New deforestation law adds supply chain pressure

Jul 31, 2023 | Supply Chain | 0 comments

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Supply chains relying on deforestation are on notice with these regulations, is it too tough to remove these exposures or just low priority? Or is this the blowtorch required to address them?

New EU deforestation laws are expected to impact food manufacturers and their supply chains, as products and  underlying ingredients will require a “due diligence” statement confirming commodities do not come from deforested land or have led to forest degradation since 31 December 2020. Large companies have 18 months to comply with the rules while smaller businesses have 24 months.

The law covers beef, palm oil, cocoa and soya beans and will classify countries and areas based on objective and transparent assessments. Enforcement will give EU authorities access to relevant information, including geolocation coordinates and checks, which will be conducted with the help of satellite monitoring tools and DNA analysis to investigate the source of commodities. It is expected the provisions that call for geo-location data will drive much needed pressure to achieve traceability in supply chains. The maximum fine for non-compliance will be at least 4% of annual turnover in the EU.   

Meanwhile, the Carbon Disclosure Project’s (CDP) annual Global Forests Report reveals companies stand to lose up to 26% of their value by 2030 due to an over-reliance on forest resources, totalling US$150bn as only a small number of companies are on track to eradicate deforestation from their supply chains.

The CDP claims the food, beverage and agriculture (FBA) industry has the lowest levels of governance of deforestation compared to other sectors reviewed including manufacturing and retail. The FBA group has the second highest proportion of ambitious targets, high levels of traceability, supply chain engagement and involvement in conservation project but lacks broad-level oversight of deforestation. According to the report, accelerating climate and nature transition and related incoming policy and demand shifts could lead to 40 of the world’s largest food and ag firms worth over US$2tr losing a quarter of their value.

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