TDi recently hosted a Masterclass Webinar on EU Deforestation Regulation​. The webinar provided valuable insights into navigating the challenges, opportunities and solutions presented by the EU Deforestation Regulation. Understanding sustainable practices and the impact of deforestation regulations is critical for future business. Our expert TDi panel shared their insights on the EUDR and its implications for supply chain resilience, including:

– Scope and application of the EUDR

– Due diligence requirements, timeline requirements, and consequences of non-compliance

– Supply chain mapping, materiality readiness assessment and risk identification

– Strategies to ensure your company is EUDR ready, as well as the integration of landscape approaches and impact initiatives into business models

Presented by TDi experts:

– James Hollins | Head of Data and Due Diligence

– Zandi Moyo | Senior ESG Analyst

– Sunil Abeyasekera | ESG Consultant

James Hollins 

Good afternoon everyone. Welcome to this TDi sustainability masters webinar on The EU Deforestation Regulation, or as we’ll refer to them from that one, the EUDR. I’m James Hollins, I’m head of data and due diligence here at TDi Sustainability, and I’ll be your host today, as well as filling in parts of the webinar. In this session, my colleagues and I will be sharing our insights on the EUDR its implications for your business and how you can prepare for it. Joining me today are Sunil and Zandi, my colleagues, just as a quick introduction to both of those, Sunil is an ESG consultant here at TDi Sustainability. He has an extensive background in responsible sourcing, traceability, standards and certifications, benchmarking and due diligence, and he has spent a considerable amount of his time working with clients to address deforestation and human rights risks within the tropical commodities sector. So he is an expert on tropical commodities, which come under the EUDR. Zandi is a senior analyst at TDi specialising in risk and risk assessments. She has a background in sustainable agriculture and biodiversity conservation, and she has years of experience working in Ghana on climate, smart cocoa and sustainable forest management, as well as interesting community engagement and human rights issues. So as you can see on the screen, this is the agenda for today’s session. Firstly, Sunil will be talking through the scope and application of the EUDR. A little bit later on, he’ll also cover the importance of taking a landscape-scale approach and how impact initiatives can help you go beyond simply complying with the regulations. , I’ll be taking you through the due diligence requirements, the timelines and the consequences of noncompliance with the EUDR, and Zandi will then talk through some strategies that can help your company prepare for the EUDR. After that, as mentioned, we have all three of us discussing in a panel session where we will drill down into some of these key areas in a bit more detail. And finally, as I mentioned, there will be an opportunity for the panel to answer any questions. So towards the end of this webinar, we should have around 10 to 15 minutes to answer any of your questions that you may have. So feel free to put your questions in the chat and we will collate them, and towards the end of the webinar, we will go through your questions and answer them. So now I will hand over to Sunil to give us some background on the scope and application of the EUDR, so thank you. Sunil,

Sunil Abeyasekera

Thanks, James. So agricultural expansion drives almost 90% of global deforestation. Half of the forests being lost is due to the conversion of forests into cropland and 40% of the grazing of livestock, the main commodities driving deforestation are represented by this pie chart, with oil, palm, soy and wood contributing to three quarters of forest loss and cocoa, coffee, cattle and rubber making up the remaining quarter. Between 1990 and 2008 EU market imported and consumed 1/3 of these deforestation-associated products, and during this period, the EU’s consumption of these commodities was responsible for 10% of global deforestation. To address and limit any further deforestation, EU member states agreed upon mandatory commitments to ensure commodities placed on the EU market are deforestation-free, produced by the legislation of the produced country and covered by a due diligence statement. We will run through these commitments in more detail during this presentation. The timeline that you agreed upon is as follows, no deforestation can happen after the 31st of December, 2020 the regulation entered into force on the 29th of June, 2023 and the deadline for conforming with the legislation is the 30th of December, 2024 for large and medium companies and the 30th of June. 2025 for small and micro businesses, and here we are now with five months to go to the first submissions. So the scope of the legislation includes the following commodities and their derivatives, cattle, cocoa, rubber, oil, palm, coffee, soya and wood. I have listed some of the derivatives, but this is not an extensive list by any means. The full list can be found in the EUDR annexe and will also be sent in our guidance document. So we now know what is covered within the legislation. Let’s now discuss who is covered. Firstly, if you’re not using one of the seven commodities, then for now, the EUDR does not apply to you. However, in the future, more commodities may be added. So watch this space if you’re using one or more of the commodities the EUDR is applicable if you import or export in or out of the EU market, transform the commodity into another product or trade into the EU market. For those importing or exporting. The EU describes you as an operator. The legislative requirements will change depending on the size of your business, but operators, the main difference is the date you will need to submit the due diligence statement, and for all operators, will need to exercise due diligence on their supply chains. If you are transforming a product, you are considered a downstream operator. If the commodity has not been subjected to due diligence by the importer, or if you are also the importer, you will need to follow the non-SME operator timeline. If you are an SME downstream operator, you will be required to submit a due diligence statement, but you can also reference the due diligence statement of the importance that you received the items. If you’re a non-SME downstream operator, you will also have to verify the operator’s due diligence steps. If you don’t place a commodity on the market, a handle of commodity, you are considered a trainer. Again, the requirements are also dependent on the size of your business. For SME traders, you don’t need to submit a due diligence statement, but you are required to keep records of your buyers and suppliers and their due diligence statements for five years and provide these to the authorities if requested, for non-SME traders and retailers who are required to verify the operator’s due diligence steps and submit a due diligence statement based on their reference number. While this flow chart does look complex and confusing, it is important to understand when and what you’ll be submitting to ensure you comply with the due diligence and legislation. So what is due diligence? The approach taken by the EU follows a perspective developed by the OECD for responsible business conduct. For example, businesses are required to communicate impacts and alignment with the legislation, and this will be communicated through through the EU due diligence statement. Businesses are required to identify access and assess adverse impacts on their supply chains within the EUDR, there are information collection and risk assessment requirements. Businesses are also required to mitigate risks within the EUDR companies will need to embed responsible business conduct into policies and management systems and ensure these are prevented as well as mitigated. Additionally, both the EU and OECD outline the importance of reporting and record-keeping to track the progress of your due diligence. Finally, the OECD states the importance of cooperating and remediating risks while remediation is not required for the EUDR, we’ll discuss how landscape breaches can help you fill your EUDR requirements. I’ll now hand it back to James, who will discuss the requirements of the EU Data.

James Hollins 

I think it’s important to note that the regulation is based on a basic premise, which is the prohibition of introducing into the market or exporting relevant commodities and products unless they meet three conditions. First off, they do not contribute to deforestation or forest degradation that they have not been producing, with this in mind that they’ve been producing by the relevant legislation of the country of production, which includes not only compliance with environmental regulations, but those related to land use rights, forest management, labour tax and human rights laws, which Danny is going to come to later on, and that they are covered by a due diligence statement. So the due diligence due diligence statement here on your screen is the cornerstone around which the obligations of operators and traders are defined to ensure that products and commodities do not cause deforestation or forest degradation. So both operators and traders should, before introducing into the market or exporting a relevant product or commodity, make them available to the competent authorities. The corresponding due diligence statement is through a European register. The EU Commission will set this up by the end of the year, this has to go through so they can only introduce into the market or make available or export such products and commodities if, after due diligence, the products are compliant and do not pose a risk of deforestation or the risk is considered to Be so negligible. In other words, products or commodities cannot be introduced into the market or exported if these requirements are not met, or if operators or traders have not been able to comply with the due diligence obligations for any reason. So it is worth noting that only SME traders are not required to carry out due diligence statements themselves. They can rely on those obtained from the operators or traders who supply them with the products. As you can see on screen, there are a significant number of businesses that will be required to comply with the provision of due diligence. The statement on your screen is the deadline for compliance. So 30th December 2024 is for large and medium-sized companies, and then 30th of June, 2025 will be the requirements for small and micro-sized companies. The regulation also regulates how to carry out the due diligence, and that should conclude with the corresponding information collection. Firstly, it requires a collection of comprehensive information, data and documents about the products, the country of production, and even the specific geo-located plots where the relevant commodities were produced. That’s number two on your screen. And there must be specific requirements for geolocation and geotagging. So for less than four hectares, coordinates corresponding to at least one latitude and one longitude point, and then using at least six decimal digits, will be required for more than four hectares polygons with sufficient latitude and longitude points to describe the perimeter of each plot will be required, excluding for cattle, but for all others that will be required. So there will be required to be conclusive and verifiable information that the products are free of deforestation and that the commodities have been produced by local legislation, among other aspects. So when we talk about local legislation, number four on this list, we’re looking at land use rights, environmental protections outside deforestation, and then forest-related rules as well. Third Party rights and labor rights will also be included in this human rights protection under international law and aspects to do with governance, such as tax and anti-corruption, trade and customs regulations will need to be complied with. So it’s not just compliance with deforestation. There are also significant amounts of other aspects that need to be complied with. Risk Assessment. This is a third key aspect. A risk assessment will be carried out against a series of criteria, which include, among others, the level of risk assigned to each country or parts of it by the Commission, the EU, will classify countries as high standard and low risk based on the following criteria. This hasn’t been released as of yet, but the criteria will be based on the rate of deforestation and forest degradation, the rate of expansion of agricultural land for the commodities and production trends of relevant commodities of that product that will occur later this year. So keep an eye on that. Verification of information collection. So operators shall verify and analyse the information collected in accordance with nine of the regulations and any other relevant documentation and operator assessment of risk. So operators shall carry out a risk assessment to establish whether there is a risk that the relevant products intended to be placed on the market or exported are non-compliant. This operator assessment of risk will be required to include governance aspects of the level of corruption, prevalence of documents and data falsification, lack of law enforcement within the country, violations of international human rights, armed conflict, or presence of sanctions imposed by the UN Security Council or the Council of the EU as well as aspects to do with deforestation in indigenous people. So the prevalence of deforestation or forest degradation in the country, the presence of indigenous peoples in the country of production or parts thereof. So at sub sub-national level, consultation and cooperation in good faith with Indigenous peoples will be required. Alongside this, the risk assessment will need to include complexities of the relevant supply chain the stage of processing of the relevant products, and difficulties in traceability to production. So there’s an acknowledgement that there will be challenges with this, which Andy and Sydne will cover later on, and the risks of circumvention of this regulation, or of mixing with relevant products of unknown origin or producing areas where deforestation and forest degradation has occurred or is occurring. So um, next slide, please. So I will hand over to Zandi, who’s going to talk about the aspects of risk identification and prioritization.

Zandi Moyo

Thanks, James. So I will take you through the key ESG issues to consider when preparing for the EUDR, and then look at the risk landscape for the supply chains in question and finish off with an example of rubber. So the key ESG issues, while deforestation and forest degradation are the key ESG risks addressed by the EUDR, it is important to pay attention to other ESG issues associated with deforestation as well, and that’s because deforestation can have far reaching impacts on the environment and people, destroying ecosystems that are vital to wildlife and livelihoods, with linkages to biodiversity loss, degradation of ecosystems, climate change and disruption to Local and indigenous communities. And some of these ESG issues can also be used as indicators of deforestation, such as biodiversity loss, as mentioned by Sunil and James the EUDR also requires that products are produced in accordance with relevant legislation of the country of production in terms of land use rights, human rights, labor rights, environmental protection and other things. So with this in mind, we’ve approached the risk assessment requirements by identifying these 20 environmental social and governance issues, and we think that they are important and require your attention as they either are directly or indirectly required by the EUDR, or could likely be integrated into the EUDR in future, but also they are key supply chain ESG risks that companies are increasingly being asked to analyze, monitor and take advantage take action to Avoid, so to demonstrate the ESG risk landscape to expect when preparing for the EUDR, we conducted a preliminary assessment of these 12 environmental and social issues, looking at their strength of association with the commodities in scope. And by strength of association, I mean the strength of association with the ESG issues, which means the likelihood that these materials will be linked to these issues. And for the purpose of this webinar, we selected eight wood species that are widely produced for commercial use. But looking at these findings, we can see that the ESG landscape is quite complex, and supply chains are linked to multiple ESG issues, not just a few, but looking at this straight away, oil palm jumps out as one to be concerned about, as it shows a high association with a very high Association, actually, with all of the environmental and social Issues assessed and another. Another commodity to look out for is cattle, which also scores high across the indicators. But in general, we can see that the environmental issues score high across all of the commodities, and some of the social issues do as well, such as child labor force labor and labor rights. However, looking at risk from this perspective may fail to address all of the complexities. So further context is needed to provide meaning for decision making and prioritization will be required, and at TDi, we can help you do that. So this slide presents an illustrative example of how risk can be prioritized using the double materiality approach. This can be done at the national level, however, in-depth assessment will be needed at a sub-national level, which is the next step, and these should be done for your priority materials and to conform with other regulations. This prioritization should be done with other key risks in mind, such as degradation, and also other social risks such as forced labour and labour rights. So we’ve highlighted rather as an example, to provide further context and some key insights to consider when designing your strategies, and I’m just going to take you through some key points. So natural rubber production generally takes place in tropical regions, with the majority of farming concentrated in Southeast Asia and India. Sorry, Thailand and Indonesia are the world’s top producers of natural rubber, accounting for 50% of production. So as rubber is an agricultural product, yields are vulnerable to disruption, either from climate variability or other issues such as the pandemic, and therefore supply chain. The concentration of rubber in this region can have an impact on rubber supply if production is constrained. Let’s look at some of the ESG considerations for rubber production. So rubber is primarily harvested by smallholder farmers, with smallholders making up about 85% of rubber production, and this is widely distributed across around 6 million smallholder farmers’ farms. So this highly fragmented and complex structure of natural rubber supply chains makes traceability at the plantation level difficult. According to a study done by the Zoological Society of London, 79% of natural rubber manufacturers assessed were not able to establish traceability up to the processing level, and only two were able to establish traceability at the plantation level. So this means that it’s often hard to effectively assess whether basic environmental, social and governance standards are being met within rubber supply chains. And of course, large-scale deforestation is a key issue associated with rubber particularly in Southeast Asia and West Africa. A study done by Global Witness in 2022 estimates that in West Africa, an area the size of 16 times Brussels was deforested over the past 22 years due to production from only three companies, and this large-scale deforestation can have negative impacts on biodiversity through habitat loss and loss of ecosystem functioning, such as we see in the Mekong region of Asia, which is a biodiversity hotspot. Reports also allege that deforestation, due to the expansion of rubber plantations has led to the displacement of local communities without consent or compensation, and associated land conflicts violating indigenous people’s rights. Examples of these reports include one of one a British-owned rubber plantation in Cameroon. That phrase faced scrutiny in 2018 after repeated allegations of deforestation, land grabbing and forced evictions of Indigenous people without just and fair compensation. Another example is the expansion of rubber production in Myanmar in recent years, which is allegedly led by former military and militia figures and is fueling ethnic or allegedly fuelling ethnic land conflicts. Another ESG issue to consider when looking at rubber production is pollution of local water sources, which can lead to negative impacts on human health as well, this is caused by the use of agrochemicals in rubber farms, which can lead to pesticide runoff, latex spills containing toxic chemicals and the discharge of untreated wastewater. This is particularly relevant for the EUDR due to requirements for compliance with environmental protection laws. There are multiple studies of there are multiple reports that can be highlighted that connect rubber with ESG issues. However, our analysis of just a few shows that the ESG landscape is very complex, and furthermore, as rubber has a low end of life recycling rate estimated to have an end of life recycling input of less than 1% natural rubber will continue to be sourced from primary sources linked to many ESG issues. Therefore, the use of effective mitigation strategies will play a key role in reducing adverse impacts on people and the planet, while ensuring compliance with the EUDR. I’ll now hand back over to James, who will talk about how to mitigate some of the risks we’ve just discussed.

James Hollins 

Thanks, Zandi. So we’ve talked about the due diligence statement and the information collection. I touched upon risk assessment, and Andy went much more in depth in the risk assessment approach. I’ll talk about the risk mitigation, which is mandatory unless the risk assessment stage has revealed that there is no one negligible risk, and the operator will be required to adopt risk mitigation protocols. It doesn’t say specifically what you what you are required to do here, but they may include additional information on data and documentation, independent surveys or third party audits or other measures pertaining to information requirements laid out in the regulations. I’ll talk about some of the key ones on the next slide, but controls procedures to mitigate and manage effectively. The risks will be required model risk management practices will be required to be embedded into companies, due diligence systems and independent audit or management systems should be used to assess deep dive risks. So going into recommendations for risk mitigation strategies in the supply chain, these are just a list of seven that we would recommend, and these, these are really to assess and prioritize the highest risk ESG issues in the supply chain, for deforestation. So this really goes to the prioritization piece at the very beginning, everyone’s limited with resources and time. So where is the highest risk and where should I be focusing my time? Number two is to develop supplier codes of conduct to ensure strong management systems for ESG performance. Alongside this, this is cascading these codes of conduct down through the value chain to ensure all your suppliers, or supplier suppliers are aware of this. Number three is really to evaluate and score supplier ESG performance using a risk based approach. What are the risk of suppliers. What are their mitigation controls in place to help alleviate that risk? This should be part of an evaluation scoring system that you could do. Number four would be supporting and building capacity of suppliers to achieve higher ESG performance. A lot of these suppliers, or smallholders lack the resources to be able to do this effectively. It will be there for the bigger companies to support them through this journey. Number five is to identify applicable voluntary sustainability standards that adequately address and prioritize issues with risk. So it says what the landscape for V voluntary sustainability standards. VSS is to ensure that suppliers have the most adequate ones to mitigate some of these risks. Number six, influence and support initiatives to directly address and mitigate ESG issues. And number seven is to leverage existing publicly and commercially available resources to facilitate these steps. What I would say is that forward looking risk mitigation strategy should, or would adopt a landscape scale approach. I noticed going to talk about the landscape scale approach after this, but it’s not required, but it’s it’s not holistic method to ensure all of these areas are addressed. So the aspects also for compliance after risk assessment and risk mitigation have occurred, is to ensure reporting in order to comply with the EDR, reporting is mandatory, and all operators must report on the due diligence system by establishing and keeping an up to date framework of procedures and measures reviewing the due diligence system at least once a year and update where any new developments occur, and publicly report on due diligence systems. The only, the only one not required to report publicly is SME operators. So the report on the due diligence Exercise number two, really, is a summary of information collection, the conclusions of risk assessments, summary of recitation processes in place, consultation with indigenous peoples, local communities and civil society, and publicly reporting on the due diligence exercise also will be required. Again, everyone is in scope, apart from SME operators. Record keeping is going to be very important here. Due Diligence statements are required to be kept for five years. All information requirements, terms of collection of data is required to be kept for five years, and updates of due diligence system again five years for this in terms of record keeping numbers, so in terms ofnon compliance, so this is in regards to if a operator, etc, is found to be in breach of the EUDR, there are significant penalties. And it’s taking a common approach, actually, to the European Union. So any of you familiar with GDPR or the upcoming CS Triple D, they are taking a similar approach here in terms of enforcement and penalties, and also they will be proportionate with the environmental damage and the value of the relevant commodities or relevant products of concern, gradually increasing the levels for The fines, particularly for repeated infringements or non mitigation circumstances. The maximum fine potentially imposed will be 4% of the operators or traders total annual worldwide turnover. That could be very significant for a large components in the potential hundreds of millions confiscation so relevant products concerned from the operator or trader can be confiscated, and revenues gained by the operator or trader can be confiscated from the transaction with the relevant products concerned Alongside this, there will be exclusion, so exclusion from public procurement processes and from access to public funding, including tendering procedures, grants and concessions. There is a maximum of 12 months for this, but if that is again significant and prohibition temporary, prohibition from placing or making available on the market or exporting relevant commodities and relevant products in the event of a serious infringement or repeated infringements, so prohibition from exercising the simplified due diligence set out in Article 13. So if you want to read the regulations more in depth in the event of the infringement or repeated infringement,  so the penalties are significant, and they are potentially very serious companies for non compliance. I’ll hand over to Sunil now, who will go in depth into the landscape scale approach and provide a bit more information as to this, this approach.

Sunil Abeyasekera

Thanks, James. So while the EUDR is effective in preventing deforestation associated materials entering the EU market, deforestation associated commodities will continue to be sold into other markets, and with millions of hectares of forests lost each year, it’s imperative for us to look beyond our own supply chain to create a more resilient agricultural system and to lessen the impacts of climate change using landscape approaches, companies, NGOs, institutions and governments can work together to hold deforestation and conversion at scale and collaboratively, we can lend support to smallholders who are on the frontline of climatic shocks and create buffer zones and wildlife corridors between production and conservation and create systemic impact for more responsible sourcing. So why is this good for business, and how can landscape approaches help you with the eudi and beyond? Firstly, landscape approaches can help with information collection. Small holders produce 1/3 of global food, including the commodities and scope. However, small holders, access to markets is often fragmented, and they’re required to sell through intermediate trees and Co Ops. Therefore, landscape approaches can help support information collection requirements and traceability and help you navigate the complex supply chains. Secondly, landscape approaches can help you with your risk assessments. The EU assigned risk as risk focuses just on country risk. However, jurisdictions and districts may have a different risk for profile altogether. Therefore, landscape approaches can help you better understand the community and environment you’re sourcing from, and the measures needed to mitigate these risks. Landscape approaches can also help with risk mitigation. The EUDR focuses on mitigating the risks of deforestation associated commodities from entering the EU market. However, without effective risk mitigation, deforestation will continue unabated. By committing to landscape approaches, you will strengthen your supply chain and address deforestation, environmental and social risks at production. However, this is a monumental task for any one company to undertake. Landscape approaches allow you to share the responsibility and collaboratively work together to create a better system. This brings me to my final point in why landscape approaches are beneficial to businesses. Cost efficiency. You can share the costs and resources with other supply chain actors and share and impact in a non competitive environment where you’re all working together towards a shared goal, as a group, you will have better access to key stakeholders and the ability to attract funding from government and financial institutions, and widely as a group, there will be greater likelihood for continued participation and long lasting impact. So what do you need to consider when embarking on a landscape approach? Firstly, are you looking for an approach which is focused on how the commodity is produced? Are you looking for support in unpacking the complexity for supply chain? Would you like to support better traceability to production or a solution to support smallholders and livelihoods? This would be a commodity driven approach. Why are you looking for an approach which is specific in a specific region or landscape? And do these have to be regions where you already have leverage, or are these districts you would like to better understand, within these regions, which you would like to support, for example, conservation, deforestation or indigenous people. You can consider this region driven approach. What are you looking for? Landscape approach that targets specific issues which you which you have identified as salient within your risk assessments, perhaps your company has global goals and issues which you’re prioritizing. Landscape approaches go beyond deforestation reduction, and we can help you find initiatives related to water issues, land rights, small hole inclusion, conservations and many more. There are several ways to introduce landscape initiatives and approaches into your due diligence system at TDi, we can help you navigate the current offerings, or work with you to create something bespoke. Now how to now? Hand over to James to provide a final few words before we go into our panel session.

James Hollins 

Thanks, Sunil. So in conclusion, the EDR, it’s the landscape of ESG issues is not just restricted to just a few topics, as Sunil mentioned with the landscape approach, etc, the landscape is complex. It’s a complex picture. There are multiple ESG issues in supply chains that procurement managers, sustainability managers should be concerned about. It is not also just deforestation risks that need to be monitored here. There’s a suite of risks that Sandy touched upon with her rubber case study, etc, which really highlights that deforestation is the predominant aspect of the EUDR. But there are other risks that need to be looked at as well. Confidence can result in stoppages at mines and processing facilities and interruptions to trade as well. The penalties for non compliance with the UDR are significant. There will be interruptions to supply chains for non compliance, it has potential  to stop in the EU market, goods made or potentially made with deforested products and the implications of changing climate. Environmental issues and companies responsibilities for addressing them have become mainstream. Having due diligence management systems is now seen as mandatory. There are other pieces of legislation coming out which make due diligence mandatory requirement, as highlighted with the EUDR so really standardized ESG frameworks are required to aid systemic management operations and verification of their performance. These really are essential, and as Sunil mentioned, with the landscape approach, collective action is key. Voluntary sustainability standards can help, and they can help mitigate risks throughout the value chain. They aren’t the only solution. We have a few questions later on regarding this, and we’ll touch upon those. But really inclusion, it is a complex regulation, and there are a lot of requirements throughout for all size companies as well, not just for the largest companies. This does impact all companies, even SMEs. Just a reminder, we’ll have a short Q and A session with your questions in mind after the panel discussion, so please continue to ask your questions in the chat function at the bottom of the screen. But what I’ll do now is just to invite Zandi and Sunil back to join me, and we’ll have a discussion on some key aspects to do with the EUDR, so thank you, Zandi and Sunil. So Zandi, what are the key challenges companies may face in mapping their supply chains to identify deforestation risks and what services are currently out there that will assist with this?

Zandi Moyo

So I think I did some of these key challenges companies may face when mapping their supply chains in the rubber case study. And these challenges will be similar across the commodities so that, so that would be with establishing traceability due to the complex structure of these supply chains, many of which are dominated by production from millions of widely distributed smallholder farmers. Establishing this traceability will be very difficult, and companies will therefore need to rely on robust data to conduct their risk assessments and to and access to this data will be a key challenge, but this challenge of accessing data will be worse for some ESG issues such as forced labour and child labour, which are considered risks and can be tricky even with site audits to understand where this occurs. So what we do at TDi is establish these robust methodologies to assess issues correctly, and this involves reports of ESG issues association with materials, but also, and that would be at the site level, but also incorporating productive analytics to identify situations where certain ESG issues are most likely to happen at the national and sub national level. And in the case of forced labour, this may be incorporating indicators such as countries where there is a lot of migrant workers, or the type of business activity needs to meet very tight deadlines, or there is poverty. But yeah, at TDi, we have various tools that can help companies in mapping their supply chains, including our suite of risk assessment tools that can be developed for that are being developed for our risk platform, but this includes the TDi country risk indices, ESG risk indices and material specific risk indices. But as well as that, we also develop commodity specific tools to help companies. Another thing that I think could be useful is is our integrated compliance and assessment tool, which can help companies. And companies can use this to benchmark several relevant voluntary sustainability standards that they may already be participating in against the EUDR and conduct gap analyses based on this. We also have detailed profiles similar to the one presented for many of these commodities, and offer bespoke services to clients to assist them in their risk assessment, mitigation and remediation approaches. But yeah, I think another key challenge with traceability will be the mixing of compliant and non compliant materials and the mass balance of I think that Sunil knows a bit more about this, so I’ll pass on to him to briefly.

James Hollins

Thanks, Zandi. No, I agree with all those points as well. Another key challenge will be the mass balance approach commodity there’s commodities and scope mix of different nodes of the supply chain. So this will make traceability very difficult. And while some certifications do offer, offer segregated and identity preserved offerings the mark. The vast majority of commodities are traded on mass balance, which means they’re mixed with uncertified materials. Currently, traceability to mill and traceability to plantation is become more commonplace in things like palm oil, but that’s not really the case with cocoa or other or the other commodities. So therefore getting adequate traceability data will be a challenge, and the owners will be on the operators to better understand their supply chain and then cascade these learnings downstream. So access to data will be a key challenge, and everyone will have to work together. Yeah, that’s really good point. And Sunil from your perspective, what? What are some of the consequences of the EDR?

Sunil Abeyasekera

So one consequence which you may encounter is suppliers moving away from smallholders. Because, yeah, as I discussed, this will make Information Protection probably easier. However, smallholders do pay a key role in production. But landscape approaches can support you in closing these traceability gaps. So you can’t just exclude 30% of production or the people producing. Another consequence could be the creation of a two tier system of commodities. So one tier for volumes traded on the EU market, which is free of deforestation risk, while the other is still associated with deforestation and they continue to be traded outside of the EU. So as I discussed earlier, the EU consumes about 1/3 of the commodities in scope, which accounts for 10% of the deforestation. So we’ll need to work together to create systemic change in commodities production to both discourage deforestation and make environmentally responsible commodities the norm. And again, landscaping, multi stakeholder approaches can help with this behavioural shift.

James Hollins 

A good point, and we’ve mentioned it a few times. Zandi, you’ve mentioned it with forced labor, etc. I mentioned it that it’s not just deforestation covered necessarily within the EUDR, so Sunil, from your perspective, can you take us through other legislation that could impact business in a similar setting?

Sunil Abeyasekera

Yeah, absolutely. So upcoming is the UK forest risk commodity regulation, which mirrors the EU. Dr, however, scope doesn’t include rubber or coffee. This regulation isn’t currently in force, but we’re hoping to hear more about it quite soon, particularly across a bond and the EU, the US have drafted the US Forest Act of 2023, again, it’s quite similar to the EUDR, scope, it doesn’t include coffee. However, this Act hasn’t passed the Senate yet. Hopefully we can, we can watch this space, and there’ll be some changes. And another similar legislation which is currently in force is a German supply chain Act, which includes both human rights and environment requirements, and this applies to companies over 1000 employees. So there are three main ones that are coming up or in development.

James Hollins 

Yeah, and where I’ll add to that is there is a suite of EU regulations coming out, due diligence regulations for supply chains. What I would say is the EDR goes much further into the traceability elements than any of the other legislation that’s coming out, including the CSDDD the Forced Labor Act. It goes down to the farm level in terms of geotagging and ensuring geolocation so that is a fundamental difference with the EUDR compared to, say, the CSDDD, or the Forced Labor Act, which is coming out in the next three years. And this is a big challenge. The other legislation does not go this far in terms of location of raw materials. For example, shape files are required, and knowing, knowing, knowing, particularly for Lesson four hectares, knowing the sort of farm locations is required. So the use of technology will be really important for compliance with the EDR of which, from a traceability perspective, it is going further than other legislation within the suite of due diligence legislation that’s coming out of Europe. So to note that that will be a big challenge for companies for compliance, what I’ll say is, we’ll conclude the panel session. Thank you, Andy and Sunil. There were some really insightful points there, we’ll now open the floor for questions from the audience. So thank you to everyone who has asked questions so far. So please feel free to add further questions in the chat as we go along.

James Hollins 

Okay, so one for you. Sunil, are there any voluntary standards you would recommend?

Sunil Abeyasekera

So the EU currently is working on a list of voluntary standards that will be acceptable for the EU. Dr, many of the existing voluntary standards are working on improving traceability, but I would discourage you from moving away from voluntary standards. They’ll have a role to play with accessing premiums to help supporting small holders, as well as building capacity. So I can’t name any specific ones at the moment, but the ones could you have any other questions? Feel free to reach out and internally, we have our tool that benchmark different standards. Yeah,

James Hollins 

I think that’s a key thing, is benchmarking different standards, knowing what level they go to. I’ll quickly touch upon what Zandi mentioned earlier in regards to iCAT. So it’s a TDi tool which is benchmarking hundreds of voluntary sustainability standards right down to the granular level. So you’re able to compare standards against each other to assess what’s covered and what’s not covered. So if you would like more information on iCAT, feel free to reach out. I’ll put some information at the end of the webinar in terms of contact details you can use to reach out, but that would be a tool that you could use, not saying you have to but that facilitates comparing standards against each other to understand which ones go into more detail in certain areas, which is quite important for something like the EUDR.

James Hollins 

There’s quite a few coming in so one for you. Sunil, how do you foresee the EUDR, influencing supply chain management and sustainability practices? Should we be collaborating with smallholders and stakeholders around these changes?

Sunil Abeyasekera

Yeah, absolutely. So I hope to see a shift in the way responsibility is shared. So upstream companies will need support from downstream companies to implement these changes, and we should continue with certifications. They do play a key role in addressing compliance and deforestation risk, but they will need to adapt to be improved with traceability. But as I mentioned before, certifications can continue to support smallholders access to markets as well as building capacity and traceability.

James Hollins 

One for you, Zandi, can you provide examples of successful strategies for preparing for the EUDR, within my organization?

Zandi Moyo

Yes, to prepare for the EDR, companies can take several steps. The first step would be to map their supply chains, and this would be gaining full visibility into your supply chain, tracing products back to the source, and collecting comprehensive information on these on the source, and identifying any gaps in traceability in areas of high risk. The second stage would be to conduct risk assessments and prioritize risk so companies would establish robust due to due diligence systems to collect, verify and report on the origin and production methods of the commodities and products and for high risk supply chains, this would mean conducting enhanced due diligence and considering the sub national level prioritization act, but also making sure to pay attention to other ESG risks that may be indicators of deforestation. And the third step would be to implement risk mitigation, and that would be based on the risk assessment, working directly with suppliers to improve practices and compliance. And risk mitigation efforts can include appropriate policies, controls and procedures, such as model risk management practices, reporting and record keeping and internal control and management, but also engaging with suppliers and partners to ensure that they are aware of the EUDR requirements and are taking necessary steps to comply and, of course, monitoring progress of due diligence. As due diligence is an ongoing process and will be continued. Need to be continuously monitored. But lastly, making sure to stay informed about the latest events and guidance related to the EUDR as the regulation and its implementation may evolve policy, changing risk landscape.

James Hollins 

Yeah. Thank you. Zandi, just a few other questions that have come in the chat. I can take one of these, does the EUDR due diligence need to verify by a third party as well? So essentially, do you need to be verified by a third party for the EUDR. No third party verification is never a mandatory process for these regulations, they are advised, it’s similar wording as what’s come under the CSDDD as to third party verification. It is not mandatory in terms of having to have audits. That is a risk mitigation approach to deep dive into risks. It is never explicitly stated within the regulations this has to occur. However, there are limited aspects that go to that level of detail, other than audits or risk based approaches, smart audits, etc, based on risk. They those tend to be the predominant method. Although there are significant gaps with auditing. I’m a human rights auditor by background, and there are significant weaknesses with the audit approach, particularly as Andy mentioned, with forced labour, etc, and Indonesia and palm oil, there are significant risks with forced labour in that sector, with with migrant workers. Audits don’t tend to detect that approach when it comes to those, what I would call hidden risks within audit. So there is, there are techniques, but the regulation won’t explicitly state that, and you have to have an audit. There’s another question come in. Is there any certification schemes that currently already cover the regulation, RSPO, or is cc? So what I would say is there shouldn’t be a reliance just on third party certification. Third party certification is then approached for risk mitigation, but that does not mean they adequately address all risks when it comes to deforestation, as mentioned, RSPO is one of the core ones. When it comes to palm oil, there are still significant risks within that sector when it comes to aspects such as forced labor, because these certification schemes do not go deep enough for aspects outside the deforestation scope which are covered within the EUDR, such as forced labor. So no, there aren’t certifications that entirely cover the EUDR. There are some very good ones which cover a good majority, but there’s what I would emphasize is there shouldn’t be a reliance on just third party certification. There is a requirement, and it’s a requirement similar to all of these EU diligence legislations that due diligence management systems are core to a company, and using third party certification can help, but it shouldn’t be the only answer. So Sunil, one more question for you before we end. We’ve got four minutes left. What is the risk of traceability and transparency costs being transferred to small holders at the top of the supply chain? What can business and governments do to combat this?

Sunil Abeyasekera

Yeah, so that’s definitely a risk. Could could happen, and we need to try to find a way to prevent this happening. We don’t want small holders bearing the brunt of the costs associated with our production, especially with low wage already. So there are some producer sustainability programs, which does funnel money from downstream into upstream supply chains, and I guess, businesses if, if there’s a way to get involved in landscape approaches and jurisdictional approaches. This is the best way.

James Hollins 

We’ll close our Q and A session there. Thank you very much to everyone in the audience who submitted questions. As we come to the end of our webinar, I would like to thank Sunil and Zandi for your insights and expertise on this topic, and the audience for the insightful questions as well. What I’ll conclude is that the EU deforestation regulations presents both challenges and opportunities for business, and it is crucial to navigate this landscape with resilience and responsibility. Please get in touch with TDi Sustainability. Details are on the screen after this slide. If you have any questions, feel free to email me regarding any other questions that you may have, and I’ll reply to you to your specific questions. Speak to our experts regarding other topics as well, and we can really help companies prepare for the EUDR. So thank you very much, everyone, for joining us today. And thank you to our speakers, Sunil and Zandi.