DISS-CO® is an innovative legal tech company with a strong focus on sustainability, risk and compliance.
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Deforestation Regulation (EUDR): 4 Key Obligations AI-Powered SaaS Can Help You Meet
“Deforestation Regulation” or “EUDR” marks a significant step towards sustainable supply chains in the EU. Deforestation is a global problem. Forests around the world are being cut down on a large scale for the manufacture of consumer products, mainly for agricultural purposes such as palm oil plantations as well as for mining and livestock farming. This has a negative impact on the climate and biodiversity.
With the Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023 on the making available on the Union market and the export from the Union of certain commodities and products associated with deforestation and forest degradation and repealing Regulation (EU) No 995/2010 (short “Deforestation Regulation” or “EUDR”), the European Union has now introduced a concrete countermeasure to prevent the import of consumer products from deforested areas. The aim is to ensure fair competition and protect the environment and human rights.
Understanding the Application
The EU Deforestation Regulation (EUDR) is set to revolutionize the global trade landscape. Effective December 30, 2024, businesses selling or importing products derived from soy, palm oil, beef, wood, cocoa, coffee, or rubber in the EU must ensure they do not contribute to deforestation or forest degradation post-December 31, 2020. This regulation will significantly impact micro, small, and larger enterprises operating within the European Union.
The EU Deforestation Regulation (EUDR) provides a longer transition period for SMEs to adapt to the new requirements.
Important: Even though SMEs have more time, it is advisable to familiarize themselves with the requirements of the regulation early on to ensure a smooth transition.
Unveiling the Obligations of the EUDR
To comply with the EUDR, businesses selling or importing products derived from the listed commodities must:
Due diligence obligations can be simplified if companies only source raw materials and products from countries with a low deforestation risk. Risk assessment and mitigation can be waived in this case, subject to compliance with the obligation to provide documentation upon request by the competent authority that the deforestation risk is actually negligible.
The EU Commission will also introduce a system that categorises countries according to their deforestation risk (low, normal, high). A list of countries with risk classifications will be published in implementing acts of the EU Commission no later than the date of application of the regulation on 30 December 2024.
Risks and Sanctions in case of Non-Compliance
The EU Deforestation Regulation (EUDR) imposes significant risks and sanctions for non-compliance. These include:
1. Financial Penalties: Companies that fail to comply with the EUDR may face substantial financial penalties. The exact amount of the penalty will depend on the severity of the non-compliance and the size of the company.
2. Product Bans: In serious cases of non-compliance, the EU Commission may ban the sale of non-compliant products within the EU market. This could have a devastating impact on a company’s revenue and reputation.
3. Reputational Damage: Non-compliance with the EUDR can severely damage a company’s reputation. Consumers and investors are increasingly concerned about environmental sustainability, and non-compliance can lead to boycotts, negative publicity, and loss of consumer trust.
4. Legal Proceedings: In addition to financial penalties and product bans, companies that violate the EUDR may face legal proceedings. This could include civil lawsuits, criminal charges, or other legal actions.
5. Supply Chain Disruption: Non-compliance with the EUDR can disrupt a company’s supply chain. Suppliers and customers may be reluctant to do business with companies that are not in compliance with the regulation.
6. Increased Costs: Complying with the EUDR can be costly, but the costs of non-compliance are likely to be even higher. Companies that fail to comply may face fines, legal fees, and lost revenue.
The Challenge of Due Diligence
Meeting the EUDR's due diligence obligations can be complex and time-consuming. Businesses must:
a) Monitor Suppliers: Track the activities of suppliers throughout the supply chain.
b) Implement Transparent Processes: Establish clear and traceable procedures for production and sourcing.
c) Collect and Analyze Data: Gather and analyze information to assess risks and ensure compliance.
Sustainable supply chains builds trust with investors, consumers, business partners and other stakeholders. Here are 4 topics where DISS-CO’s AI powered SaaS can help your company to enhance your EUDR compliance:
1. Automating Data Collection
Collecting and analyzing vast amounts of data from various sources, including satellite imagery, accounting and ERP systems, supplier records and reportings, risk and compliance databases, news, web and and public databases.
Continuous automated data collection and analysis makes all the difference.
2. Conducting Risk Assessments
a) Leveraging AI and Machine Learning: Advanced algorithms can analyze vast datasets from satellite imagery, supplier records, and public databases to identify areas with high deforestation risk.
b) Geospatial Analysis: By mapping deforestation hotspots and tracking changes over time, companies can pinpoint potential risks within their supply chains.
c) Supplier Profiling: AI can be used to assess the environmental practices of suppliers and identify those with a higher likelihood of being involved in deforestation.
3. Supply Chain Transparency
a) AI can help create a more transparent and traceable supply chain, making it easier to identify and address non-compliant practices.
b) Plausibility Checks: AI can verify the accuracy and consistency of data, ensuring that reports are based on reliable information.
4. Generating Due Diligence Reports
a) Risk Assessment Summaries: AI can generate concise summaries of identified risks, including their severity and potential impacts. A summary of mitigation and improvement plans and progress is important part of the reporting.
b) Clear and Concise Summaries: AI can generate clear and concise summaries of complex data, making it easier for stakeholders to understand and act upon.
The EU Deforestation Regulation presents a significant challenge for businesses, but with the right tools, it’s possible to navigate these complexities successfully. AI-powered solutions offer a practical and efficient way to ensure EUDR compliance, protect brand reputation, and contribute to a more sustainable future.
Compliance with the EUDR
Use our AI and Blockchain powered Software as a Service (SaaS) to comply with the EUDR quick and easy.