendees. That is another promising sign. There are real hopes that the UK Government will capitalise on its forthcoming presidency of the summit in Glasgow next year to accelerate a global transition to more sustainable supply chains by bringing together producer and consumer countries of forest risk commodities.