EU Defers Deforestation Regulation, Giving Companies the Time to Meet Compliance Standards

The European Union has decided to postpone the enforcement of its landmark deforestation regulation by one year. Originally set to take effect on December 31, 2024, this new timeline will allow companies, traders, and third countries additional time—until December 2025 for large operators and until mid-2026 for small businesses—to meet the stringent requirements set by the law. This decision comes after widespread concerns voiced by various stakeholders, including EU member states, international trade partners, and industry groups, who warned that the original deadline was too ambitious for full compliance.

The EU’s deforestation regulation, which was adopted in 2023, seeks to address the urgent issue of global deforestation—an environmental crisis driven in large part by the EU's consumption of certain commodities. The regulation targets products like palm oil, soy, cocoa, coffee, rubber, and cattle, and aims to ensure that goods sold within the EU or exported from it are not linked to deforestation or forest degradation.

At the heart of the regulation is a simple yet powerful objective - only deforestation-free products should be allowed to enter the EU market or be exported from the EU. This includes products that have not been produced on land that was deforested after December 31, 2020. The EU's consumption is responsible for an estimated 10% of global deforestation, according to the Food and Agriculture Organization (FAO), and this regulation is part of the EU's broader efforts to mitigate climate change and protect biodiversity.

However, as 2024 loomed, many companies and countries raised concerns about their ability to fully comply with these rules by the end of the year. These concerns were particularly pronounced in countries that rely heavily on exports of commodities linked to deforestation, and among companies navigating complex global supply chains. Faced with this pressure, the EU Commission proposed a one-year extension, which has now been approved by both the European Parliament and the Council.

The new timeline means that large operators and traders will have until December 2025 to comply with the regulation's due diligence requirements. Micro- and small enterprises, on the other hand, will have until June 2026 to meet these obligations. This additional time is seen as crucial to ensuring that all affected parties can fully establish the necessary systems to monitor and report on the deforestation risks within their supply chains.

Ensuring Legal Certainty & Avoiding Uncertainty

Volker Treier, head of foreign trade at the German Chamber of Industry and Commerce (DIHK), underscored the importance of this extension, particularly from the perspective of businesses already facing significant challenges. The economic climate has been fraught with uncertainties, and Treier argues that any further delay in the regulation’s application would send an alarming signal to the market.

"Legally secure application of the regulation is simply not possible at the moment," Treier said, noting that the critical infrastructure required to enforce the regulation, such as the benchmarking system for assessing deforestation risks in different countries, has yet to be fully finalized. Additionally, the IT systems needed to process compliance documentation are still under development. Without this infrastructure in place, companies could face substantial legal and operational challenges.

For Treier and many others in the business community, the postponement is a necessary step to prevent a rushed, unprepared rollout. “There is no alternative to postponing it in order to prevent an unprepared start,” he added. This extension provides companies with the breathing room needed to properly establish due diligence systems, which will include verifying the sources of their raw materials and ensuring that their supply chains are free from deforestation risks.

One of the more significant amendments to the regulation is the introduction of a new "no-risk" category for countries that have stable or increasing forest coverage. This move is seen as a welcome development by many in the commercial sector. Under the original rules, all countries were expected to comply with the same due diligence standards, regardless of their deforestation risk level. Now, countries classified as "no-risk" will face significantly less stringent requirements, a change designed to ease the burden on businesses sourcing products from these nations.

Treier expressed his support for this adjustment, noting that it would streamline the regulatory process and reduce bureaucracy for companies operating in low-risk areas. “This simplification will help reduce the administrative burden and make the regulation more efficient,” he explained. By categorizing countries with negligible deforestation risks separately, the regulation ensures that businesses are not unduly burdened by additional compliance costs when sourcing from these regions.

Finalizing the Details

With the postponement approved, the focus now shifts to finalizing the regulation’s details. The benchmarking system, which will classify countries into categories of "high," "standard," "low," or "no-risk" for deforestation, is set to be finalized by June 2025. This system will play a critical role in shaping the due diligence obligations for businesses, and its development is a key next step for the regulation’s full implementation.

The regulation still faces one more hurdle before it can officially come into force. While the European Parliament and the Council have both agreed to the postponement and the accompanying amendments, the regulation must now be formally adopted and published in the EU Official Journal. This will set the stage for the law’s entry into force by the end of 2025 for large companies and 2026 for smaller enterprises.

Despite the extended timeline, the EU’s commitment to reducing its impact on global deforestation remains unwavering. The deforestation regulation is a critical part of the EU’s broader sustainability agenda, and it reflects the growing recognition of the EU’s responsibility to take action against the environmental damage caused by its consumption patterns. The regulation’s ultimate goal is to ensure that no products linked to deforestation or forest degradation are allowed to enter the EU market or be exported from it, a move that would have a profound impact on global supply chains and biodiversity.

The one-year extension provides businesses with crucial time to prepare, but the EU is committed to tackling deforestation and ensuring that only sustainable, deforestation-free products enter its market. While this delay is a practical adjustment, it does not diminish the regulation's ambition or urgency. For companies, the path forward is straightforward - they must use this extra time to implement comprehensive due diligence systems, ensure compliance with the law, and actively contribute to building a more sustainable global supply chain.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.