Skip to main content

What does the EU’s new anti-deforestation law mean for business?

A recent landmark law agreed upon by EU member states is set to ban imports of goods linked to deforestation.

Deforestation from above

Image via Pexels/Pok Rie

On Dec. 6, the European Union agreed to bring into law historic new legislation banning the sale of several commodities linked to deforestation around the world, becoming the first international trading bloc to do so.

The list of outlawed goods spans consumer favorites such as coffee, cocoa, beef, soy, palm oil, rubber and timber grown on land deforested after 2020, including some derived products such as leather, chocolate and furniture.

The EU is responsible for about 10 percent of global deforestation, so while this policy won’t solve the problem worldwide, it does set a precedent that other economic regions can choose to follow or not. It is no coincidence that it was announced just a day before the commencement of the U.N. Convention on Biodiversity in Montreal — Christophe Hansen, lead negotiator for the European Parliament, said they hoped to "inspire other countries at the COP15."

The new regulations are a big win for consumers in the EU, who will be able to relax safe in the knowledge that what they purchase is not contributing to future deforestation. For businesses, on the other hand, the picture is a little more complicated.

What will companies need to do to comply?

The way these new laws work is by enforcing mandatory due diligence upon businesses looking to sell goods using the targeted commodities into European markets. That means companies will be legally responsible for producing a statement showing that their supply chains are not contributing to the destruction or degradation of forests.

To provide the "verifiable" evidence that EU legislators are looking for, multinationals will need to know the provenance of every beefburger, chair leg and coffee bean. That will require much higher levels of engagement with farmers on the ground than is common practice (many companies deal almost exclusively with brokers who buy from the farmers), not to mention more high-tech solutions, such as satellite monitoring and DNA testing, that will likely be needed to trace produce origins.

European countries where these commodities are sold will be responsible for carrying out spot checks on traders, with the maximum penalties for non-compliance set at a hefty 4 percent of turnover made within the member states where infringements have occurred.

No single market can deliver the changes on a scale we need … If we get this initiative right, the snowball effect could bring about genuine transformation on a massive scale.

There will be plenty of time to adjust, however. Both the EU Parliament and Council have six weeks from the date of agreement to formally approve the resolution, after which large multinationals will have 18 months to comply; small and medium-sized enterprises (SMEs), defined by the European Commission as companies with less than 250 employees and annual turnover under $53 million, will have up to 24 months. 

Are businesses doing this already?

The announcement was, on the whole, met with a warm reception from corporations, many of whom said they are already making efforts to clean up their supply chains.

Nestlé, Europe’s largest consumer goods company, welcomed the agreement at EU level. The company said it has already made good progress on deforestation, claiming 97.2 percent of its key ingredients are deforestation-free. Its assessments, carried out in partnership with the non-profit organization Earthworm, define raw materials as deforestation-free when they can be traced to low-risk origins or have been confirmed to be deforestation-free either from the sky or the ground.

Antje Bahnmueller, director of strategic communications at ALDI Nord (German), a German-based supermarket chain with stores in nine European countries, said the company "expressly supports the new EU regulation" and that it had signed an appeal in November asking that the regulations go even further, protecting woodlands such as the Cerrado savanna in Brazil as well. 

"The supply chains that will be affected by the upcoming EU regulation have been analyzed and prioritized in detail by ALDI Nord this year together with independent experts and environmental organizations in order to fulfill its responsibility," Bahnmueller said. "This means that the group of companies has already taken extensive measures for these products to source them deforestation-free."

While some companies are leading the way on this issue, the same cannot be said across the board. A lot of hollow pledges have been kicked around by these industries; in 2010, The Consumer Goods Forum, whose 400 members include some of the industry’s biggest players, agreed to end deforestation by 2020. This target was subsequently missed and replaced with "The Forest Positive Coalition for Action," a scheme which does not have a target date to end deforestation attached to it at all.

Another key issue is that most assessments on deforestation are self-regulated, either by trade bodies or companies themselves, making it difficult to know for certain who has actually been putting in the work. A 2021 report by Greenpeace showed that most certification schemes fall far short of protecting forests, often having standards that are poorly implemented or processes that lack proper transparency. The EU legislation seeks to "create a level playing field" for companies when it comes to acting on deforestation — empty promises aren’t going to cut it anymore.

What are the potential roadblocks?

Not everyone was thrilled about the new laws, with notable objections coming from countries including Brazil, Indonesia, Colombia and Canada, which argue that the new rules will be burdensome and costly.

It is inevitable that this policy will increase costs for some companies, due diligence takes time and effort, especially where supply chains span multiple countries. The benefit, however, is that frontrunners will no longer have their profits penalized for taking the first steps, and since this will happen at a market-wide level, extra costs will be diluted by the 500 million or so consumers who live in the EU.

The real test will come with implementation. Is it possible to trace the exact source of every one of these products? Will the spot-checking processes be enough to capture the whole picture? These are questions for a few years’ time when the rules have properly taken effect, but their answers will be crucial to whether we see other nations and trading blocs adopt a similar approach to tackling deforestation.

As Virginijus Sinkevičius, European Commissioner for Environment, said about the law back in 2021, when it was still a proposal: "No single market can deliver the changes on a scale we need … If we get this initiative right, the snowball effect could bring about genuine transformation on a massive scale."

More on this topic