Deforestation Laggards at Risk from EUDR “Teeth”

Analyses of lacklustre efforts from corporates and financial institutions comes as EU deforestation regulation is set to come into force.  

Most companies at risk of exposure to deforestation are yet to set a no-deforestation policy that covers all the commodities subject to the new EU Regulation on Deforestation-free products (EUDR), research from investor network Ceres has found.

Ceres assessed 53 of the world’s largest companies and found while most have a no-deforestation policy only 18 companies have a company-wide, no-deforestation policy that covers all the commodities subject to EUDR.  

Further, only four have policies that cover their full supply chains and all their sourcing regions, and only eight company policies meet the recommended 2025 no-deforestation target date.  

Also published this week, new research from Global Canopy’s Deforestation Action Tracker has found that the majority of financial institutions that are member of initiatives that make up Glasgow Financial Alliance for Net Zero (GFANZ) or Race to Zero coalitions are failing on deforestation.  

Last September, the Co-chairs of GFANZ urged financial institutions to embed deforestation into their transition planning by developing policies to identify and curtail financing of such activities.  

Global Canopy found that of 700 financial institutions with high profile climate and net zero commitments only 21% recognise deforestation as a business risk. However, 44% of financial institutions are involved in collaborative sector initiatives on deforestation, or advocating for legislation focused on deforestation, conversion and associated human rights abuses. 

EUDR is a first-of-its kind legislation banning companies operating in the bloc from trading commodities associated with deforestation and forest degradation. It applies to soy, beef, palm oil, wood, cocoa, coffee, rubber, and some of their derived products, such as leather, chocolate, tires, or furniture.  

Large to medium companies have until the end of 2024 to verify and prove their products are deforestation free, with small businesses granted a longer adaptation period to June 2025.  

EUDR ‘neo-colonialist’ concern 

Speaking on a webinar organised by Ceres to introduce the findings of its deforestation research, David D’Hollander, Principal Project Manager at non-profit Proforest, said EUDR “had teeth” with significant fines and penalties for non-compliance gradually increasing for repeated offences that can go up to 4% of the annual turnover in the EU.  

Authorities also have measures to confiscate and recall non-compliant products, D’Hollander said.  

An announcement from EU member states on the implementation of EUDR is expected at COP28, he added.   

Also speaking on the webinar, Julie Gorte, Senior Vice President for Sustainable Investing at Impax Asset Management, described EUDR as one of the more “comprehensive and far-reaching tools” focused on environmental preservation.  

But she also noted that EUDR was seen as “somewhat protectionist” and presented additional risk of tensions between countries.

“EUDR is a good thing and we need it,” she stressed. “But we are a little bit concerned about the fact that several of the commodity producing countries have called it neo-colonialist in a fairly pointed and not friendly way. 

“When it comes to deforestation very little that we’ve tried in the past has worked, so it’s understandable that those who really want to move the needle on climate change and biodiversity loss would try stronger mechanisms like [EUDR] or the Forest Act in the US.”  

According to Gorte, Impax has launched a series of biodiversity loss-related engagements with investee firms.  

“Where deforestation is a significant issue for a company, we always bring it into conversation just as we do with other drivers of biodiversity loss as part of our new outreach, which will include pharma companies.”   

According to Ecologi, the pharmaceutical industry is likely to be affected by deforestation. Of the 50,000 known medicinal plants, which are the basis of more than 50% of all medications, up to a fifth are at risk of extinction at the local, national, regional, or global level due to deforestation 

Christy Rodriguez, ESG Analyst, Investment Stewardship at Legal and General Investment Management (LGIM), said on the webinar that the asset manager had introduced a policy on deforestation last year and had launched an annual engagement campaign with key companies.  

“We have sent more than 300 letters on this topic so far,” she said. “For the first time for this proxy season we applied specific votes on the topic of deforestation directly against chairs of boards.”  

She added that LGIM also wanted to see companies acknowledge the social implications of commodity-driven deforestation such as land rights.  

“We use third-party data to know if a company has a human rights policy or not. Although we are not sanctioning companies on this specific topic, this could definitely increase over time.”  

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