On 16 May 2023, Regulation (EU) 2023/1115 on the supply of certain raw materials and products associated with deforestation and forest degradation (EU Deforestation Regulation; EUDR) was adopted. With the globally unique approach of binding corporate due diligence obligations, the EU Deforestation Regulation aims to ensure the goal of deforestation-free supply chains. Following its adoption by the European Council, the regulation entered into force on 30 June 2023. It will apply from 30 December 2024 after a transitional period of 18 months. A transition period of 24 months applies to small companies. In addition, companies with up to 250 employees have the option of referring to the due diligence declaration of larger market participants if they are part of the supply chain and have already submitted a due diligence declaration for the purchased product.
What is it about?
The Regulation lays down binding due diligence obligations for all economic operators (producers, manufacturers and processors) and traders who place, supply or export certain goods and products derived from them on the EU market (“operators”). These include soya, oil palm, cattle, coffee, cocoa, rubber and wood as well as products made from them, which are listed in Annex I of the Regulation. The list in Annex I is based on the Combined Nomenclature system, which is already familiar from customs law. By including products made from pulp and paper, the EU Deforestation Regulation affects all producers and many processors of products made from fresh wood fibre and therefore has a strong influence on the packaging industry.
What does this mean for companies?
According to the EU Deforestation Regulation, raw materials and products may only be placed on the market, made available on the market or exported if they:
- are free from deforestation and forest degradation: To this end, they must not have been produced on land on which deforestation or forest degradation has taken place since 31 December 2020 (“cut-off date”).
- Have been produced in accordance with the laws of the country of origin.
- Do not violate any of the fundamental human rights and rights of indigenous peoples specified in the Regulation.
- Be confirmed with a due diligence declaration: This declaration must be published in a European information system.
If any of the above requirements are not met, the products in question may not be placed on the EU market.
Steps to fulfil the due diligence obligation
Market participants must go through three steps to fulfil their due diligence obligations:
- Ensure access to information: This includes information about the commodity, the quantity, the suppliers and the country of production of the product. This also includes geolocalisation, which shows the geographical coordinates of the areas where the raw materials were produced.
- Carry out risk analysis and risk assessment: Information on the land used for raw material production must be used to carry out a risk analysis and assessment.
- Take appropriate and proportionate remedial action.
Sanctions for violations
The enforcement authorities monitor market participants as part of a benchmarking system and impose sanctions if the requirements of the regulation are not met. The regulation provides for a catalogue of sanctions. Fines should be proportionate to the environmental damage and the value of the products, but should amount to at least 4% of the operator’s EU-wide annual turnover. Violations of the regulation can also lead to (temporary) exclusion from public tenders and access to public funds and product recalls.
What does this mean for companies and their organisations?
- Do not wait until the application date of the EU deforestation regulation and make better use of the very short time remaining to introduce procedures and processes.
- Adapt compliance structures to meet the requirements.
- Review and adapt risk management.
- Checking products (new and existing products) for conformity, analysing the supply chain and, if necessary, developing alternative solutions.
- Linking with obligations under the LkSG.
- Monitoring and control of the Executive Board by the Supervisory Board, including with regard to compliance and the effectiveness of compliance structures.
- Duty of the Management Board to provide information – but also duty of the Supervisory Board to actively demand information if the Management Board does not fulfil its duty to provide information and to monitor that violations are investigated by the Management Board (liability).
- Responsibility of the supervisory board in the event of suspected misconduct by the management board.
Conclusion
It is necessary for the Executive Board and Supervisory Board to deal with compliance issues and legal requirements in a professional manner and this contributes to the sustainable success of the company and its strategy – this also includes risk management that is customised to the company and complies with the law.
Contact:
Dr Kathrin J. Niewiarra
Lawyer, Attorney-at-Law (NY)
Ombudswoman
Sybelstrasse 7
D-10629 Berlin
Tel: +49 30 – 20 89 86 06-0 (dir.7)
Fax: +49 30 – 20 89 86 06-9
Mobile: +49 170 – 47 48 732
E-mail: [email protected]
Internet: bleu-and-orange.com
Internet-based whistleblowing system: compliance-aid.com