Supply Chain Regulation
Regulation is an essential driver for effective systems change, and the last decade has seen an acceleration of supply chain or demand-side legislation in major import and consumer markets, in particular the EU. While critical, regulators are still learning and experimenting on how to legislate and shape global supply chains to mitigate risks effectively and deliver more sustainable outcomes.
We approach demand-side regulation from a holistic perspective, what governments are trying to achieve: what companies are required to do, but most importantly, the impact we want to see on the ground, for people and the landscapes they live in. Our work encompasses a number of key regulatory frameworks.
Regulations on deforestation
A range of new regulations seek to address commodity-driven deforestation and ecosystem-impacts, in particular the European Regulation on Deforestation-free Products (EUDR), the UK Environmental Act, and the proposed US Forest Act. Each of these regulations differ in scope, obligations and modalities, but they all focus on mandatory due diligence processes. We support the implementation of these regulation while maintaining our focus on supporting global best practice, in particular through the AFI, including deforestation and conversion-free (DCF) pathways. We recommend companies adopt and implement a global DCF policy and strategy for each high-impact commodity, regardless of the differing obligations created by regulatory frameworks.
- The European Regulation on Deforestation-free Products (EUDR) adopted in 2023, seeks to ensure the EU no longer imports commodities directly linked to deforestation. Proforest welcomes the regulation as an important mechanism to create corporate accountability for deforestation, forest degradation & legality of country of production, as it applies to cattle, cocoa, coffee, oil palm, soya, rubber and wood.
- The UK Environment Act introduced in 2021 prohibits UK-based companies from using illegally-produced forest risk commodities and requires that they establish a due diligence system. Further legislation has been introduced in late 2023 to specify scope and obligations relating to four commodities initially: cattle products (excluding dairy), cocoa, palm oil and soy.
- The US Forest Act is a proposed regulation to address products related to illegal deforestation coming into the US. Under the bill, the initial list of covered commodities would include palm oil, soybeans, cocoa, cattle, and rubber. The covered products list would at first include products derived from palm oil, soybeans, cocoa, cattle, and rubber.
Effective due diligence beyond supply chains
Addressing deforestation and ecosystem conversion requires a global and collaborative approach, and progressive investment in high-risk areas. This broader process is not covered or incentivised by regulations such as the EUDR. In addition to supporting compliance, we work with companies to engage suppliers beyond individual value chains, and to motivate investment in sector-transformation, which means empowering global leading companies and consumer countries to take responsibility to support change driven by producer countries. In carrying out due diligence on deforestation, companies need to:
- retain a focus on environmental and social dimensions and follow the full breadth of best practice efforts that have been established concerning responsible sourcing practices,
- stay committed to supplier and producer engagement in the long term,
- invest in action at scale, including at landscape or jurisdictional level.
Unintended consequences of demand-side regulation
Regulations can and often do have unintended consequences, depending on how they are designed and enforced. One of the consequences of overly restrictive supply chain regulation is the exclusion of high-risk producers, in most cases smallholders. This exclusion results from the lack of formality these producers operate in, the lack of financial and technical resources needed to provide information such as geo-location data, or not meeting the requirements of a given regulation.
Most of these challenges are unlikely to be solved without greatly enhanced investment and collaboration with producer countries – two areas that we emphasise as key elements of effective action on deforestation. This means putting in practice a just transition towards deforestation and conversion-free commodity production, in which the livelihoods of producers and governance for and by ‘local’ jurisdictions and communities is a priority.
Useful resources:
EU Due Diligence - Guidance for Cocoa Producers and Importers
EU Regulation on Deforestation-Free Products: Recommendations for a Forest Positive Impact (IDH, Proforest, March, 2022)
Supporting Companies - Proforest Publications
Our work in deforestation and conversion free supply chains
Common Methodology for Assessment of Progress Towards Deforestation- and Conversion-Free Supply Chains (AFi, January 2024)
Risk benchmarking for the EU deforestation regulation: Key principles and recommendations (Trase, Proforest, August 2023)
Operational Guidance on Cutoff Dates (AFi, May 2020)
RAPPORT: Journées de sensibilisation et de brainstorming sur le Règlement Déforestation de l’Union Européenne (RDUE) au Gabon (WWF, Proforest June 2024)