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 has been 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.
Who is affected?
In November 2020, the Government published the outcome of the consultation and confirmed that the regulations would apply to large companies above a certain turnover threshold. Small businesses would not be in scope, and exemptions are being reviewed for larger companies dealing in small volumes of commodities.
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.
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).
November 2020 Update
Following the consultation period in November, the Government confirmed the following changes and introductions will be taken forward:
- An amendment will be introduced to the Environment Bill placing new responsibilities on larger businesses using FRCs in their supply chains.
- An approach based on legality will be maintained, helping to support national government’s own efforts and to provide a pathway to recognise national standards and certification schemes.
- Supporting human right risks through the UN’s Guiding Principles in Business and Human Rights and encouraging due diligence approaches to address negative impacts.
- The ‘in-scope’ threshold will now be based on turnover, removing the use of an employee number threshold to define which businesses are in scope.
- Alignment with other reporting requirements, such as the Modern Slavery Act transparency in supply chains requirements, meaning businesses will have six months to report after the end of the UK financial year.
- To be supportive of both the Taskforce for Climate-Related Financial Disclosures (TCFD) and the Taskforce for Nature-Related Financial Disclosures (TNFD).
Of key note is that final operational details will be implemented through secondary legislation, which in itself will be subject to further consultation.
This means that the new requirements will only come into force once the secondary legislation has been passed.
What you need to know
When secondary legislation is passed, the current understanding is that:
- 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 until the operational details are known, as proposed by the secondary legislation. However, it’s a good time to familiarise yourself with the proposed changes and consider how robust your existing due diligence procedures
You can view the results of the consultation and the Government's response here. As the legislation becomes available we’ll share what we know, what it means and the potential impacts it could have on business in the UK. Watch this space!
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