THE CLIMATE Bonds Initiative has released guidance on the European Union’s Regulation on Deforestation-Free Products. This comprehensive guide will help to equip corporates and financial institutions to meet and exceed the EUDR’s requirements, advancing global sustainability standards.
Sean Kidney, CEO, Climate Bonds Initiative. “This guidance serves as a compass for sustainable practices within global supply chains. Comprehensive due diligence and traceability are not just about compliance; they’re about spearheading a resilient, sustainable economy. This initiative aims to ignite a transformative approach to deforestation and land use.”
Deforestation and forest degradation significantly contribute to climate change and biodiversity loss. The UN’s Food and Agriculture Organisation reports that from 1990 to 2020, an area larger than the European Union, approximately 420 million hectares of forest, was lost to deforestation.
Climate Bonds says that the EU Deforestation Regulation (EUDR) marks a significant milestone in addressing deforestation associated with European supply chains by covering commodities associated with both legal and illegal deforestation. This regulation serves as a solid message to entities involved in agricultural commodity production that crops produced on cleared plots after December 31, 2020, will not be able to be sold in the EU, and sets a precedent for other consumer markets, encouraging the elevation of global standards for deforestation and conversion free (DCF) trade.
The implementation of this regulation presents both opportunities and challenges. The requirement for due diligence and plot-level traceability of relevant commodities is crucial to ensuring compliance and provides an opportunity for affected companies to build full internal visibility of supply chain dependencies and vulnerabilities.
The EUDR introduces strict due diligence requirements which go beyond most current supply chain certification schemes that allow for a mass balance approach. Under the EUDR, every unit of the relevant commodity sold in the EU must have the supporting geolocation data and due diligence system.
Climate Bonds is developing agri-food transition pathways and associated criteria for the supply chain actors to align with the requirements of the EUDR, while providing a clear understanding to investors of what is green, and clarity to the regulators on sustainable transition narratives.
Key Facts:
- Deforestation accounts for nearly 11% of all anthropogenic greenhouse gas emissions
- The EUDR sets stringent standards, prohibiting the sale within the EU of agricultural commodities on land cleared after December 31, 2020
- While the Regulation does not currently target financial institutions (FIs), there is a review clause that is foreseen to expand the regulatory coverage and impose new obligations on FIs under the EUDR in the near future
Implementation Insights:
- The EUDR presents an opportunity for companies to acquire full supply chain transparency, satisfying EU sustainability reporting mandates
- Challenges lie in the need for cost-effective solutions to meet information requirements
Key Recommendations:
- Voluntary Certification: Showcases due diligence
- Structured Transition Plans: Help eliminate deforestation from supply chains
- Robust Reporting: Essential for risk assessment and mitigation
- Go Beyond Compliance: Adopt best practices for climate resilience
Climate Bonds Initiative is further developing agri-food transition frameworks to align with the EUDR. They say that their guidance transcends regulatory minimums, promoting broader sustainability goals. In essence, this initiative places businesses and investors at the helm of the global green transition.