EU Deforestation Regulation published: A step forwards in global supply chain legislation

On 9 June 2023, Regulation (EU) 2023/1115 on deforestation in global supply chains was published in the Official Journal of the European Union and will enter into force on 29 June 2023. 

As discussed in our earlier blog, the Deforestation Regulation seeks to track key commodities linked to illegal deforestation and prohibit them from being imported, exported or sold in the EU. The commodities captured by the Regulation are: cattle, cocoa, coffee, oil palm, rubber, soya and wood.

In line with other new EU legislation, the Deforestation Regulation is not only directed at EU domiciled companies but could also apply to non-EU companies, e.g. if they are active on the EU market or because their EU customers pass on respective supply chain due diligence obligations as a perquisite to do business.

The extensive due diligence obligations imposed under the Deforestation Regulation are similar to those found in the draft Corporate Sustainability Due Diligence Directive (CSDDD), for which the final trilogue negotiations within the EU (European Parliament, Council of the EU and European Commission) recently began (see this blog for more details). However, as the Deforestation Regulation is commodity specific it stipulates many additional compliance requirements including far-reaching information-gathering obligations. Impacted companies are required to collect (amongst others):

• the country of the relevant commodities 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
• the name, postal address and email address of any business or person from whom they have been supplied with the relevant products
• the name, postal address and email address of any business, operator or trader to whom the relevant products have been supplied.

Failure to comply with the Deforestation Regulation may result in the imposition of fines which, in the case of companies, shall be at least 4 % of the operator’s or trader’s total annual EU-wide turnover in the preceding financial year. Moreover, other penalties also include:

• confiscation of the relevant products concerned from the operator and/or trader
• confiscation of revenues gained by the operator and/or trader from a transaction with the relevant products concerned
• temporary exclusion for a maximum period of 12 months from public procurement processes and from access to public funding, including tendering procedures, grants and concessions,
• temporary prohibition from placing or making available on the market or exporting relevant commodities and relevant products
• prohibition from being granted the option of conducting simplified due diligence.

It is important to note that, although the full Deforestation Regulation will enter into force on 29 June 2023 and will be directly applicable to all businesses in scope, the relevant Articles imposing these new obligations on companies only become applicable from 30 December 2024. Although that grants a transition period of 18 months, affected companies will need to start the process of assessing their product base swiftly as the Deforestation Regulation captures commodities linked to land which was deforested from 1 January 2021 onwards.

In the meantime, the European Commission has been mandated to extend the scope of the proposal to cover other natural ecosystems (e.g., grasslands, peatlands and wetlands), other commodities including maize, and to assess whether the specific obligations should be introduced for financial institutions to prevent financial flows contributing directly or indirectly to deforestation. An assessment is expected by 30 June 2025 and, if appropriate, may be accompanied by a legislative proposal.