Europe’s risk managers face new liability risk as rules on deforestation in supply chain move forward

Europe’s risk managers are faced with another proposal at EU level that further raises the exposure of multinationals to liability risk within their supply chain, this time linked to efforts to stop global deforestation. The European Parliament (EP) plenary this week adopted its position on the European Commission’s proposal for a new rule on deforestation-free products, with 453 votes to 57 and 123 abstentions. The new law would make it obligatory for companies to verify, through due diligence, that goods sold in the EU have not been produced on deforested or degraded land anywhere in the world. “This would guarantee consumers that the products they buy do not contribute to the destruction of forests, including of irreplaceable tropical forests, and hence reduce the EU’s contribution to climate change and biodiversity loss,” explained the EP. The Commission also wants companies to verify that goods are produced in accordance with human rights provisions in international law and respect the rights of indigenous people. This ties the deforestation proposal into new EU supply chain due diligence rules on supply chain risk with a particular focus on human rights abuse and environmental damage. The EP pointed out that an area larger than the EU was lost to deforestation between 1990 and 2020, with EU consumption representing about 10% of losses. Risk managers from many sectors in Europe will need to take a look at this latest proposal. The Commission’s proposal covers cattle, cocoa, coffee, palm oil, soya and wood, including products that contain, have been fed with or have been made using these commodities, such as leather, chocolate and furniture. But the EP also wants to include pig meat, sheep and goats, poultry, maize and rubber, as well as charcoal and printed paper products. MEPs also insist that products must not have been produced on land deforested after 31 December 2019 – one year earlier than the Commission’s proposal. The parliament also wants financial institutions to be subject to additional requirements to ensure that their activities do not contribute to deforestation. “While no country or commodity will be banned, companies placing products on the EU market would be obliged to exercise due diligence to evaluate risks in their supply chain. They can, for example, use satellite-monitoring tools, field audits, capacity building of suppliers or isotope testing to check where products come from. EU authorities would have access to relevant information, such as geographic coordinates. Anonymised data would be available to the public,” explained the parliament. Based on a “transparent assessment”, the Commission would have to classify countries, or part thereof, into low, standard or high risk within six months of this regulation entering into force. Products from low-risk countries will be subject to fewer obligations, the parliament said. After the vote, EP rapporteur Christophe Hansen said: “We are serious about fighting climate change and biodiversity loss. Acknowledging that the EU is responsible for around 10% of global deforestation, we have no choice but to ramp up our efforts to halt global deforestation. If we get the balance right between ambition, applicability and WTO compatibility, this new tool has the potential to pave the way to deforestation-free supply chains.” The parliament said it is now ready to start negotiations on the final law with EU member states.

Europe’s risk managers face new liability risk as rules on deforestation in supply chain move forward

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