Under a new law in the European Union, companies selling everyday products such as leather shoes, coffee, and chocolate will soon be required to prove that their goods are not contributing to deforestation. This law comes into effect on Thursday and gives companies 18 months to prepare for compliance. Specifically, companies will need to provide evidence of the origin of seven commodities known to drive forest loss: cattle, cocoa, coffee, palm oil, soy, rubber, and wood.
According to a report by environmental nonprofit Global Canopy, nearly 40% of the world’s 500 largest companies using these commodities have not established a policy on forest loss. It is estimated that at least 37 major US-based companies, including Starbucks and Kellogg, will be affected by the new regulations. Kellogg has stated that they are reviewing the regulations and working with their suppliers to prepare, while Starbucks declined to comment.
To comply with the new rules, businesses will need to identify the specific land where the product originated and demonstrate that no deforestation has occurred on that site since 2020. This will likely involve providing satellite imagery as part of their due diligence. Two companies, Planet Labs and Airbus-owned Starling, which use satellite technology to monitor land use, have noted an increased interest from US companies in their services due to the new regulations.
Importers that fail to meet the requirements of the law could face fines of up to 4% of their annual revenue in the EU. The law also establishes a system for checking shipments from different countries based on the level of deforestation risk perceived in those nations. However, the EU has yet to release the list of countries designated as high risk, and countries like Brazil, Indonesia, and Malaysia are lobbying against being classified as such.
Deforestation remains a significant global issue, with the loss of tropical primary forests reaching 4.1 million hectares in 2022. Many companies have struggled to effectively monitor their supply chains and achieve voluntary deforestation reduction commitments. The EU regulations aim to address this problem and combat global warming, as forests play a crucial role in absorbing carbon dioxide.
The EU regulations apply to a broad range of companies involved in importing, exporting, or selling products in the EU market. Compliance with the rules is estimated to cost importers up to €2.6 billion per year. Fast-moving consumer goods companies dealing with coffee, cocoa, palm oil, and soy could face substantial costs due to the reporting requirements and potential restructuring of supply chains to meet compliance.
It is expected that the EU regulations will become more stringent over time. A review of the rules is scheduled in two years, and there are discussions about expanding the list of commodities covered and regulating the financial sector under the regulations. In the US, Democrats in Congress are also pushing for similar legislation called the Forest Act, highlighting the need for the US to follow the EU’s lead in enacting deforestation regulations on trade.
Overall, these regulations represent a significant step towards combating deforestation and promoting sustainable business practices. By holding companies accountable for their supply chains, the EU aims to create a legacy of environmental preservation for future generations.
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