EUDR Regulation: Understanding the New Guidelines for Deforestation-Free Supply Chains
Starting at the end of 2024, the EUDR Regulation will require European companies to ensure that certain products entering the European market have not contributed to deforestation. The aim is to halt the ongoing degradation of forests and deforestation, which will ultimately benefit climate protection and biodiversity. Approximately 20,000 German companies may be directly affected by the EUDR Regulation. In this article, you’ll learn how to successfully comply with the regulation.
The New EUDR Regulation: The LKSG for Forests?
Over the past 30 years, the world has lost an area of forest larger than the land area of the European Union. At the same time, the EU is one of the largest importers of products such as soy, green coffee, and raw cocoa, all of which are linked to deforestation. As a first step, the EU therefore adopted the EU Timber Regulation ( EUTR) back in 2013 (implemented in Germany through the Timber Trade Safeguard Act, HolzSiG). This regulation is now being further strengthened as part of the Green Deal. This includes strict requirements for traceability and due diligence on the part of companies, covering the entire supply chain and imposing sanctions for violations. It makes no difference whether the forest in question is located outside the EU—for example, in Brazil—or within the EU—for example, in Braunschweig.
Unlike other due diligence laws, such as the LKSG, which focuses on the company and imposes obligations to act, the EUDR Regulation centers on products and monitors actions that have already taken place rather than targets.
When does the EUDR Regulation take effect?
The implementation of the EUDR Regulation will take effect as early as the end of this year. Its scope of application will be expanded gradually, similar to the CSRD, for example:
- December 31, 2020: Certain goods for which forests were cleared or damaged beginning in early 2021 are subject to the ban on first importation and placing on the EU internal market, as well as on export
- June 29, 2023: The directive takes effect on this date, marking the start of a transition period
- December 30, 2024: As of this date, the EUDR will be mandatory for non-SMEs (see detailed breakdown below)
- June 30, 2025: Expansion of the scope of application to include SMEs
To which companies does the EUDR Regulation apply?
The following companies that trade in affected products or raw materials are subject to the regulation:
- Market participants: The products in question are being imported into the EU market for the first time or exported from there
- Retailers: Affected products are being made available on the EU market
As mentioned above, the scope of the EUDR will be expanded over time. Effective December 30, 2024, it will apply to companies that meet at least two of the following criteria (“non-SMEs,” meaning large and medium-sized enterprises):
- 50 employees
- €10 million in revenue
- Total assets of €5 million
Effective June 30, 2025, the EUDR will be extended to include SMEs. The classification is based on the criteria set forth in the Accounting Directive (see Directive 2013/34/EU) Threshold values.
Which products are affected by the EUDR?
The EUDR Regulation applies to raw materials and products derived from the following raw materials: wood, palm oil, coffee, cocoa, beef, soy, and rubber. The products are categorized according to Harmonized System (HS) codes. This list is expected to be expanded in the future. No thresholds or volume limits are specified for the affected products.
However, the EUDR Regulation provides for several exceptions: fully recycled goods, instruction manuals, bamboo products, and packaging materials (intended solely to protect or carry the goods). In addition, the EU excludes processed products that have only a minimal connection to the production process, such as gelatin or leather bags. These exceptions are also detailed in the EU’s Combined Nomenclature for products.
The Goal: Products Must Meet These Requirements Under the EUDR
Starting at the beginning of the implementation phase, the EU will permit the import, trade, and export of the raw materials and products listed above within the EU internal market only if the following three conditions are met:
Deforestation-Free: These products were produced without converting natural forest into agricultural land or tree plantations after December 31, 2020. It is irrelevant whether the deforestation in the country of origin was legal.
Compliance with the rights of the country of origin: Both environmental and human rights regulations were observed, including species protection, anti-corruption measures, labor rights, the UN Declaration on the Rights of Indigenous Peoples, and trade law.
Due Diligence Statement: A risk assessment has been conducted for the product, due diligence requirements have been met, and there is no risk of deforestation or only a negligible risk.
These are the requirements the EU imposes on companies:
The EUDR Regulation distinguishes between affected companies and areas of requirements based on market participants and distributors (see above):
Market participants conduct a risk assessment (based on a variety of criteria specified by the EUDR), mitigate risks where necessary, and submit a due diligence statement via the EU’s “Traces” system. Geodata plays an important role in this process. Geospatial data for all parcels of land where the products were produced must be included with the due diligence statement. A before-and-after comparison can be used to determine whether deforestation has occurred on a parcel-by-parcel basis. In addition to this information, evidence of compliance with the legal requirements of the country of origin must be collected. Close cooperation with the upstream supply chain is essential in this regard.
Distributors may cite the reference numbers of these due diligence statements when they subsequently trade or process the products on the EU market. If the due diligence statement is missing, the distributors themselves are responsible for providing it. Large distributors must conduct random checks of the risk assessments that have been performed.
There is also a distinction between “SMEs” and “non-SMEs” when it comes to requirements. SMEs benefit from a more limited set of obligations, which, for example, requires less information about the downstream supply chain and does not require a public EUDR report. For non-SMEs, on the other hand, the EUDR requires a public report, which, however, can also be submitted as part of the CSRD report.
Here’s how to implement the requirements step by step:
1. Understand the Current Situation
First, determine which size category your company falls into and what obligations apply. Determine whether any of your company’s products fall within the scope of the EUDR Regulation and, if so, which ones, and identify your company’s role (economic operator or distributor). This will allow you to prepare for implementation as effectively as possible.
2. Collect data
Get a comprehensive overview of your products and raw materials. This includes detailed information such as precise descriptions, quantities, suppliers, and countries of origin. The EUDR also requires the geolocation of all land parcels where the raw materials were produced—including the date or time period of production. These requirements apply both to future production and retroactively through December 31, 2020, to ensure that no deforestation has taken place on these lands. Additionally, you must demonstrate that all relevant laws in the country of origin have been complied with.
3. Conduct a risk assessment
Assess the deforestation risk associated with new products and raw materials. Criteria for this assessment include the country of origin, the deforestation rate in that country, the political and social situation, and the complexity of the supply chain. The EU offers a benchmarking system that classifies producer countries into risk categories. According to the EUDR, only products with no or minimal risk may be traded on the EU internal market.
4. Mitigate Risks
Once risks have been identified in your supply chain, you must minimize them as much as possible. Work with your suppliers to develop a new code of conduct, as well as flexible strategies and control mechanisms. Verify compliance with these measures through supplier audits or by obtaining additional documentation.
5. Documentation and Reporting
The EUDR also imposes obligations regarding internal documentation and reporting. For each affected batch of goods, a due diligence statement or a confirmation of EUDR compliance must be attached, which is subject to risk-based checks by customs authorities. With the exception of small and medium-sized enterprises (SMEs), all companies must publicly report on their risk assessments, due diligence processes, and the measures taken. If your company falls under the EU Corporate Sustainability Reporting Directive (CSRD), EUDR reporting can be integrated into the CSRD report.
Do you have questions about the EUDR or need assistance in implementing its requirements? If so, please contact us to schedule a no-obligation consultation.
