How to prepare for EUDR compliance

Helpful suggestions to reach compliance success

The EU Deforestation-free Regulation (EUDR) mandates that a certain group of commodities and their derivatives, namely oil palm, soya, wood, coffee, cocoa and cattle, shall not be placed on the European market if there is a non-negligible risk that their production caused deforestation or forest degradation or is linked to illegal practices. It is the responsibility of the companies to submit a due diligence statement to confirm that the risk of non-compliance is negligible.

As the enforcement of the legislation is approaching, companies have by now started to prepare for it as best as they can. However, preparing for EUDR involves a comprehensive approach that ensures all different aspects of the business are aligned with the new legal requirements, from sourcing to distribution. Below, we detail the essential steps to undertake before complying with EUDR.

Assign a Dedicated Compliance Officer

The first step is to appoint a dedicated individual within your company to oversee the entire EUDR compliance process. This is a mandatory requirement stipulated by Article 11 (paragraph 2a). The appointed person should have a deep understanding of the company’s operations regarding its supply chain and the authority to drive necessary changes across the organisation. It would also be beneficial that the responsible person has the competence to establish a strong relationship with suppliers’ points of contact to enhance smooth communication among all stakeholders involved.

Establishing a compliance officer would also define an inside leader for the EUDR compliance process to bring clarity and direction to all the other resources involved, as well as to the external parties that contribute towards the achievement of compliance objectives. Hence, this role is central to ensuring the process is well-coordinated, efficient, and meets all regulatory requirements.

This also means that the new role should be preferably held by someone with previous experience working within the company. A possible alternative would be to hire an external professional or service provider that understands the EU Deforestation-free Regulation in depth and can ask the right questions about business operations and supply chain structure to drive the compliance process effectively.

Define The Product Scope

The second step is to understand what products the company is dealing with that are under the influence of EUDR. You can begin by reviewing the legislation and identifying which of your company’s products fall under Annex I of the EUDR. This annex lists the specific HS codes of all commodities and products subject to the regulation, such as cattle, cocoa, coffee, palm oil, soy, and wood, along with their derivatives.

It is important to take a broad view. You should start with your product catalogue but then delve deeper into the individual components and materials that make up your products. A good suggestion would be to engage the internal product owners and teams to map out the entire product lifecycle, ensuring no part of your supply chain is overlooked. This thorough analysis will help in pinpointing exactly where and how your products intersect with the regulation.

For instance, the final good may be made up of batches of raw materials with different compositions and characteristics, in order to offer a more competitive product while retaining a certain level of quality. These cases require additional attention, as EUDR expects thorough due diligence for all components, independent of their amount.

Determine Your Market Participant Type

The next step consists of assessing whether your company falls under the definition of “operator”, “trader”, or both. Operators are defined as importers or exporters of relevant commodities and products respectively into and from the European market for the first time. Companies converting the goods and products concerned from one in-scope HS code to another in-scope HS code and placing them on the European market for the first time are also considered operators.

Instead, traders are dealers and distributors that do not import, export or transform relevant commodities or products, but simply make products available for distribution, consumption, or use within the European market.

This distinction is crucial because it determines the specific set of obligations your company must fulfil under the EUDR. Precisely, operators and non-SME traders typically bear the bulk of the responsibility, including ensuring that products are deforestation-free and legal. In particular, they need to submit to competent authorities a due diligence statement based on a due diligence system, which is composed of three steps: information gathering, risk assessment and risk mitigation.

On the other hand, SME traders can benefit from lighter obligations, primarily focusing on maintaining and providing documentation together with the reference numbers of the related due diligence statements.

To understand in more depth the distinction between operators and traders and their obligations, you can visit the following article.

Do you have questions?

If you are affected by the EUDR and need a simple and cost-effective solution for compliance, please contact us. We would be happy to introduce you to RADIX Tree and your options with this affordable but powerful tool.

info@global-traceability.com

Onboard Your Suppliers

European-based companies are generally more aware of the new regulation due to their proximity to regulatory bodies and greater access to support networks. This provides them with a clearer interpretation and more immediate updates on the regulatory requirements compared to suppliers in non-EU countries, who may face challenges due to geographical distance, language barriers, and less direct access to regulatory information and support.

In this context, effective communication with your suppliers becomes vital for smooth EUDR compliance. You can prepare comprehensive EUDR-related material or circular emails to explain the new requirements and what is expected of them. These communications should outline the regulation’s objectives, the specific data and documentation needed from suppliers, and any changes in processes or expectations.

You should also clarify how this regulation impacts your business and openly discuss in advance the deforestation risk at present, as it jeopardises the company’s compliance success, along with possible risk mitigation practices to undertake and eventually increase the confidence of passing EUDR audits.

Consider that change management requires time and effort. Engaging suppliers early and providing clear guidance helps in building a cooperative relationship, ensuring they understand their role in compliance and the importance of providing accurate and timely information.

You can find in the following button a detailed explanation of EUDR from the point of view of suppliers that you might use to craft your message.

Implement a Due Diligence System

Setting up a due diligence system is an explicit requirement of the EUDR. This regulation also requires that operators and non-SME traders must be able to prove how they verified the data they collected and how they determined the level of risk involved.

Depending on your situation, you might need to integrate the EUDR requirements into your existing or planned due diligence system, or you might need to find a completely new solution. Either way, you can start by researching providers of EUDR compliance solutions, then use various resources such as word of mouth, online research, and social media to compile a list of potential vendors. Generally, you should look for solutions that can integrate seamlessly with your existing systems, not only with the current due diligence process. Being clear on your needs is fundamental to understanding whether a provider can satisfy them and ultimately select the most appropriate one.

Depending on your company’s size and complexity, you may decide to launch a Request for Information (RFI) process, conducting multiple rounds of interviews with vendors to assess their capabilities and suitability. The chosen system should offer the necessary functionalities, such as traceability, risk assessment, and reporting tools, and enable you to thoroughly examine suppliers, monitor compliance, and maintain comprehensive records.

Implementation and Ongoing Monitoring

Once you have selected a due diligence system, collaborate closely with the provider to implement it across your supply chain. This step may vary depending on whether the vendor provides the software alone or offers a complete service package. Some providers would place the responsibility on you for delivering the EUDR compliance solution to your supply chains.

Other vendors take a different approach. For instance, Global Traceability Solutions supports you during the entire implementation and onboarding process by autonomously engaging with your suppliers and providing them with the necessary assistance. This allows you to free up mental space and resources to focus on more strategic tasks, such as overseeing the implementation, sustaining a commitment to regulatory compliance, and refining your overall strategy to ensure adherence to industry standards.

It is imperative to establish a clear point of contact between your company and the vendor to facilitate communication and address any issues promptly. Continuous monitoring and periodic audits are essential to maintain compliance and adapt to any changes in the regulation or your supply chain dynamics. Regularly reviewing your processes and systems is not only part of EUDR obligations but will also help in identifying and mitigating any potential compliance risks.

Additional tip

By following the steps described above, your company can overcome the complexities of the EUDR and contribute to the global effort to fight deforestation. However, one of the aspects that raises concerns is the current lack of clarity of the regulation. Companies wanting to be successful in their implementation must be prepared to rapidly react and adjust their operations while addressing any internal resistance to change.

In other words, for businesses to thrive they need to adapt. This concept is well explained in an article by Forbes, stressing that adaptability is that characteristic allowing companies to be successful over time. But what is adaptability? Adaptability is a mixture of flexibility and versatility, where the former consists of the willingness to adapt, and the latter consists of the ability to adapt.

Maintaining a flexible mindset and crafting your compliance strategy in a smart and flexible way will eventually provide you with the ability to navigate uncertainty and the unclear regulatory landscape.