Addressing the EU Deforestation Regulation: Challenges and Solutions

This extension provides a golden opportunity to implement critical compliance steps if you haven’t yet begun, or refine systems and investigate the risks you have found, if you already started. Lisa Spicka de Bevacqua looks at some of the key challenges and how these can be overcome, even with limited resources.

The end goal of the EUDR is clear: eliminate the trade of products that contribute to global deforestation. Seven commodities are specified to be in-scope of this regulation, and those are well-known in sustainability circles as contributing to deforestation. They are cattle, cocoa, coffee, palm oil, soy, timber and rubber. Derivatives of these commodities, such as chocolate, beef, or paper products are also included the regulations.

A quick review shows that key to compliance is to document that in-scope products have not been sourced from deforested lands. This requirement is very specific, indicating that precise plots (geolocation) of land where the product was grown must be documented and proven to be deforestation free. This documentation must then be submitted to the relevant EU authority.

With the end goal clear, we’ll start by looking at the challenges. Complying with the regulations include several challenges for companies to overcome.

The complexity of modern supply chains, which are intricate and often span multiple countries and regions, makes tracing the origins of commodities a daunting task. When you then consider each layer off the supply chain, tracing becomes a complex web where there are multiple points of potential failure to comply.

We then need to look at the need for precise data collection and management. This is a crucial piece of the puzzle as advanced systems are required to handle the sheer volume of information needed. Errors or gaps in data could easily lead to non-compliance.

Coordination and collaboration among various stakeholders, including suppliers, local authorities, and NGOs, add another layer of difficulty. Effective communication and creating partnerships now become essential. Communication breakdowns can present a real risk that hinders the implementation of sustainable practices.

And let’s not forget the technological and logistical barriers, particularly for smaller companies or those in remote or politically unstable regions. There’s likely to be a lack of access to the advanced technologies that enhance compliance scalability, which only further complicates the implementation and enforcement of deforestation-free practices.

Finally, the elephant in the room that applies to most of these challenges, is limited financial or human capital bandwidth.

The (relative) real-time, complex integration of ESG and procurement systems will be a huge challenge. Integrating sophisticated ESG (Environmental, Social, and Governance) software with existing systems is a tall ask as many companies will struggle to do that seamlessly. It’s a process that needs financial investment and specialized expertise, which not all organizations can afford.

That’s why it’s important to explore various compliance methods. While we wait for clarification on acceptable methods from the EU authorities, companies will need to explore innovative approaches for compliance. Flexibility and creativity are essential to develop cost-effective solutions that align with the regulations without straining already limited resources.

So with all the challenges, what can companies do now to get ahead and make sure they comply when the regulations come into force?

First and foremost, time needs to be spent collecting and evaluating information. Companies will need to identify the products or ingredients that are in-scope of the regulations and map the supply chain to ensure they know exactly where those products have come from. For end reporting, the geolocation where each product came from will need to be documented. Evaluating if any products are at high risk based on country of origin, documented deforestation rates or whether production methods are known will also put companies a step ahead.

Making sure that purchase orders and other documentation include detailed information on commodity origins is more crucial than ever. The transparency of having this paperwork enhances traceability and helps companies keep accurate records that can be audited for compliance. This meticulous record-keeping is a foundational step in meeting the new regulations.

Partnering with internal or third-party verifiers can give another layer of assurance through due diligence and risk assessment support. Verifiers can utilize their global auditing and resource networks to help confirm the origin of commodities. On-the-ground personnel can audit and check for compliance, and/or be a key piece in the development of risk mitigation plans for high-risk areas known for deforestation.

Direct sourcing, where that’s possible, can simplify supply chains and increase control over commodity origins. This approach not only helps in compliance but also creates stronger relationships with suppliers with a shared commitment to sustainability.

Effective data management of course remains a priority and making use of software systems can significantly enhance data management and import or export documentation efforts. These tools allow companies to process and verify large volumes of data quickly, increasing accuracy and speed of compliance at scale. Partnering with specialized software organizations can enhance data handling capabilities even more and reduce the pressure on internal teams.

Certifications can streamline the compliance process. Certifications such as the Forest Stewardship Council (FSC) or Rainforest Alliance show commitment and compliance to sustainable practices but most importantly should guarantee the ability to trace product back to origin.

Companies are in this together and strengthening collaboration can only help to embed the long-term aims of the new regulations. Creating multi-stakeholder platforms for knowledge sharing is vital to that goal. Engaging with local communities and suppliers will provide valuable insights and encourage cooperation across the board. Collaborative efforts can drive sustainable practices and ensure that compliance initiatives are culturally and contextually appropriate.

Companies can also seek to streamline compliance after the implementation deadline through a variety of methods.

A mentality of seeking to innovate rather than renovate may be an overlooked solution for compliance. Redesigning existing products to align with sustainable practices can reduce the reliance on deforestation-linked commodities. Developing new products or alternative materials can offer innovative solutions that meet regulatory requirements and support long-term sustainability goals.

Providing training and resources to suppliers and partners will promote best practices in sustainable sourcing and compliance. Regular training sessions can help stakeholders stay informed about regulatory changes and equip them with the skill they need to implement sustainable practices effectively.

The EU Deforestation Regulation is a significant step towards promoting sustainable supply chains and reducing deforestation. Companies committed to sustainability will make a significant impact through compliance with its criteria. While the challenges are real, proactive steps can help companies navigate the complexities of compliance.

Collaboration, innovation, and the effective use of available resources are the jigsaw pieces to overcoming these challenges. By embracing these strategies and actively finding solutions, companies can not only meet regulatory requirements but also contribute to longer term global sustainability efforts.

NSF’s mission is to improve human and planet health. Our Sustainability Consulting group leverages technical expertise and a global network of experts to help companies tackle the most pressing ESG regulations. Your success is our success because we share the same world.

Lisa Spicka de Bevacqua

Global Director, Sustainability Consulting

Lisa, who holds a Bachelor of Arts in Spanish from the University of Nebraska and a Master of Business Administration in Global Management from Thunderbird School of Global Management is a sustainability leader in the natural products industry who helps clients design and integrate sustainability strategies that address ESG reporting, climate action, and supply chain integrity.