In an age where sustainability and deforestation have become key issues for consumers and governments alike, calls for enhanced transparency and traceability within the industry have continued to grow.
However, these aren’t completely new – this pressure was the driving force behind the European Union Timber Regulation (EUTR) that came into force in 2013 and which sought to reduce illegal logging. Part of the regulation mandated that timber businesses conduct due diligence to account for where their
products originated from, thereby putting increased traceability pressures on companies.
The upcoming European Union Deforestation Regulation (EUDR) is an evolution of the EUTR and has been drafted to meet today’s heightened focus on environmental sustainability. And while all the obligations (and corresponding penalties) that will be imposed on Importers are still unknown, recent events have given us some indication of what might be included. For instance, it’s likely that most timber businesses in the EU will soon be mandated to trace their timber back to all the plots of harvest, as opposed to just the country of harvest.
Timber products often travel through multiple companies before they reach the end consumer. For the longest time, this level of complexity and the lack of incentive from the private sector has led to timber being illegally harvested, processed or traded.
This is why the EUTR requires companies to show evidence of where their timber has been harvested, with additional risk mitigation actions applied to higher risk areas or species.
The tracing evidence provided to regulators helps demonstrate that businesses have practiced relevant due diligence.
It’s not uncommon for timber businesses to badly store this evidence in multiple unrelated places (desktop, emails, cloud). However, the problem with this approach is that documents are often tied to the individual employees tasked with managing this information.
This means information is not easily accessible to the wider business and the documents can even be lost if that person leaves the company and there isn’t a backup in place.This also often raises security in privacy issues when there’s uncertainty around where data is located, where it has been sent and who still has access to it.
Law enforcement can request to see evidence from timber transactions carried out years ago, however there are difficulties in locating historical documents. Our research has revealed that some 83% of Importers across all job roles spend an average of half or more of their working hours tracking down information that’s been requested.
The necessity for timber businesses to stay in control of their documentation grows when we consider what’s at stake if a business is unable to produce this evidence upon demand. If businesses are found to insufficiently conduct due diligence, not only can this lead to reputational damage, but more serious cases of non-compliance can lead to fines, arrests and potentially even prison sentences.
The challenge of tracing and evidencing timber supplies is only grows more complex with the forthcoming EUDR. In addition to mandating timber companies to trace their supply chains with supporting evidence, it is likely that it will require businesses to identify the geo-localisation coordinates of all plots of land where the timber has been harvested, by time range and including for lower risk areas. Not only will it require businesses to show evidence of their suppliers, but it will also most likely mandate timber companies trace and provide evidence for all the suppliers that have encountered the timber products along the supply chain – without exception – right back to the forest source.
With the task of tracing timber set to have even higher stakes, businesses in the sector will be forced to seriously review the efficiency of their current approaches when it comes to conducting due diligence and storing evidence.
Better understanding global timber supply chains should be a motor for positive change, not a sterile and overwhelming task. If we do trade complex consumer goods through complex supply chains, it is our responsibility to ensure that the systems we use match this level of complexity. Regulatory compliance as well as meaningful sustainability commitments can only be achieved with greater clarity and transparency on the conditions of production and the routes of timber products. Digital technology is available: let’s make the most of it where it is useful.
EUDR is around the corner and whilst we still don’t yet know the full scope of obligations and penalties that it will demand, we do know that there will be a big emphasis on ensuring Importers reliably trace timber products,
especially if we take a closer look at the motivations behind the new policy.
Proposed regulatory updates to the timber industry have largely been triggered by the COP26 commitment,
which among other things, pledged to curtail deforestation as well as protect and restore ecosystems.
EUDR will aim to cement many of these commitments in law. The Council of the European Union has made clear that the regulation is intended to curb deforestation and forest degradation by requiring more due diligence and risk assessments of timber products coming in and out of the EU.
For Importers, this will mean being able to demonstrate that they are:
Only placing products in the market and exporting products that are deforestation-free and legally produced
Practising due diligence throughout all operations
Regularly evaluating and upkeeping due diligence systems
The EUDR’s demand for greater due diligence can be met by businesses focusing on increasing traceability throughout their complete supply chain.
We expect to see more timber businesses start adopting digital technologies – such as Distributed Ledger Technology (DLT) – to securely store, upload and access due diligence documentation across a supply ecosystem.
However, due to the full requirements of the EUDR yet to be released, timber industry players will need to remain vigilant for any unexpected regulatory changes and be prepared to adapt when necessary and at pace.
Despite this uncertainty, and with many still struggling to meet current regulations (EUTR), 26% of all Importers surveyed say they’re still confident that their business is already fully prepared to comply with the requirements of the impending regulation. On the other hand, 28% of Importers are waiting until the details of the incoming regulation are more concrete before adopting traceability solutions, a huge majority (72%) are nonetheless keen to get ahead in adapting processes in some way before then.
We also see that confidence varies massively by region. In the UK, Importers are fairly confident, with around half (51%) saying their business is somewhat prepared for regulatory changes. That figure drops to 24% in Belgium, 35% of whom say they haven’t started preparing at all, and 12% saying they aren’t even aware of any impending regulations.
