Preparing for Compliance: The EU Deforestation Regulation (EUDR)

From December 30, 2024, businesses operating in the EU must adhere to the requirements of the EU Deforestation Regulation (EUDR). While regulatory changes are a constant in the EU marketplace, this legislation carries significant implications, requiring companies dealing with certain products to conduct more rigorous supply chain due diligence.

In effect since June 29, 2023, the EUDR aims to mitigate the EU market’s impact on global deforestation, forest degradation, and biodiversity loss. It also seeks to promote deforestation-free supply chains, reduce the EU’s greenhouse gas (GHG) emissions, and uphold human rights, particularly those of indigenous communities.

When compliance becomes mandatory at the end of 2024, large businesses trading in seven key commodities—and their derivative products—must demonstrate that their goods do not originate from recently deforested areas or contribute to forest degradation.

This article outlines the EUDR’s core requirements and the steps companies should take to ensure readiness.

Urgent Need for Preparation

Customs authorities across the EU are already emphasizing the importance of businesses preparing for the EUDR’s stringent requirements. Companies subject to the regulation—spanning various industries—must act now to assess and adapt their supply chain monitoring processes.

Regulatory scrutiny will be high, necessitating extensive data collection on products and suppliers. Immediate priorities should include:

• Understanding the legal obligations under the EUDR
• Establishing a robust compliance framework
• Implementing a centralized data collection system
• Defining clear roles and responsibilities within the organization

Non-compliance could result in hefty fines and reputational damage.

Scope of the EUDR

To fully grasp the regulation’s impact, businesses must understand both its objective scope (affected products) and subjective scope (the entities required to comply).

Objective Scope

The EUDR applies to a broad range of goods linked to deforestation, specifically the following commodities: cattle, cocoa, coffee, palm oil, rubber, soy, and wood. This means the regulation covers various products, including beef, leather, furniture, paper products, soy flour and oil, chocolate, coffee, palm oil derivatives, and rubber-based goods such as tires.

Subjective Scope

The regulation applies to both operators (any business that places these products on the EU market or exports them) and traders (entities that make such products available for sale in the EU).

The rules apply to both large enterprises and small and medium-sized enterprises (SMEs), although SME obligations are delayed until June 30, 2025, with simplified requirements for SME traders.

Compliance Requirements

To introduce, market, or export covered products, businesses must meet three key conditions:

1. Deforestation-Free Origin – Products must not contribute to deforestation or forest degradation.
2. Legal Compliance – Goods must be produced in accordance with the laws of the country of origin, covering environmental, land-use, labor, tax, and human rights regulations.
3. Due Diligence Statement – Operators and traders must submit a due diligence statement confirming compliance.

Before placing products on the market, businesses must submit their due diligence documentation through a European register, expected to be operational by the end of the year. Only products assessed as compliant or posing a negligible risk of deforestation can be marketed or exported.

SME traders are not required to conduct due diligence themselves but must rely on statements provided by their suppliers.

Due Diligence Process

Companies must undertake a comprehensive due diligence process, including:

1. Data Collection
   • Gathering extensive product and supplier information
   • Identifying the production country and geolocated plots where commodities were grown
   • Verifying compliance with local environmental and labor laws
2. Risk Assessment
   • Evaluating risks based on EU-assigned country risk levels
   • Analyzing deforestation prevalence, supply chain complexity, and indigenous land rights
   • Conducting an annual risk review
3. Risk Mitigation
   • Seeking additional documentation when necessary
   • Conducting independent audits
   • Supporting suppliers in meeting compliance requirements

For products sourced from low-risk countries, due diligence requirements are simplified.

Additionally, businesses must publicly report on their due diligence systems annually and retain all relevant documentation for at least five years.

Enforcement & Penalties

EU Member States must appoint competent authorities to oversee compliance, conduct inspections, and review due diligence processes. These authorities have the power to:

• Recover costs related to investigations
• Seize or suspend non-compliant products from being imported, exported, or marketed
• Impose corrective actions and sanctions

Penalties for non-compliance include:

• Fines up to 4% of EU turnover
• Product confiscation
• Public listing of companies found in violation, with details of penalties imposed

The regulation also allows third parties to file complaints (“justified concerns”), which could trigger regulatory enforcement actions.

The Road Ahead for EUDR Compliance

Recognizing that the EU is the world’s second-largest contributor to deforestation after China, the EUDR represents a pivotal step toward reducing environmental harm. The regulation is expected to significantly curb GHG emissions and biodiversity loss.

The European Commission may extend the regulation in the future to cover other vulnerable ecosystems, such as wetlands. Much like the EU’s Battery Regulation and other environmental due diligence policies, the EUDR underscores the bloc’s commitment to sustainability.

For businesses, compliance will require more than a simple checklist approach. Many companies will need to fundamentally reassess their supply chains to ensure their products are legally sourced and environmentally responsible.

With just 10 months remaining until full implementation, companies must urgently strengthen their data management, supply chain oversight, and due diligence processes. Compliance is not optional—stricter regulations will only continue to emerge in the coming years.

To ensure your business is fully prepared for these regulatory changes, feel free to contact us for further guidance.