In October 2024, the European Union announced a one-year delay to its groundbreaking Deforestation Regulation (EUDR), pushing the compliance deadline to December 30, 2025, for large companies and June 30, 2026, for small and micro-enterprises. While some may view this delay as a setback, the EU has reaffirmed that its commitment to tackling global deforestation is as strong as ever. Despite this extended timeline, companies will still need to meet the rigorous demands of the regulation, especially around supply chain transparency and due diligence for high-risk commodities.
Why It Matters
Leading firms can improve while laggards can begin.
Allows EU to implement a more robust process.
Supply chain risks are increasing, with more time, stronger evidence.
A Delayed but Unwavering Ambition
The European Commission proposed the delay in response to pressures from industries and international partners. Countries like Brazil and Indonesia, as well as various industry groups, have raised concerns about the complexities of the regulation, particularly on smallholders and supply chain traceability. The delay is meant to allow companies more time to implement necessary systems, especially for tracking commodities like palm oil, cocoa, and soy.
But make no mistake—the core ambition of the EUDR is still intact. Once in force, companies will still need to ensure that the products they import, sell, or export in the EU are deforestation-free. The regulation requires businesses to provide geolocation data for all commodities in scope, and simplified due diligence will only apply to imports from countries classified as “low risk.” The EU’s message is clear: the delay is about ensuring smooth implementation, not diluting the regulation’s effectiveness.
Which Commodities Are Most Challenging?
In the CDP Forests 2023 disclosure data, the overall best-quality disclosure on Deforestation and Conversion-Free (DCF) actions provides an indicator of the maturity companies have achieved in ensuring that their commodities are deforestation- and conversion-free.
The data shows that commodities like palm oil, cocoa, and timber lead in terms of high-quality disclosures, with 21%, 15%, and 15% of companies, respectively, reporting strong DCF actions. However, the figures for other commodities, such as soy, coffee, cattle, and rubber, are significantly lower, showing that many companies in these sectors still face considerable challenges in ensuring deforestation-free supply chains. Across the board, 100% DCF volumes are still low, signaling that even industries with better performance still have significant work to do. For example, only 9% of companies reported deforestation-free volumes over 90% for timber, while palm oil and soy reported just 7%.
The chart above summarizes these trends.
This data underscores the fact that while companies are making progress, particularly in high-risk commodities like palm oil, the journey toward full compliance with the EUDR will be difficult for many. The diversity of supply chains and the complexity of geolocation tracking, particularly in sectors dominated by smallholder farmers (such as rubber, cocoa, and coffee), make this a considerable challenge.
Supply Chain Transparency Through Geolocation
A major part of the EUDR is the demand for complete supply chain transparency. Companies must track their raw materials from origin to market, using geolocation-based traceability to verify that their products are deforestation-free. This requirement applies across a range of commodities, from cattle and coffee to soy and timber.
For many businesses, this level of traceability is a significant challenge. In industries where commodities pass through multiple layers of processing and trade, setting up a clear line from source to market can be complex. However, it is a necessary step. The EU is pushing for companies to adopt segregated or identity-preserved supply chains, replacing the more common mass balance models. This shift to ensure that commodities linked to deforestation are kept separate from those that are not, guaranteeing greater accountability.
The High Stakes for High-Risk Commodities
For companies dealing in high-risk commodities—such as palm oil, cocoa, and rubber—the stakes are particularly high. According to reports from both JP Morgan and Kepler Cheuvreux, many businesses are still grappling with how to adapt their supply chains to meet the EUDR’s stringent requirements. Recent data from CDP shows that less than 10% of companies report having over 90% of their supply chains deforestation-free for critical commodities like cocoa and rubber.
This lack of readiness is why the delay was proposed, but it does not lower the bar. Failure to comply with the EUDR can result in steep penalties, including fines of at least 4% of a company’s annual EU-wide turnover. Other penalties include confiscation of revenues and products, market bans, and stricter customs controls. The regulation’s focus on high-risk countries and industries means that businesses working with palm oil, soy, and timber need to be especially vigilant, ensuring that they meet the EU’s legal liability for deforestation-free supply chains.
Global Reactions and Local Impacts
The global response to the EUDR is varied. Brazil, Indonesia, and Côte d’Ivoire, among others, have expressed concerns over the potential economic impact on smallholders, whose livelihoods depend on industries like cocoa and palm oil. These countries argue that the regulation could disproportionately harm their agricultural sectors, as smaller producers struggle to meet the new traceability requirements.
On the other hand, environmental advocates see the EUDR as a necessary step to curb deforestation and reduce the EU’s environmental footprint. By holding companies accountable for their supply chains, the regulation can incentivize more sustainable practices and reduce the global demand for commodities linked to deforestation. While the path to compliance may be difficult, the EUDR is expected to drive long-term change in how businesses source and manage forest-risk commodities.
Conclusion: A Crucial Step for Sustainability
While the one-year delay of the EUDR may offer companies a brief reprieve, the regulation’s overall goals remain necessary for the future of sustainable supply chains. Businesses that act early, investing in traceability systems and segregated supply chains, will be better positioned than their peers to meet the 2025 deadline and avoid the penalties associated with non-compliance.
The EUDR is more than just a regulation—it is a signal that the EU is serious about tackling deforestation at a global scale. For companies, this presents both a challenge and an opportunity. Those that embrace the regulation will not only mitigate risk but also prove their commitment to sustainability, transparency, and environmental responsibility.
By aligning with the EU’s vision, businesses can help drive a more sustainable future for global supply chains—one where deforestation becomes outdated.
What We Are Reading: Exploring the Complexities of Forests and Deforestation-Free Supply Chains
While the EU Deforestation Regulation is a significant step toward ending deforestation in global supply chains, understanding the complexities of forest ecosystems and tree species turnover is essential. Two key reports offer deeper insights:
The Biogeography of Amazonian Tree Flora: This study analyzes tree species composition across Amazonia, highlighting how environmental conditions—such as soil nutrients and water availability—drive species turnover. With over 5,000 tree species analyzed, it underscores the importance of diverse ecosystems when considering sustainability measures.
Luize, et al. 2024. The biogeography of the Amazonian tree flora. Communications Biology 7:1240. https://doi.org/10.1038/s42003-024-06937-5.
Tree Growth and Longevity Trade-offs: This research examines the pace of life for trees across global biomes. It explores how tree growth strategies and life expectancy are influenced by environmental factors, giving crucial insights into forest carbon dynamics and biodiversity. This study shows how trees vary in their ability to survive and sequester carbon, adding another layer to the discussion around forest conservation and deforestation-free supply chains.
Bialic-Murphy, et al. 2024. The pace of life for forest trees. Science 386:92-98.
Komentar