Last week European Parliament adopted a position on the EU Commission’s Deforestation Free Products Proposal, approving the current language of the proposal and introducing additional items that Parliament wishes to see in the final version. The press release states that the new rule will:
“Make it obligatory for companies to verify (so-called ‘due diligence’) that goods sold in the EU have not been produced on deforested or degraded land anywhere in the world. This would guarantee consumers that the products they buy do not contribute to the destruction of forests, including of irreplaceable tropical forests, and hence reduce the EU’s contribution to climate change and biodiversity loss.”
The proposal requires companies to trace their supply chains and ensure that certain imports were not produced on land that has been deforested after December 31, 2019. The methods companies can use to verify the origins of their imports are extensive and include:
- satellite monitoring tools,
- field audits,
- capacity building of suppliers, and
- isotope testing.
Within six months of the regulation entering into force, the Commission will classify countries as being at low, standard, or high risk for exporting goods produced on deforested lands. Exports from countries with lower risk ratings will be subject to fewer obligations.
The rule will apply to cattle, cocoa, coffee, palm-oil, soya, and wood as well as any downstream products that use these materials as components or feed. However, Parliament’s position is that the proposal should be expanded to also cover pork, sheep, goats, poultry, maize, and rubber. Parliament also wants to introduce requirements for financial institutions to ensure that their activities do not contribute to deforestation.
The proposal has been praised by market participants as covered by Responsible Investor (subscription required). The new proposal is yet another in a slate of ESG legislation known as the European Green Deal and is considered essential to the EU’s climate goals. According to the Commission:
“Just counting from 1990 to 2020 the world has lost 420 million hectares of forest – an area larger than the European Union. The proposed new rules would guarantee that the products that EU citizens buy, use and consume on the EU market do not contribute to global deforestation and forest degradation.”
95% of the world’s deforestation occurs in the tropics and is often driven by agricultural development. Rainforests act as carbon sinks and deforestation poses the dual threat of endangering critical natural carbon removal and releasing the carbon stored therein when the forests are burned. The next step for the proposal will be for parliament to negotiate with EU member states to produce a final version of the proposal.
What this Means
This Proposal, along with the rest of the EU’s Green Deal legislation, will hopefully be effective and help reduce the long-term threats associated with climate change and biodiversity loss. However, for companies operating in the EU, the proposal also entails a large amount of work to ensure compliance. We’ve covered several of the EU’s Green deal policies in our Checklists “6 Things You Need to Know about the EU’s CSDD” and “7 Things You Need to Know about the EU’s CSRD.” Members can access these at any time on our Checklists page.