Forest Risk Commodity

Over the last 60 years, we have seen the destruction of tropical rainforests across the globe as a result of illegal clearance for commercial agriculture and timber plantations. With evidence linking deforestation with climate change, biodiversity loss and the spread of zoonotic diseases we need to act now to prevent any further loss to one of our planets most important ecosystems.  

Deforestation is the second leading cause of climate change globally and is responsible for 11% of all greenhouse gas emissions. In a bid to conserve forests and ecosystems at risk the UK is supporting other country’s efforts by introducing transparency and accountability into the supply chain.

What is a Forest Risk Commodity ?

According to the Global Canopy Programme a Forest Risk Commodity (FRC) is defined as "globally traded goods and raw materials that originate from tropical forest ecosystems, either directly from within forest areas, or from areas previously under forest cover, whose extraction or production contributes significantly to global tropical deforestation and degradation”. 

As its stands today, the UK considers beef, leather, cocoa, palm oil, pulp and paper, rubber, soya and timber as commodities. As the discussions surrounding FRCs continue, we may see other items such as maize and coffee added to the list. 

UK regulations on deforestation in supply chains

The UK is currently consulting on the introduction of new regulations aimed at making it illegal for businesses in scope to use, either in production or trade within the UK, FRCs that have not been produced in accordance with relevant laws in the country where they are grown.

This will be extend to FRCs embedded within products and to the protection of land converted from other natural ecosystems.

Who is affected? 

The regulations will impact Large* UK companies involved in Commodity Trading and Processing, Retail, Food, Agriculture, Forestry, Construction, Consumer Goods & Apparel, Brands & Luxury Goods, Automotive, Materials, Finance/Investments, Accommodation & Food Services and the Public Sector.

Small businesses would not be in scope. However, we would expect that larger companies may use their leverage for disclosure and due diligence in the first tier supply chain amongst their key suppliers should the commodities not be directly sourced by the larger company.

*Uncertainties

As the consultation infers that imports of non-compliant goods and their placement on the market by large companies will not be possible in the UK, this will undoubtedly impact on routes to market for exporters of goods to the UK as due diligence will be required by the end user company (where in scope).

The turnover and employee size definitions of who is in scope has yet to be defined, though it is expected that ‘large’ companies will be in-scope.

What you need to know

If the UK government regulates FRCs with a new law:

  • It will be illegal for larger businesses to use forest risk commodities that have not been produced in accordance with local laws.
  • In scope businesses and organisations will have to conduct robust due diligence to show they have taken proportionate action and report on this exercise publicly.
  • The government will levy fines and other civil sanctions where forest risk commodities continue to be used, or where robust systems of due diligence are not in place.
  • For the public sector, recommendations have been made to introduce mandatory sustainable commodity public procurement requirements.  These will no doubt be cascaded down into the supply chain.

Next steps...

For now, there is no immediate need to act. Its a good time to familiarise yourself with the proposed changes and consider how robust your existing procedures are. 

You can find more details on the proposed new law here. You have until 5th October to view and comment before the consultation period closes.

 

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Matt Farnsworth

Technical Director - Sustainable Business, ESG & Transaction Advisory +44 (0) 1454 853 000 EMAIL
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Bristol | UK

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