UK government issues proposals to tackle illegal deforestation in supply chains

Concerns around climate change and the environment continue to move up the corporate agenda as governments and businesses are becoming ever more conscious of the potential for climate change to cause catastrophic global events.

The UK government has promised to “build back better and build back greener” in the wake of the Covid-19 crisis – seeing the pandemic as a chance to reset the economy by putting environmental considerations at the heart of business practices.

Forest environments are under constant threat. Almost 30% of land globally is covered by forest but they are disappearing at an alarming rate; between 1990 and 2016 more than 1.3 million square kilometres of forest were lost, while 17% of the Amazon rainforest has been destroyed during the past 50 years. The losses continue to rise. Forests are vital in the fight against climate change; it is estimated that tropical tree cover could provide up to 23% of the climate mitigation needed to achieve the goals set out in the Paris Agreement.

More than half of all deforestation is the result of farming, livestock grazing, mining and drilling, with forestry practices, wildfires and urbanisation also contributing. The clearance of forests to create agricultural land for the production of commodities such as palm oil or to create soy plantations is a major issue and is often carried out illegally.

Responsible businesses, civil organisations and governments are working with farmers and landowners to improve the sustainability of supply chains and protect forests, but many products in everyday use will contain ingredients that have been produced in countries where there is a high risk of illegal deforestation.

The Global Resource Initiative, created by the UK government in 2019, was tasked with identifying steps to make international supply chains greener and leave a lighter footprint on the global environment. One of its key recommendations is for mandatory due diligence requirement to force certain companies to ensure that commodities used or sold by them in the UK are not grown on illegally deforested land in other countries.

On 25 August, the government launched a consultation to seek views on a new law that would require that companies ensure that the “forest risk” commodities they use are produced legally. The threshold for the size of companies affected as well as the definition of forest risk commodities are yet to be determined, although the proposal suggests it would only impact on a relatively small number of larger companies.

Relevant commodities are likely to include products such as beef and leather, cocoa, palm oil, pulp and paper, timber, rubber and soya, which are often produced on illegally deforested land.

The proposed law would require businesses to carry out due diligence to ascertain the origin of their commodities and ensure that they were produced in accordance with local laws relating to deforestation. The government has proposed an unspecified fine if companies continue to use or sell the relevant commodities in contravention of the law and/or if they do not have in place a robust system of due diligence.

The consultation closes on 5 October. If agreed, the proposals would be enacted in the form of primary legislation. Further details such as the required size of companies affected and the level of fine would then be clarified in secondary legislation, which would require a further consultation.

The government’s proposals are a direct response to accusations of ‘greenwashing’ – where companies do not live up to their climate-friendly credentials. In June of last year, Greenpeace issued a report accusing several consumer brands, including Nestlé, Mondelez and Unilever, of failing to live up to their 2010 pledge to end deforestation by 2020 through responsible sourcing of commodities.

The proposed consultation suggests that the government is monitoring industry pledges and is willing to step in to enforce in law what would have carried only a reputational risk. Regulators are also taking a close interest – for example, the Italian Competition and Market Authority has recently fined energy company ENI for greenwashing, because it depicted its palm oil-based diesel product as having green credentials, overlooking the negative environmental effects associated with palm oil production.

The proposed law is also part of an increasing global trend to legislate against ethical infringements in global supply chains. Modern slavery has recently been in the spotlight and focus on the environment is also gaining momentum. In April, the EU announced plans to bring forward proposals in 2021 requiring businesses to monitor their supply chains for negative human rights and environmental impacts.

The legislation will likely apply to a broad range of companies and require sanctions in the event of non-compliance. Businesses should expect more such legislation in the future, as governments increasingly target companies for not just their own immediate environmental impact, but also the impact of their consumers, suppliers and investments.

In the UK, the government is looking to progress swiftly with its environmental programme, at the heart of which is the proposed Environment Bill, which is currently making its way through parliament.

The bill would create a new regulator – the Office for Environmental Protection – to monitor environmental policy and take enforcement action. It would also introduce a number of measures to conserve biodiversity, protect trees, improve air quality, develop waste management and introduce legally binding targets.

On 19 August, an environmental target policy paper was published, setting out four key areas in which to set legally enforceable aims – cleaner air, cleaner water, less waste and more biodiversity. Once targets are developed, the government expects a consultation on them in early 2022.

The push towards binding targets follows the groundbreaking introduction of legislation to enforce the objective of reaching net-zero emissions by 2050. These measures will have a broad effect on businesses, as more restrictions are introduced to ensure that the country stays within target.

As the government ramps up its focus on climate and the environment in the run-up to hosting COP26 in November 2021, we can expect to hear further policy announcements on this theme. Particular areas to look out for include the increase of mandatory monitoring of global supply chains, responses to greenwashing, regulation of investment practices and the introduction of legally binding targets.

Businesses will need to constantly assess their own climate policies, pledges and global supply chain impacts as scrutiny in this area increases.

 

Contributed by Simon Konsta, partner, Clyde & Co