Here’s an insightful blog post from the excellent Chain Reaction research team on what may lie ahead when it comes to policy measures around imported deforestation in European goods. Well worth a read, below, and also here.
The Chain: European Lawmakers Propose Legislation to Reduce Deforestation in Supply Chains, Putting Them at Odds With Producer Countries
The United Kingdom and Germany have recently announced new bills aimed at achieving deforestation-free commodity supply chains. The bills also focus on decarbonization of the transportation and energy sectors, and, if enacted, they would help countries meet climate change and greenhouse gas emission reduction targets. At the same time, however, Indonesia plans to implement a new omnibus bill, which critics claim will weaken environmental safeguards. With the new bills, producer and consumer countries risk implementing sharply different policies.
Demand for agricultural products has contributed to extensive deforestation and fires in Latin America and Southeast Asia. Deforestation in Brazil is mainly driven by the cattle sector, and in Indonesia, palm oil cultivation contributed to the loss of 90,000 hectares (ha) of forest in 2019.
In August 2020, Germany announced its intention to implement a rule, by 2021, that would compel companies in Europe to remove deforestation and human right violations from their supply chains. Companies importing raw materials (minerals and resources) would need to identify where the materials originated. This law would apply to all suppliers, with the higher the supply chain value, the greater the due diligence needed. The government would impose fines on any company failing to implement the law.
Similarly, the UK has announced its plan to curb deforestation and protect rainforests by prohibiting companies operating in the UK from sourcing raw materials from illegally deforested land. Illegal deforestation in this context follows the legal definitions of the source country, which has been highlighted as the major drawback of this proposal. Deforestation can still be legal even if it does not comply with industry NDPE policies.
The bills announced by the UK and Germany are part of a trend that involves European countries taking action to remove deforestation-linked companies from commodity supply chains. Norway officially committed to deforestation-free supply chains in 2016 as part of its Action Plan on Nature Diversity. The policy applied to forest sensitive crops, namely palm oil, soy, timber, and beef. France set out 17 measures in 2018 to stop importing products linked to deforestation by 2030, and the EU is currently having a consultation round to develop measures for member countries to address imported commodities linked to deforestation.
Action by European countries coincides with the recent announcement of the omnibus bill in Indonesia. The bill is currently in the middle of ongoing discussions between members of the House of Representatives and other parts of the government. According to the Indonesian Centre for Environmental Law(ICEL), this law would roll back environmental regulations. For example, it would eliminate minimum requirements to retain at least 30 percent of forest within a drainage basin, an island, and/or a province. Another major issue is related to holding companies accountable for forest fires. Under the new bill, plantation permit holders would no longer be responsible for fires in their concessions. The mandate would only prevent and mitigate fires in the plantation’s working area.
The discrepancy between European developments and the omnibus bill, plus continued pro-development rhetoric in other source countries like Brazil, makes the policies proposed in consumer countries critical in reducing deforestation in international supply chains. However, with leakage markets still providing an outlet for deforestation-linked commodities, collective implementation and efforts to increase sustainability requirements in other markets will remain crucial.
For more, please visit chainreactionresearch.com.
Join my colleagues at Innovation Forum and I, with 300 company executives and other experts, for our virtual 2020 conference “Sustainable Landscapes and Commodities” on November 3,4,5 2020. We will debate the planned/existing legislation and what these above policy measures will mean for business.
This three day virtual business conference will debate and showcase real world solutions to the most pressing and urgent challenges in commodity supply chains. We’ll look at what’s driving value chain change and how business is working to deliver on increasingly difficult sustainability targets.