Mitigating the impact of deforestation – EUDR – main target for supply chain management
According to statistics, about 10 million hectares of forest are lost yearly due to deforestation according to the FAO. This area is roughly the size of Iceland, with much of this loss linked to agriculture. This is a global deforestation impact in figures. The EU is responsible for around 16% of global deforestation associated with international trade, making it one of the primary contributors.
Industry data shows that approximately 30% of global companies have faced financial and reputational losses due to sustainability and deforestation issues in their supply chains. More companies are adopting the EUDR as a proactive measure to protect their reputation and maintain access to EU markets.
The European Union Deforestation Regulation (EUDR) aims to reduce global deforestation by ensuring that products sold in the EU, such as soy, palm oil, coffee, cocoa, and timber, are not linked to deforestation or forest degradation. It is part of the EU’s broader environmental strategy for climate action, biodiversity, and sustainable land use. Even though the European Commission postponed the EUDR application with a new deadline of 30 December 2025 (for large operators and traders) and 30 June 2026 (for micro- and small enterprises), companies are starting to prepare and act, which is a perfect proactive and preventive measure to fulfill compliance.
As a target, the EU aims to promote the consumption of deforestation-free products and, by doing so, reduce the EU footprint on global deforestation, forest degradation, and biodiversity loss.
It is important to note that meeting the traceability and compliance requirements imposed by the EUDR can add 5-15% to operational costs for small suppliers.
Major clients with a high sustainability maturity system are oriented to identify the impact of the supply chain. What are they doing? They assess risks and opportunities along their supply chain. How are they doing that? Either by assessing and submitting specific ESG questionnaires to suppliers or entering into the ESG Due Diligence process conducted in a very formal way. They ask suppliers for conformity checks and declarations of product provenience. Suppliers will face increased scrutiny, potential costs, and the need for robust traceability systems. Failure to comply could limit access to the EU market.
Key requirements of EUDR:
- Due diligence: Companies must assess and mitigate deforestation risks in their supply chains.
- Traceability: Businesses need systems to trace products to their source and document compliance.
- Geolocation data: Companies must provide data on sourcing areas to verify deforestation-free claims.
- Compliance reporting: Regular reports on compliance, risk assessments, and mitigation actions are required.
- Smallholder engagement: EUDR promotes working with smallholder farmers to encourage sustainable practices
Business financial materiality of EUDR in a nutshell.
- Loss of access to EU markets: Compliance with EUDR becomes a basic requirement for access to the EU market. Suppliers who do not meet the criteria may lose important contracts and access to the European market, which could put them at a competitive disadvantage.
- Need for innovation and adoption of technologies: To comply, some suppliers invest in innovative solutions, such as blockchain or other digital technologies, to maintain transparency and traceability in the supply chain. These investments can bring long-term benefits but require resources and operational changes, but in the short term, this might impact the P&L account.
You can’t let the highs get too high and you can’t let the lows get too low. Heaher O’Reilly
What are companies doing, and what are the good practices in EUDR implementation?
- Regular risk assessments: Regular risk assessments in the supply chain help identify deforestation-related issues before they escalate.
- Engaging stakeholders: Collaborating with smallholder farmers, NGOs, and local communities can promote sustainable practices and strengthen compliance efforts.
- Investing in training and capacity building: Training suppliers and smallholders on sustainable agricultural practices and EUDR compliance enhance supply chain sustainability.
- Continuous update: Keeping up-to-date with regulatory changes is essential for ensuring compliance with EUDR requirements.
To comply and prepare, you can contact us to assess your actual supply chain system and define a compliance matrix.
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