To the long list of sustainability-focused regulations now caught in the crosshairs of political debate, we may now add the European Union Deforestation Regulation (EUDR). In the latest round, the European Parliament voted to reject a regional risk benchmarking scheme that would categorize countries by their relative level of deforestation risk. Meanwhile, several of the major corporations whose businesses would be most affected by the EUDR are taking diametrically opposed views on what the future of the regulation should look like.
Understanding the EUDR
In order to fully understand the potential impacts of the EUDR and why business and political leaders care so deeply about it, some background is necessary. The regulation, which was initially introduced by the European Commission (EC) in November of 2021, and was set to take effect from the end of December 2024, required companies selling cattle, cocoa, coffee, palm oil, rubber, soya and wood and their derived products into the EU, to prove their supply chains do not contribute to the destruction of forests anywhere else in the world. Companies that could not show that their related products adhered to this new set of standards would have them banned from being sold in the Union’s 27 Member States. Then, in October of 2024, just two months before the EUDR was slated to come into force, the EC proposed a one-year delay.
In an explanatory memorandum, the EC said the delay was necessary to allow “exporting partner countries, operators and traders to be better prepared and for the latter to fully establish the necessary due diligence systems covering all relevant commodities products.” Behind that sentiment, there was a loud chorus of complaints from the United States, Australia, Brazil, China, Colombia, Indonesia and Malaysia, along with several EU Member States, who have challenged everything from negative effects the EUDR would have on key commodity producers to inaccuracies in the geolocation mapping data Europe is using to determine boundaries for enforcing it.
Opposing Views on Country Risk and Frequency of Reporting
Now, with the clock ticking on the one-year delay, EU lawmakers have proposed removing a core component of the EUDR – the regional classification system that would assign different deforestation risk scores to different countries. Those countries determined to be at low risk of deforestation would be subject to more simplified due diligence requirements, while high-risk countries would be subject to much more rigorous scrutiny. Questioning the accuracy of data being used to determine risk and suggesting the lack of precision in classifying countries into blanket, low-, standard- and high-risk categories, Parliament voted to remove the classification system altogether. Immediately following the vote, members of the European People’s Party (EPP) renewed their call for the introduction of a “no-risk” category for countries that pose a negligible deforestation risk.
EU lawmakers have also proposed changes to EUDR reporting requirements, suggesting that companies disclose their deforestation risks in a single, annual statement instead of including a report with every shipment. Lawmakers estimate this step would reduce the administrative burden of the EUDR by upwards of 30%.
Meanwhile, several EU Member States and some major corporations are urging a simplification and further postponement of the EUDR. Notably, the global food giant Mondelēz has taken a lead role in lobbying for a one-year delay “to enable practical, inclusive, and effective implementation,” as reported by Reuters.
That does not mean all corporate stakeholders are hoping for a delay, however. A letter co-signed by rival chocolate makers Nestlé, Ferrero and Tony’s Chocolonely urged the EC to ensure “the full preservation and swift, ambitious implementation” of the EUDR.
Ready for Anything
So, where does this leave potentially impacted business leaders who need to be ready to comply with a sweeping regulatory reform that was supposed to take effect in 2025, may now end up taking effect in 2026 or may be postponed for yet another year, or maybe simplified in ways not yet fully agreed?
The simple advice is to be ready for anything. Whichever form the EUDR ends up taking, and whenever it comes into effect, large corporations importing these commodities into the EU will still need to have some yet to be determined level of transparency into their supply chains and the ability to accurately determine the level of deforestation risk these imports pose.
A more nuanced approach, however, will involve reading the tea leaves of all of the other environmental and sustainability risk-related regulations and standards currently making their way through the critical review process. Business leaders should not be surprised if the EUDR ends up in a process similar to the Omnibus Simplification Package, whereby the Corporate Sustainability Due Diligence Directive (CSDDD) Corporate Sustainability Reporting Directive (CSRD) are being simplified to address changing marketplace and political dynamics. The initiative could also get caught up in the newly announced Call for Evidence issued by the EC, whereby regulators are seeking stakeholder input on measures to simplify environmental legislation and reduce administrative burdens at the implementation level.
Business leaders should also not be surprised if European regulators take a page from the International Sustainability Standards Board (ISSB) playbook by potentially introducing a sector-based approach to evaluating deforestation risk.
The challenge for business leaders trying to run their businesses in the midst of all this uncertainty is that adjusting course on sweeping regulatory changes with moving target deadlines is not easy. The only real way to be ready for whatever comes next is to invest now in making sure you have the data and visibility necessary to identify sustainability risks across your entire global supply chain. Importantly, this information is becoming increasingly necessary not only for regulators, but for wider stakeholders, such as customers, investors and employees, who have come to expect a certain level of environmental responsibility on the part of businesses.