Everyone is talking about the EU Corporate Sustainability Due Diligence Directive. However, much stricter supply chain legislation has already entered into force: The European Deforestation Regulation. The Deforestation Regulation goes far beyond what the EU Corporate Sustainability Due Diligence Directive provides for even in its most extensive version.
We highlight the most important points below:
Background
Certain products contribute significantly to global deforestation and forest degradation. The European Timber Regulation has long regulated the sale of such products in the European Economic Area. The Deforestation Regulation is its much stricter successor.
Contrary to the Timber Regulation, the Deforestation Regulation goes beyond protection against forest degradation. In particular and comparable to the EU Corporate Sustainability Due Diligence Directive, labor rights and human rights aspects are also protected.
Scope
The Deforestation Regulation is highly technical and legistically complicated. Roughly speaking, it covers "operators" and "traders" of relevant "products". This means
- "Operator" is anyone who imports or exports relevant products into the European Economic Area.
- "Trader" is anyone who buys and sells relevant products that have already been imported.
- The relevant "products" are listed in the Annex of the Deforestation Regulation. These are things that contain wood, paper, cocoa, coffee or soy, for example. But also cattle. There are no threshold values. Just a sliver of wood in the product is enough to make it subject to the Deforestation Regulation.
The specific obligations depend on the position in the supply chain and the size of the company. Two groups of obligations stand out:
- Guarantee of Conformity: Companies must guarantee that the products are "deforestation-free" and "produced in accordance with the relevant legislation of the country of production" (so-called "legality"). Both guarantees are challenging. "Deforestation-free" also includes past forest damage - back to December 31, 2020. And legality includes, for example, compliance with workers' rights, but also with "human rights protected under international law". The main difference to the EU Corporate Sustainability Due Diligence Directive and the German Supply Chain Act is that compliance must be guaranteed. Mere efforts are not enough.
- Due Diligence Statement: Companies must publicly confirm conformity in a so-called due diligence statement. Such statement must be preceded by a process that includes information, risk assessment and risk mitigation.
Timeline
The Deforestation Regulation is already law. It will take effect from 30 December 2024. Micro and small undertaking have until 30 June 2025.
The Timber Regulation will be replaced by the Deforestation Regulation. However, the Timber Regulation remains applicable in parallel for logging before 29 June 2023 or if the product was placed on the market between 30 December 2024 and 30 December 2027.
Consequences
In Austria, the Federal Office for Forests is responsible for supervision. The authority can carry out regular inspections on its own initiative or on the basis of information from third parties. The inspections can be carried out without prior notice. The administrative penalties must provide for a maximum penalty of at least 4 % of global turnover.
There are also consequences under civil law. Violations can give rise to damages. Competitors can sue on the basis of the Unfair Competition Act. Other sanctions include temporary exclusion from public procurement procedures.
In addition, as always, reputational consequences in connection with supply chain violations are particularly threatening.
Next Steps
As with the Timber Trade Regulation, certificates can help. However, this is always only a snapshot at one point in time and limited in terms of content. The Deforestation Regulation therefore clearly states that neither own certificates nor the certification of external suppliers exempts from independently covering all obligations provided for by the Deforestation Regulation.
A deep understanding of the systematically challenging legal text and knowledge of the market standard is crucial. The Deforestation Regulation contains a wide range of obligations. But there are also enough starting points to be able to implement those obligations pragmatically.