EU deforestation regulation takes effect this December, affecting European packaging companies

The countdown continues to Dec. 30, 2024, when most companies based in the EU or who supply goods to the EU must be compliant with the new EU Deforestation Regulation (EUDR).

The EU Deforestation Regulation (EUDR) is the latest set of EU rules that it hopes will influence global action on climate change by addressing deforestation on a global scale in accordance with the 2015 Paris Agreement and The European Green Deal aim of no net emissions of greenhouse gases by 2050, observes GlobalData, a leading data and analytics company.

EUDR Impact

The EUDR will impact companies that trade in the EU market in certain commodities as well as products derived from those commodities or who export them from the EU. They will need to demonstrate that their products are not linked to deforestation (such as products containing or made from wood), or to forest degradation through, for example, the expansion of agricultural land. The regulation will require these companies and industries in producer countries to transition to a sustainable, deforestation-free supply chain and legal agricultural value chain if they wish to trade in the EU.

The commodities being targeted by the EUDR include cattle, cocoa, coffee, palm oil, rubber, soya, and wood as well as some of their derived products, such as paper/paperboard, leather, chocolate, tires, and furniture. Therefore, companies trading with the EU across various sectors, including agriculture, food and beverages, cosmetics, and timber, among others, will be affected and must comply with the regulation.

Siddarth Sehgal, Consultant and Packaging Analyst at GlobalData comments: “Arguably, the EUDR is one of the EU’s most consequential and wide-reaching sustainability actions, as the impact will not just be limited to EU-based companies. Non-EU-based firms exporting to the EU or with operations inside the EU will also need to comply with these regulations. For example, a cocoa farmer in Colombia will have to meet the EUDR requirements if selling to a company that uses their produce to make chocolate that is then sold in the EU. Therefore, any company, regardless of its location, that trades in the specified commodities and wants to do business in the EU will need to comply with the EUDR.”

According to Eurostat, the EU has a population of over 448.7 million people, which is one of the biggest consumer markets in the world. The aims of the EUDR will resonate with many of these consumers who continue to embrace environmental considerations when making a purchase, with over three-quarters (76 per cent) of consumers globally saying that “Sustainable/environmentally friendly” features are “Essential/Nice to have” when deciding to make a product purchase.

Implications for Packaging Companies

The EUDR primarily targets commodities and products linked to deforestation. While the regulation does not directly target packaging materials, it can indirectly affect certain types of packaging that are derived from the specified commodities. These would include paper and board packaging, derivatives of palm oil and rubber used for seals, gaskets and protective gloves used in the packaging process, and cattle which provide leather, will also be affected.

Paper and board packaging is a significant packaging pack type in Europe, with 129 billion pack units sold in 2023 across consumer packaged goods sectors (including food, beverages, household products, beauty, and pet care), which is expected to grow at a compound annual growth rate (CAGR) of 0.16 per cent between 2022 and 2028, according to GlobalData.

These types of packaging are derived from wood, one of the commodities targeted by the regulation, and companies producing paper and cardboard packaging will need to ensure that the wood used in their products does not come from deforested areas.

EUDR Compliance

To comply with the EUDR, companies must follow mandatory due-diligence reporting of the goods and supply chain they wish to trade in. This must be submitted as part of a Due Diligence statement as part of the Corporate Sustainability Due Diligence Directive (CSDDD). This involves an exhaustive information collection to prove product traceability by providing GPS information on suppliers, buyers, and land plots, and showing that the goods are deforestation free by demonstrating that the product does not contain materials or ingredients from land deforested or degraded since Dec. 31, 2020.

The EUDR outlines several measures to be taken in the case of non-compliance. This can result in fines totaling four per cent of the company’s annual turnover within the EU. Companies also face the prospect of their products and/or income being confiscated. Companies facing non-compliance measures will have the details of the incidents published on the EU Commission website. This could result in further reputational damage. If they were found to be in breach of the EUDR, this could be particularly damaging to companies that promote themselves on ‘green’ values.

Sehgal added: “The EUDR has significant implications for companies trading in the EU, and time is running out for packaging suppliers to plan and implement their compliance strategies. One implication could be increased compliance costs for companies already managing global commodity price volatility, which if passed onto consumers, could prove inflationary in some EU countries. The exact impact on consumers will depend on a variety of factors, including how companies choose to respond to the regulation and how the regulation is enforced. However, with recent news reports confirming that the world’s top climate scientists expect global heating to go well beyond the current 1.5C target, stopping and reversing deforestation remains an urgent priority for the planet.”

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