Last week, the European Parliament and the EU Council of the EU reached a provisional agreement on a regulation on deforestation-free supply chains. Under its terms, companies must issue due diligence statements that source materials were produced on land not subject to deforestation since 31 December 2020 and comply with legislation relating to human rights, including the rights of indigenous people. The source materials affected include palm oil, cattle, soy, coffee, timber and rubber, as well as derived products such as chocolate, beef, leather and furniture.
Companies will not be able to sell products within the EU without this statement. Penalties for non-compliance will be a maximum of 4% of the total annual turnover in each member state.
Companies will also be required to collect precise geographical information on the farmland where the commodities that they source have been grown, so that they can be checked for compliance.
The European Commission will run a benchmarking system that will assess countries or areas and their level of risk. Obligations for companies will depend on the level of risk.
The regulation must now be formally adopted before it can come into force, after which operators and traders will be given 18 months to adjust. Micro and small traders will be given a longer adaptation period.
Solicitors at Osborne Clarke commented in an update that ‘even though this regulation will not come into force for at least 18 months, businesses should consider the source of their products now, and think through the systems that will need to be put in place to produce or obtain the due diligence statement.
‘In the UK, the Environment Act 2021 will place a similar duty on businesses to have a due diligence system in place and to report annually on forest-risk commodities’.
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