Getting Started With the New European Regulation to Mitigate Deforestation

Rhea-AI Summary

The EU is set to implement the EU Regulation on Deforestation-free (EUDR) products in December 2024 to combat deforestation and forest degradation. The regulation affects industries including consumer products, chemicals, pharma, agriculture, energy, retail, automotive, and forestry, impacting commodities like cocoa, coffee, soy, wood, palm oil, rubber, and cattle. Companies must perform due diligence, including supplier risk assessments and daily reporting to ensure products are deforestation-free. Non-compliance may lead to fines and reputational risks. SAP's Green Token software is being upgraded to support EUDR compliance, enabling automated due diligence reporting, traceability, and audit history.

Positive

• The EU Regulation on Deforestation-free products goes into effect in December 2024, aiming to combat deforestation.
• The regulation covers seven key commodities directly linked to deforestation.
• Large companies must comply by December 2024, while small and mid-sized companies have until June 2025.
• SAP Green Token software is being upgraded to meet EUDR compliance requirements.
• SAP Green Token will support automated due diligence reporting and traceability.

Negative

• Non-compliance with the EUDR may lead to fines and reputational risks.
• Companies must manage extensive due diligence reporting, posing operational challenges.
• Additional costs and resource allocation are required for compliance by large and small/mid-sized companies.

Feature by Gloria Figaroa

NORTHAMPTON, MA / ACCESSWIRE / June 24, 2024 / Forests are rapidly disappearing around the world, with deforestation and forest degradation currently posing the biggest threats to the world's woodlands. In a bid to halt this devastating situation, the EU is in the process of implementing the EU Regulation on Deforestation-free (EUDR) products.

The Burning Platform

Around 10% of the world's forests - an area larger than the European Union - have been lost over the past 30 years due to deforestation and another approximately 10% of forests globally are severely fragmented with little or no connectivity. While this is not a new phenomenon, the current scale and pace of destruction is alarming, causing significant social, economic, and environmental impacts, locally and globally.

Deforestation is one of the main drivers of climate change and biodiversity loss, and countries across the EU contribute to it by demanding and consuming a significant share of products associated with deforestation. In an effort to take accountability for this, the EU is determined to help end the issues by protecting and improving the health of existing forests, especially primary forests, while significantly increasing sustainable, biodiverse forest coverage worldwide. To achieve this goal, the EU has developed the Regulation on Deforestation-free products, scheduled to go into effect in December 2024.

To improve the health of existing forests and significantly increase sustainable, biodiverse forest coverage worldwide, the EUDR spans five main priorities:

• Reduce the footprint of EU consumption and encourage consumption of products from deforestation-free supply chains
• Work in partnership with producer countries to reduce pressures on forests
• Strengthen international cooperation to halt deforestation and encourage forest restoration
• Redirect finance to support more sustainable land-use practices
• Support availability and access to information on forests and commodity supply chains and support research and innovation

What's at Stake

A number of industries and market segments are impacted by this new regulation, including consumer products, chemicals, pharma, agriculture, energy, retail, automotive, and mill and forestry industries covering paper, lumber, and wood. The regulation impacts seven commodities, which primarily consist of agricultural or raw materials, including cocoa, coffee, soy, wood, palm oil, rubber, and cattle, that are directly linked to deforestation and forest degradation. It also impacts derivatives, which are the products made using these commodities, such as chocolate from cocoa, furniture from wood, or fresh chicken meat made by feeding soya-based feed to poultry.

Companies such as manufacturers and exporters of these commodities and their derivatives are the ones most impacted by the regulation. Large companies in these categories must adhere to the regulation by December 2024, while small or mid-sized ones have until June 2025 to comply. To be approved for use in the EU, products must be covered by a due diligence statement (DDS) per delivery linked to a traceability system with evidence of chain-of-custody from the source of origin demonstrating that the product is deforestation-free and produced in accordance with relevant legislations.

Main Impact on Operators

The legislation has two broad ramifications:

• Companies must carry out supplier risk assessments to ensure their suppliers of these seven commodities meet requirements, have mapped the land areas (shape files) of sourcing, and that their production does not violate local laws and regulations. If necessary, they must implement remedial action plans.
• Companies must do day-to-day DDS reporting per delivery to the EUDR portal, including the geolocation shape file of all plots of land where the relevant commodities or their derivates were produced, which requires supply chain traceability.

Responding to these impacts is an onerous task and for a typical large EU operator could involve hundreds of thousands of due diligence statements being created and sent to the EU annually. Due diligence statements must be kept for five years and must be auditable, making these tasks ripe for automation.

How to Get Started

Non-conformance to the EUDR may lead to fines, lack of market access, reputational risk, and other repercussions. Companies need an inexpensive, efficient solution to help meet their immediate reporting requirements, and SAP Green Token sustainability tracking software is being upgraded to fit the bill.

The out-of-the-box SAP Green Token solution currently includes DDS reporting capabilities and can cover the majority of technical requirements for customers. It can share information for commingled commodities in segregated supply chains with downstream partners and generate declarations.

SAP Green Token is being developed to help support automated EUDR DDS reporting and meet the audit history requirements. Also in the works is integration with data providers for standardized location information and integration with the EUDR reporting platform, called TRACES, for importing operators. Further expansions will enable a connection to SAP‘s sustainability business networks and end-to-end user experience scenarios.

Are You Equipped to Deal with the Upcoming Changes?

There is no better time than the present to prepare for the new regulatory landscape that is scheduled to take effect by the end of the year.

Companies can begin preparations by collaborating with suppliers to initiate the due diligence process, which includes three steps. It begins with collecting relevant data on types of products that are impacted and ensuring that they are being produced in accordance with regulations. If not, remedial steps can be taken in collaboration with partners and suppliers.

Next, companies must conduct risk assessments that address country-specific issues that can range from human right violations to tracing product origins. Again, remedial steps can be initiated collaboratively. And finally, the right technology is key to achieving compliance.

SAP Green Token can provide companies with the capability to track commingled materials in products using digital twins, segregated accounting, and blockchain technology to help prove sustainability. Not only can SAP Green Token help tackle this new regulation, but it can help demonstrate progress towards environmental, social, and governance (ESG) commitments in general and create a streamlined, transparent process for tracking and tracing materials to help drive a more sustainable, circular approach to business - one that benefits people and our planet while still driving profit.

Gloria Figaroa is part of Product Marketing for SAP Green Token at SAP.

View additional multimedia and more ESG storytelling from SAP on 3blmedia.com.

Contact Info:
Spokesperson: SAP
Website: https://www.3blmedia.com/profiles/sap
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SOURCE: SAP

View the original press release on accesswire.com

FAQ

What is the EU Regulation on Deforestation-free products (EUDR)?

The EUDR is a regulation set to take effect in December 2024, aiming to combat deforestation by ensuring products consumed in the EU are deforestation-free.

When does the EUDR come into effect?

The EUDR goes into effect in December 2024 for large companies, with smaller and mid-sized companies required to comply by June 2025.

Which commodities are affected by the EUDR?

The EUDR impacts commodities such as cocoa, coffee, soy, wood, palm oil, rubber, and cattle.

What are the consequences of non-compliance with the EUDR?

Non-compliance with the EUDR may lead to fines, lack of market access, and reputational risks.

How does SAP Green Token help with EUDR compliance?

SAP Green Token software supports automated due diligence reporting, traceability, and audit history to help companies comply with the EUDR.

What industries are impacted by the EUDR?

Industries such as consumer products, chemicals, pharma, agriculture, energy, retail, automotive, and forestry are impacted by the EUDR.

What does due diligence for EUDR compliance involve?

Due diligence involves supplier risk assessments, daily reporting of deforestation-free status, and maintaining auditable records for five years.