Executive summary

Following the European Commission's proposal the application date of the EUDR has been postponed by 12 months (to 30 December 2025 for medium and large companies, and 30 June 2026 for micro and small enterprises).

Recap on EUDR

Deforestation and forest degradation are significant contributors to climate change and biodiversity loss. The EUDR imposes stringent supply chain due diligence (DD) and reporting requirements on certain commodities and products imported into, traded within and exported out of the EU. Commodities and products include cattle, cocoa, coffee, palm oil, rubber, soy, wood, as well as certain related products such as leather, chocolate, certain furniture, tires, paper or natural rubber spare parts (non-exhaustive list).

Companies must verify that goods are both deforestation-free and have been produced in compliance with relevant legislation of the country of production/harvest. EUDR compliance requires geolocation data collection down to the "plots of land" where relevant commodities have been produced or harvested, in addition to checking that local laws have been observed. DD statements need to be filed with the competent authorities evidencing "EUDR-compliant" status on a batch-level basis. Effective EUDR compliance requires a traceability system that allows the origin of relevant commodities to be identified throughout the upstream supply chains.

Consequences of noncompliance could be severe and can include significant fines, temporary exclusion from the EU market and public procurement processes or, in certain countries, personal liability for managing directors (non-exhaustive).

Current status and timeline of the EUDR

Given the need to extensively and transparently map chains of activities (including inhouse/intragroup) and collect and validate data throughout the supply chain, the original timeline of 30 December 2024 posed a significant challenge for many companies. Coupled with public scrutiny from various countries and organizations, the European Commission proposed a 12-month postponement to provide more time to prepare.

Following the EU legislative process, the EU Council approved the proposal to postpone. The European Parliament voted in favor but also included other material changes, most notably a "no risk" category for countries, which the EU Council and EU Commission rejected. Finally, in course of negotiations between the bodies, the additional material changes were withdrawn.

The postponement was published in the EU official journal on 23 December 2024¹ with the result that the EUDR shall be applied from 30 December 2025 by medium and large companies and from 30 June 2026 by small and micro businesses. Special regulations apply to timber and timber products.

The EU Commission's categorization of origin countries into low, standard and high-risk countries for deforestation shall be provided not later than by 30 June 2025.

Potential implications for businesses

In-scope companies should continue, or begin, the journey towards EUDR compliance.

Experience has shown that considerable lead time is typically needed to achieve traceability across relevant supply chains and establish effective data collection systems. It will be important to consider traceability tools and data management solutions; however, affected entities should note that an IT solution will not be able to seamlessly ensure batch-level traceability "overnight," given the need to onboard all relevant supply chain actors and share information required under the EUDR (which typically necessitates additional measures beyond the IT solution). Furthermore, establishing reasonable processes and checks to validate that relevant legislation in the country of production has been observed, can require considerable effort and a sophisticated approach.

The business response to the new regulation may also entail changes to product sourcing and distribution as well as product design. Moreover, EUDR-focused compliance requirements should be supported by contractual clauses and supervised via the EUDR due diligence system.

For more information, listen to the replay of the EY webcast from earlier this year: What EU Deforestation Regulation compliance readiness looks like.