Developing AmSpec’s EU Deforestation Compliance services: boots vs. satellites.

Prepared by Gillian Dagan, PhD, MBA, VP of Energy Transition at AmSpec Group.

Today, I was lucky to sit down with Alejandro Carvalho, Director?of?Renewables and Sustainability LATAM at AmSpec, to discuss what he has learned about developing AmSpec’s EU Deforestation Compliance services. Over the last few months, Alejandro has been training auditors in the classroom to conduct the EUDR audits and use the auditing software platform. This past week, he was in the field conducting audits alongside our software partner, CMO.? Many things became evident, but the most significant was the need for in-field auditors to collect accurate geolocation boundaries and the?status of deforestation and to accurately verify the legal status of crops being produced that need to comply with EUDR.?Here is an excerpt from our conversation.

Alejandro, this past week, you were in the field with an AmSpec client and our partners at CMO. Please tell me a little bit about where you were and what you were trying to achieve.

We were working in the Sao Paulo province of Brazil to verify EUDR compliance of rubber plantations of farmers that supply cup lump to a local rubber processing factory. Our objective was to ensure that our clients had peace of mind that they were purchasing raw rubber that meets the two EUDR requirements.

What type of data are you collecting when you are in the field? How does this data relate to EUDR compliance?

To achieve our objective regarding meeting the requirements stipulated in the EUDR, we need to meet the due diligence requirements clearly defined in the EUDR:

• Gather information about a plot of land for each producer
• Obtain accurate boundaries of the geolocation
• Complete a risk assessment.

Where intolerably high risks are identified, these need to be mitigated.

We focus on two main risk assessment criteria, namely:

• Ensuring the rubber is produced from a plot that is deforestation-free
• A rubber origination plot meets the EUDR's legal requirements.

These are broadly divided into seven categories:

1. Land use rights are available for a producer
2. Conserving biodiversity, soil, and water
3. Management planning and operations are conducted legally
4. Third parties' rights are respected
5. Labor rights and human rights are respected
6. The rights of Indigenous Peoples are respected
7. Tax, anti-corruption, and trade laws are respected.

AmSpec uses unique, one-of-a-kind software to ensure consistent, reliable information that is easy to capture and trace. This includes the Empower application to assess compliance on each plot of land and the Tracer application to allow the assessment results to be traced throughout the supply chain to the EU.

Empower allows for capturing producer information, mapping the plot boundaries accurately, conducting a credible risk assessment through an on-site audit covering deforestation-free and legal requirements, and raising actions to close out any risks identified during the field audits. After that, Tracer seamlessly imports data from Empower?and captures volumes produced, bought, and sold throughout the supply chain until it reaches its destination in the EU. Tracer also allows the issue of the due diligence statement to be passed on to the authorities by the operator (importer) when entering the EU.

Interesting. I’ve seen many people say that they use satellite imagery to plot data and monitor deforestation. That seems like an easier route to take. What am I missing?

The limitations of satellite imagery are as follows:

Regarding the accuracy of deforestation-free products, the first requirement is to find an accurate boundary of the plot of land where production takes place. Satellite technology often cannot do this accurately. Regarding forests or forest plantations, satellite technology can also not accurately forecast the age of trees. Furthermore, tree species are often misinterpreted when using remote sensing or satellite technology on their own.

Except for the interpretation limitations on the forest's deforestation-free status, as described above, satellite technology's primary shortfall is that it cannot verify the legality status of any plot, as defined in the EUDR. This puts importers at risk of uploading inaccurate data to the EU system.

That makes sense. If my plot or deforestation data is incorrect, how would that affect my EUDR compliance?

Incorrect data would put your compliance status at risk and could result in financial penalties. Satellite technology alone makes it impossible to accurately confirm that a plot of land meets the EUDR requirements for deforestation-free products and the requirements that such products are produced legally.?

The only credible solution is to deploy boots-on-the-ground auditors to check for compliance. Such evidence must be collected by impartial, well-trained individuals who will ensure that all results are accurate and thus credible. This negates the possibility of producers doing self-assessments and completing their own compliance forms. They have a conflict of interest in reporting such information, relying on their product's acceptance for their business continuation.

On the positive side, remote sensing and digital maps are complementary to boots-on-the-ground audits:

• Firstly, historic satellite data can be used to verify forest compliance status by the EUDR cut-off date of December 31, 2020.
• Secondly, remote sensing offers a powerful tool to complement AmSpec's annual field audits with continuous monitoring of land plots. This means monitoring to flag any possible land-use change and reporting this to AmSpec for immediate follow-up in the field. Again, we benefit from having the boots-on-the-ground auditors working onsite to do this follow-up efficiently, quickly, and reliably.

We have designed our solution in a two-tier system:

1. A reliable, consistent boots-on-the-ground audit that allows our clients the peace of mind that they have the full EUDR due diligence compliance solution.
2. Remote sensing technology to complement our boots-on-the-ground solutions.

Who specifically has to sign off on the accuracy of the data, and if it is wrong, who is responsible?

The importer into the EU (operator) is ultimately responsible for meeting the EUDR requirements. Failing to do so can lead to a fine of 4% of the company's annual turnover and up to a 12-month ban on importing the product that was found to be non-compliant. However, we see that the operators (importers) are transferring the risk upstream into the supply chain through updated contracts that require the supply chain to confirm EUDR compliance.

How would that affect that importer/company’s ability to fulfill their supply chain obligations?

By passing the risk upstream onto the supply chain, the importers are making their suppliers fully responsible for meeting EUDR compliance requirements; failing to do so leads to excessive fines that will cripple the business of the upstream suppliers if they are sued for compensation by the importer.

That seems like a lot to risk. What would be your advice to those just starting on EUDR compliance?

My two pieces of advice for supply chains that need to comply with EUDR:

• Ensure you use a credible service provider that has a boots-on-the-ground approach to meeting EUDR due diligence requirements
• Satellite technology/remote sensing should only be used to complement the boots-on-the-ground work for establishing and maintaining forest conversion-free plots of land.

AmSpec provides both of these services in a seamless, fully integrated solution.

Contact [email protected] to find out more.

Visit AmSpec's EUDR Services webpage.