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The European Union has announced that it will delay the imposition of one of its landmark anti-deforestation laws, Regulation on Deforestation-free Products (EUDR), by more than 12 months. Originally, the date for its compliance was set for December 2024; however, now, large organizations have until December 30, 2025 to comply with this law, and small businesses until June 30, 2026 to comply.
Private equity or credit firms, asset managers, and impact investors who have companies in their portfolio that are involved with commodities that come within those mentioned in the regulation have more time to comply with the new standards.
Let's explore the delay in the regulation of Deforestation-Free Products in more detail.
About the EU Deforestation-Free Products regulation
The Deforestation-Free Products regulation came into force on June 29, 2023. It is made to guarantee that products that EU citizens consume are not contributing to deforestation worldwide. Under the regulation, any trader who places commodities like wood, cattle, cocoa, palm, soy, coffee, oil, rubber, and some of their derived products on the EU market or exports from it must have proof that the products do not originate from deforested land.
Why the EU delayed compliance for the Deforestation-Free Products regulation?
The regulation requires any organization of any size dealing with commodities sourced from deforested land or cause deforestation in production to change their ways of operation — a shift that may be more challenging for some businesses. The decision to delay the regulation comes after significant pressure from those businesses, stakeholders, and producer countries like Indonesia.
Key reasons for the delay include:
- Compliance challenges: Businesses have expressed that they require additional time to implement necessary tracking systems and due diligence processes to ensure their products come from deforestation-free areas.
- Producer nation concerns: Major producer nations of these commodities, such as Indonesia and Brazil, have expressed concerns that the regulation could disproportionately impact their economies and small farmers. According to these nations, these compliance requirements are stringent, and they need more time to become compliant.
- Other dynamics: Many people claim that there are other reasons for the delay, such as internal EU dynamics and economic interests. Some EU member states lobbied for a delay, creating a perception with some observers that they are prioritizing monetary benefits over environmental commitments.
Feedback on the delay of the EU’s Deforestation-Free Products regulation
While some businesses are welcoming the extra time to prepare, the delay in the regulation is attracting considerable criticism and concern. Critics have seen this as a setback for climate action, environmental organizations are disheartened, and the EU's study suggests that the delay could cause greenhouse gas emissions and additional deforestation.
The World Resources Institute (WRI) released a statement from Vice-President and Regional Director for Europe Stientje van Veldhoven: "The European Commission's proposal to delay the enforcement of the EU Deforestation Regulation is disappointing. It sends the wrong signal to national governments, both within and outside the EU, as well as to business partners, suggesting that the creation of a deforestation-free commodity market can wait."
Next steps
The delay in the Deforestation-Free Product is a significant decision for the EU's businesses, stakeholders, and citizens. It impacts environmental outcomes and shapes international trade relationships for countries. The Commission is inviting the European Parliament and Council to formally adopt the proposal for an extended implementation period by the end of the year.
While you’re here…
Private equity and private credit firms may want to carefully factor the delay in enforcing the EU Deforestation-Free Product regulation into their investment and lending decisions.
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