EUDR, CSRD and CSDDD: the legislative changes rocking commodity markets

With deadlines for full implementation looming, the European Union's ambitious push to combat deforestation and promote responsible land use is driving a reshape of the way businesses operate. It also presents business a stark challenge - adapt or get left behind. As businesses navigate the evolving regulatory landscape, understanding and preparing for these policies and their impact will be critical for maintaining access to the EU market and aligning with the rising demand for responsible land use.

But what are the key pieces of European regulation? Here’s an overview of the legislation.

The EUDR seeks to prevent companies dealing in soy, cattle, palm oil, wood, cocoa, coffee, rubber and their derivatives from introducing commodities linked to deforestation to the EU market. Compliance with EUDR demands due diligence audits which should encompass:

By 30th December 2024, most companies are obligated to be in compliance with EUDR. Companies in non-compliance risk:

The CSRD requires companies to report on their environmental and social impacts under one common framework, subject to an audit or independent assurance. It targets EU-based public companies and EU-based private organisations with €50m+ annual revenue and/or €25m+ on their balance sheets. The directive aims to ensure transparency on double materiality and risk management strategies concerning sustainability-related risks.

Organisations not in compliance with CSRD may face fines and penalties up to €10m, or 5% of the total annual turnover dependent on the member state. Though adopted at the EU level, its implementation varies across member states, with only nine out of 27 currently having enacted the necessary legislation.

The CSDD framework is intended to ensure companies identify, prevent and mitigate the impacts of their business activities on the environment and human rights abuses. Like CSRD, it holds companies accountable not only for their own operations but also for those within their supply chains. 

The legislation will apply to large EU-based companies as well as non-EU companies generating significant revenue in the EU. Non-compliance may result in sanctions and penalties amounting to at least 5% of their previous financial year’s net worldwide turnover.

Adopted by the EU in May 2024, the CSDD will be incorporated into national laws by July 2026.

Proactive preparations and investment in compliance with the evolving legislation stands to benefit both EU and non-EU suppliers and companies. During a recent Innovation Forum webinar focused on corporate resilience under incoming regulation, Belinda Borck, global public policy coordinator at Tony’s Chocolonely, was asked about preparation delays companies are experiencing due to incomplete information from the EU regarding risk-benchmarking, which will introduce more thorough checks for products coming from high-risk areas and simplified due diligence processes for products coming from low-risk areas. “Even if we don’t have the complete set of information, we have enough information to prepare,” Borck said, “There is no excuse to wait for more guidelines or FAQs…there is already a lot that can be done.”

As consumer regard for sustainability concerns continues to grow, suppliers and non-EU companies that voluntarily align with EUDR, CSRD and CSDD will position themselves as leaders in sustainability, offering products that are verifiably free from harmful land use or social impacts. This enhanced reputation can serve as a significant competitive edge against companies with less transparent supply chains.

The legislation also precludes any companies whose products or their subsequent supply chains are non-compliant from accessing the European market. As of 2021, the EU accounted for 14% of the world’s trade in goods; access to the market provides a significant incentive to prepare an effective compliance strategy. 

Furthermore, suppliers who choose to forego EU market participation to avoid obligatory supply chain transparency and disclosure will inevitably raise questions from stakeholders and consumers. As such, voluntary adherence may very well be the key to maintaining business relationships for both EU and non-EU organisations.

The push for increased transparency and tighter standards will come at a cost, particularly for small-holder suppliers. For some suppliers, the financial burden of upgrading systems, hiring staff, and conducting extensive audits may be so overwhelming that they are unable to meet the new standards. 

On the same Innovation Forum webinar, Pallavi Sharma, lead for food, agriculture and biodiversity at Global Rights Compliance pointed out that, “international NGOs, indigenous peoples’ groups and UN affiliated agencies … have called into question the impact of this law on small farmers”. This is especially true for smaller suppliers from less developed nations, who may find the barriers to entry prohibitively high, potentially excluding them from the EU market entirely. 

Suppliers that do remain part of the European economy must comply with these directives and the responsibility of enforcement will fall to the EU. Given the complexity of global supply chains, companies will face significant challenges as they overhaul their reporting practices. The EU's task of overseeing, assisting and verifying compliance across diverse supply streams will be monumental.

Legislation has long been a significant driving force behind widespread changes in corporate sustainability practices. The EU’s stringent stance on supply chain transparency and sustainability compliance is, in the view of many, a positive step forward. However, it also creates the possibility of two-tiered supply chains, dividing the market into “compliant vs non-compliant” or “good vs bad” segments. 

During the Innovation Forum webinar, Felipe Carazo, head of alliance management at Tropical Forest Alliance, emphasised this point. “[It is] very important to avoid market segmentation. This could lead to a multilateral patchwork [of regulation].”

Additionally, with two supply streams and subsequently two sets of vastly different requirements, the potential for global standards diminishes - at least in the short term. The ultimate goal for most sustainability leaders is to determine a set of standards that all products on the open market meet, both upstream and downstream. 

Hopefully, the EU’s passage of EUDR, CSDD and CSRD, as well as its implementation and enforcement, can be used as a blueprint that other nation-states can follow in time. As Borck put it, “The EU is in a driving role of responsible business conduct.”  Rather than an exclusionary undertaking, perhaps the legislation can be a catalyst for full market transformation in the long term.