Advice Note 1: Authorities should focus on depth, not breadth
Borneo rainforest canopy
This analysis is the first in our series on the enforcement of the EU Deforestation Regulation (EUDR).
- The largest importers of EUDR commodities are responsible for the majority of total imports. These top importers are also the same companies which have been exposed for having links to deforestation and illegality
- It can be expected that such importers and their suppliers will comply with the most basic requirements of the EUDR. They will submit due diligence statements accurately and on time. They will have due diligence systems in place. They will have correctly identified risks. They will have traceability systems of some kind in operation
- The problems with these importers will lie deeper. Their mitigation measures will be weak. Their traceability systems will have fundamental flaws, but these will be well hidden
- On the other hand, the much smaller importers of EUDR goods are more likely to fail to comply with the basic requirements of the law. Going after such small firms will be much easier for EUDR enforcement authorities (known as Competent Authorities, or CAs), and they will be tempted to focus most of their energy on this – as happened with the EU Timber Regulation
- For the law to achieve its aims, it is essential that CAs avoid falling into this trap. They must understand that the most impactful approach will be one that is focused on depth rather than breadth
The right approach
The EU’s flagship supply chain law, the EU Deforestation Regulation (EUDR), will come into effect at the end of 2025. National Competent Authorities (CAs) – the government agencies in each EU Member State tasked with enforcing the law – are getting ready to assess the first wave of due diligence statements from importers and traders.
But for the EUDR to have the desired effect, it is essential that EU Member States and the European Commission take the right approach to implementing and enforcing it. Earthsight’s research shows that the most impactful approach will be one that is focused on depth rather than breadth. This means ensuring maximum compliance by the biggest importers, rather than minimum compliance by the greatest number of importers.
Unfortunately there are signs the EU is heading in the opposite direction.
'The most impactful approach will be one that is focused on depth rather than breadth.'
The dominance of large importers
There can be expected to be a spectrum of compliance levels with the new regulation once it takes effect.
At the bottom end will be importers, mostly small, who fail to even put a due diligence system in place or submit the necessary due diligence statements (DDS). More often than not, these companies will simply be ignorant of the law. There are likely to be many such companies, but they will represent a tiny proportion of the overall import volumes of EUDR commodities.
At the other end of this spectrum will be the big players, which Earthsight’s analysis shows are responsible for the majority of the imports of EUDR-liable commodities (see chart). These large companies will be well aware of the law and will submit DDS on time, which will tick the most basic boxes. It is very unlikely that their DDS will include geolocation coordinates for any areas deforested after 2020. Indeed, it is likely that these larger players will be in a position to map all zero-deforestation farms or plantations in an area (or buy this information) and then to routinely provide those geolocations on their DDS.
The key questions authorities will need to assess for these big players will instead be whether their traceability systems are strong enough to ensure the shipment does not also contain goods from elsewhere, and whether they have mitigated the risk of illegality associated with their stated farm or plantation locations to the point where the risk of non-compliance is negligible.1
There is good reason to be mistrustful of such firms. They include most of the companies which have been exposed for links to deforestation, illegality and human rights abuses in the past, such as Cargill and Bunge for soy, JBS for beef, GAR for palm oil and pulp and paper, and Olam for rubber.
Unfortunately, there are reasons to fear they will nevertheless get an easy ride when EU Member States start enforcing the new law.
Superficial compliance
Enforcement data show that under the EUDR’s predecessor, the EU Timber Regulation (EUTR), the vast majority of enforcement actions by CAs were penalties (mostly just warnings) issued against companies which did not have a due diligence system in place.
This was not just true in the first years of the law either. In 2023, a decade after it came into effect, CAs found that 38 per cent of timber importers checked were still non-compliant with the EUTR. In response, they issued over 600 administrative penalties and notices of remedial action, and only six more serious penalties (one temporary seizure, three suspensions of trade and two financial criminal penalties).
At best, EUTR CAs went one step further and examined whether a company’s due diligence system had achieved its most basic goal of identifying risks needing mitigation. CAs almost never took the next step, that of assessing whether mitigation measures put in place for high-risk wood had genuinely reduced the risk to a ‘non-negligible’ level.
It is this failure which was to blame in almost every case study of EUTR non-compliance uncovered by Earthsight over the last eight years. We found vast quantities of high-risk wood continuing to enter the EU from a wide range of countries, including Ukraine, Russia, Belarus, DR Congo, Liberia and Brazil.
In nearly every case, the importer had a DDS in place, had identified the wood as high-risk, but had implemented inadequate mitigation measures. Often that mitigation involved relying on flawed independent certification, such as the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC). At other times it relied on government-issued documents of demonstrably minimal value.
FSC and PEFC certification is no guarantee of legality or sustainability and our investigations have repeatedly found illegal timber bearing the FSC or PEFC imprimatur. In 2021, we exposed how a corrupt businessman had spent 10 years illegally harvesting timber in an FSC-certified forest in Siberia, with some of that certified timber making its way to the supply chain of IKEA. In our most recent investigation, a Chinese company offered to sell us laundered Russian plywood with an FSC label, despite that wood being in breach of EUTR and EU sanctions.
There is nothing as yet to indicate this lesson from the EUTR has been learned.
Quantity over quality
The problems start with the law itself. Mindful of weaknesses in EUTR enforcement, the drafters of the EUDR included in the law mandatory minimums for the checks authorities have to conduct.2 Unfortunately, these do not consider the quality of those checks, only the quantity. This requirement may encourage a box-ticking approach by authorities of the kind seen under the EUTR.
For those forest-risk commodities originating in places classed as low-risk or standard-risk, the EUDR requires only a minimum proportion of companies importing to be checked (1 per cent and 3 per cent respectively). But those minimum thresholds could easily be met by focusing on smaller companies – those likely to have an inadequate due diligence system or missing information in their DDS.
It would be quite possible for authorities to meet those thresholds and yet fail to carry out any checks at all on the largest importers. The same is only slightly less true for high-risk origins, where the 9 per cent threshold applies both to the number of importers and to the proportion of the total imports of each commodity.
Challenging the apparent compliance of the biggest importers will be hard. It will mean looking beyond third-party certification or government permits and investigating the circumstances under which the commodities were produced and the real risks in company supply chains. But doing so will be essential if the law is to achieve its purpose.
1 'Negligible risk' means that, after considering relevant information and applying mitigation measures, there is no cause for concern that the commodity or product does not comply with the zero-deforestation or legality requirements of the EUDR.
2 EUDR, Article 16, see: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32023R1115
