Companies affected by the EUDR

The EU Deforestation Regulation (EUDR), which came into force in June 2023, is a product-related regulation that aims to ensure deforestation-free supply chains and aims at reducing global deforestation. In this way, the EUDR is intended to contribute to the fulfilment of the EU Green Deal. 

Products placed on the EU market or exported must not be associated with deforestation, forest degradation or violations of indigenous peoples’ rights. To this end, the EUDR obliges companies to carry out certain due diligence obligations, such as the collection of information as well as risk assessment measures and risk mitigation measures.  

The commodities concerned are cocoa, cattle, coffee, palm oil, rubber, soya, wood and products made from these. The exact products are listed in Annex I of the regulation. Companies can use the CN codes to check which of their commodities/products are affected. 

In terms of quantity, there are no thresholds for the relevant raw materials or products. All EU companies that place these on the EU market or export them are subject to the EUDR, regardless of the quantity. 

The scope of the due diligence obligations to be fulfilled depends on the respective role of the company in the value chain and whether or not it is a POB, in which case some of the due diligence obligations are simplified. In principle, the EUDR distinguishes between operators and traders. 

Operators are the companies that place the relevant raw materials or products on the market for the first time as part of a commercial activity (e.g., via an import) or export them. Companies also count as operators if they process a relevant product into another relevant product, e.g., when chocolate is produced from cocoa butter. In this case, both, the company that imports the cocoa butter and the company that produces the chocolate from it and places it on the market are considered operators. 

Traders, on the other hand, are all companies that make the relevant products available on the market, such as supermarket or retail chains.

Due diligence obligations for companies to fulfil

The due diligence obligations that companies must fulfil include:  

• collection of information

• risk assessment 

• risk mitigation 

• submission of due diligence statements  

• reporting

Collection of information

As a first step, companies need to collect relevant information on the products concerned. This includes a description of the relevant product, quantity, country of production, supplier data (name, address, email address), proof that products are deforestation-free and the geolocalisation of the land on which the relevant commodities were produced. 

This is also a special aspect of the EUDR. While other regulations previously only required the country of production or the region of certain raw materials to be named, companies must now disclose the exact geolocalisation of the land under the EUDR, stating the exact latitude and longitude coordinates. 

Risk assessment

The next step is the risk assessment. The information collected is reviewed and evaluated as part of the risk assessment. The aim of the risk assessment is to determine whether the products are EUDR-compliant or not.  

The EUDR provides certain criteria to be considered in the risk assessment. These include, for example, the presence of forests and indigenous peoples in the country of production, the prevalence of deforestation, the extent of corruption in the country of production, the complexity of the supply chain or the reliability of the information provided. Only products for which no or a negligible risk is identified may be placed on the market.  

Risk mitigation

If risks are identified, the company must take mitigation measures in accordance with the EUDR. It can request further information, data or documents from upstream suppliers, carry out on-site visits or audits or engage in capacity building, e.g., by supporting smallholders. 

If risk mitigation measures have been implemented and the risk of deforestation has been eliminated or reduced to a negligible level, the products may be placed on the Union market. 

Submission of the due diligence statement

To prove compliance, companies must submit a so-called due diligence statement to the national authority via the EU Information System. Companies can access the information system via an API (Application Programming Interface). 

The due diligence statement confirms that a product does not originate from an area deforested after 31 December 2020 and is a prerequisite for the import, export and transactions of the relevant products within the EU market. 

A due diligence statement must be created for each relevant product and specified for each batch. 

Reporting

Public reporting is also part of the EUDR requirements. This can be done via CSRD reporting, for example. The contents of the report include an overview of information on relevant products (e.g., trade name, quantity, country of production), conclusions of the risk assessment, measures taken, explanation of the information and evidence used for the risk assessment and, if applicable, a description of the process for consultation of indigenous peoples, local communities and civil society organisations. 

How do the due diligence obligations for traders and operators differ? 

Operators must implement the due diligence obligations listed above in full. As for downstream operators and traders, they must check the due diligence statements already prepared by upstream suppliers. Regardless of whether the due diligence review was carried out by the company itself or passed on, the responsibility for the due diligence statement lies with the company itself. 

When does the EUDR apply? 

To fulfil the requirements of the EUDR, large¹ and medium-sized² companies must ensure due diligence by the end of 2024. All products placed on the market after 30 December 2024 must therefore be EUDR-compliant. 

An extended deadline applies for small and microenterprises³. They have time until 30 June 2025 to implement the due diligence obligations and provide evidence that their products comply with the EUDR. 

Who carries out the checks and what are the penalties? 

Each member state tasks the national authorities with monitoring and checking the EUDR. The unnanounced checks are carried out according to a risk-based approach, with the number of checks depending on the country benchmarking. 

Penalties include the payment of fines. For legal entities, a maximum amount of at least 4 per cent of the previous EU-wide turnover. In addition, temporary exclusion from public procurement processes and from access to public funding (up to 12 months), temporary prohibition from placing or making available on the market or prohibition from exercising the simplified due diligence in the event of repeated/serious infringements may be imposed. 

In the event of violations, the company is obliged to eliminate any gaps and deficiencies in the due diligence obligation without delay. The products themselves must be donated or destroyed. The profits from trading in the products in question will be confiscated. operators or traders who violate the regulation must also bear the costs of official checks. 

Implementation status of regulation & current discussion 

The current discussion around the EUDR includes:

• enabling the practicable implementation of the EUDR, the EU Commission must develop various basic principles
• developing a country benchmarking system that assigns each country a specific risk level for deforestation (low to high risk)
• developing an electronic interface for a simplified submission of due diligence statements 
• developing of guidelines for compliance with this regulation by operators and traders. 

Initial steps and a timetable for implementation in relation to the EU information system have been published by the Commission. However, other important foundations for implementation are missing and have not yet been provided by the EU Commission, such as country benchmarking or the development of guidelines. For this reason, the discussion about the EUDR is currently gathering pace and calls for a postponement are growing louder from various quarters. Nevertheless, the Commission is maintaining its timeframe for now. 

What does this mean for implementation in practice?  

Despite uncertainties regarding the actual implementation of the EUDR, companies should not wait to implement it and should initiate the relevant processes within the company, because very extensive information must be generated. This includes gaining an overview and checking which products and suppliers are affected. The aim is to find out what information and data is already available and where there are gaps. 

Companies should develop approaches to create transparency. To do this, it is necessary to get in touch with their own suppliers and find solutions together. They should also consider the question of an IT-supported process. It may also be necessary to adapt their own product group strategy and procurement processes.