EU’s Deforestation regulation foresees value chain sustainability

I'll start by saying that I've written this blog in collaboration with the Deforestation AI assistant, tailored by Infine's sustainability experts. The AI Assistant is aimed at helping businesses prepare for the changes and challenges brought by the Deforestation Regulation, but here I proved that it works as an in-house expert to support content production as well. You can order the AI Assistant here or read this post. Or both.

Deforestation regulation attempts to prevent deforestation

In the EU's regulatory tsunami, the Deforestation Regulation has also come into effect. This one has not yet been fully addressed - so here goes. You might be thinking that this doesn't apply to you. But it does. That is if you drink coffee, tea or cocoa!

In all seriousness, these seven commodities account for most of the deforestation caused by Europe: oil palm (34,0 %), soy (32,8 %), timber (8,6 %), cocoa (7,5 %), coffee (7,0 %), cattle (5,0 %) and rubber (3,4 %). They are classified by Customs codes (CN codes). No surprise, then, that it is precisely these raw materials and products made from them that are targeted by the deforestation regulation. The deforestation regulation brings extensive requirements for companies in these raw materials value chains - and also sets a precedent for how traceability in value chains will become commonplace also for other raw materials.

Regulation imposes due diligence obligation

This is another directive that imposes transparency. The Directive requires that enough information about the value chain of a product must be available to determine whether the product is risk-free with regard to deforestation.

This means in practice that the following information on the origin of the product must be available: materials, quantities ( kg), contact details of operators and traders, and verification that production has been carried out in accordance with the relevant legislation of the country of production. For example, in the case of agricultural land, the supplier has the right to use the land for production and that labour rights and human rights have been properly respected. It is important to understand that in fragile countries these things are not a given. Also, the definition of a forest can be tricky, even though there are guidelines. Did you know that as little as 0.5 hectares of trees can be considered a forest?

Risk assessment actions are also specified in the regulation. Risk assessments must be documented and reviewed at least once a year and presented to the authorities on request. A risk analysis must be carried out based on the relevance principle For all the products, a point must be reached where the risk is considered to be non-existent or of an insignificant level. That is not a small requirement, given the production countries and the inherent risks of the raw materials on the list.

For red meat, the objective is that cattle feed does not lead to deforestation. For livestock, an exception to the location requirement is made - the location of the livestock is the determining factor in the application of the Regulation, not the location where the feed is grown. For other raw materials, the exact location must be known - i.e. the geo-coordinates of the cultivation site must be provided with the raw material information. These geographic coordinates can make use of the data and services provided by the European space programmes (EGNOS/Galileo and Copernicus). Oh, how far we have come!

Where are the risks lurking?

For raw materials, there are different types of risks, which we are probably already familiar with. Some of the most difficult, for example, are for cocoa, where, on top of the challenges of availability brought about by climate change, there are also the glaring human rights and environmental risks. 70% of all cocoa fields are in West Africa, where they are a major cause of deforestation. Almost 40% of the fields are still without any oversight, so the change in either the source of raw materials or oversight will be significant.

In addition to deforestation, risks to be monitored include child labour, forced labour and also the situation of Indigenous people. This is often linked to land use, which in fragile states can be very vague. It will still be difficult to find out local ownerships and local consultations and work with local authorities and get them to understand how the requirements of the EU region work. It is good to remember that a significant part of the difficulty comes from the fact that companies have not had value chain responsibility for two hundred years, so much now has to be built from scratch.

One addition more to the difficult situation, there are various armed conflicts, of which there are currently around 30 going on around the world. Disputes also often lead to sanctions imposed by the UN Security Council or the Council of the European Union, which companies in the EU region must commit to complying with.

In fact, even in this context, the central challenge is poverty, which can be found as the root cause of almost all systemic problems, including deforestation. When procuring products, therefore, "reasonable steps" must be taken to ensure that producers, especially small farmers, are paid a fair price to enable them to make a living. When the worker gets his salary, society starts to function better. The unauthorized felling of the forest (and the sanctions that may come from it) is no longer so attractive when the risk of the family starving to death is no longer in the balance.

Help can come from certifications or other third-party authentication systems. However, they do not remove the responsibility, i.e. the obligations to report and observe due diligence to prevent deforestation.??

What can be automated?

We at Infine are constantly evaluating what parts of sustainability work can be automated since we are trying to make it a bit easier. At the moment, we are able to facilitate the risk assessment related to the country of production, country of origin or their parts , as well as the state of forests and indigenous peoples, by combining data from several different databases based on the product's origin information. The EU's ongoing risk country classification (which guides compliance with the due diligence principle) is also being implemented as part of our software.

We study, for example, the following databases, how we can meet the requirements of the deforestation regulation:

• State of Public Corruption: The Corruption Perceptions Index, Transparency International
• Conflicts: List of Fragile and Conflict-affected Situations, World Bank
• Violation of workers' rights: Global Rights Index, ITUC

• Status of labour legislation in the country of origin: Level of national compliance with labour rights, ILO
• International Human Rights Violations: Universal Human Rights Index (UHRI), UN
• The state of law enforcement in the country of origin: Rule of Law Index ?, World Justice Project
• Deforestation: WWF's report Deforestation Fronts, 2021 (24 countries and regions with the most significant deforestation)
• Prevalence of forests in the country of origin: Forest area as a proportion of total land area, UNdata
• Indigenous peoples: The Indigenous World 2024 - not yet published, focus on rights to countries, territories and natural resources?
• Indigenous peoples, share of the population + ratifications: ILO Convention 169, UN Declaration on the Rights of Indigenous Peoples

Let's end this text with a reminder of why this whole thing is being done:

1. Biodiversity: Forests are home to a large part of the world's terrestrial biodiversity. It is certain that there are a lot of undiscovered medicines, species and other interesting things lurking in the forests. In addition to the fact that many interesting things are already dying out of extinction. The planet will only remain viable if it is forested…
2. Climate regulation: Forests act as significant carbon sinks, absorbing carbon dioxide from the atmosphere and without them, the climate crisis alone will take care of all human problems - in a way that is not comfortable.
3. Water cycle: Forests play a critical role in regulating the water cycle. For example, Without them, groundwater challenges begin and the cycle of erosion is complete.
4. Businesses and culture: Just think about Finland without forests! The forest is sacred, the forest is a workplace for many.
5. Financial benefits: No explanation needed?? But it's good to remember that a sustainable economy requires sustainable forest management. Sustainability is therefore the same as optimization in the long term.
6. Soil protection: Forests help protect the soil from erosion (especially in dry areas), maintain soil fertility and support nutrient cycling in the environment.
7. Climate Resilience: Healthy forests help ecosystems and human communities adapt to the effects of climate change by regulating temperature, providing shade and acting as protective buffers during extreme weather events such as storms and floods.

If you want to learn more, please contact me. We can train you in various sustainability issues, and indeed we offer these customized artificial intelligence assistants to help navigate through the coming regulatory tsunami (The deforest regulation artificial intelligence assistant is now ready, next is support for CSRD reporting and the Green Claims directive). Also, I'll gladly demo our product to you.

Tiina Saukko, CEO of Infine

[email protected]