EU Supply Chain Due Diligence Guide

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• Under recent EU deforestation-free supply chain regulations, companies are required to demonstrate that their sourcing is sustainable and deforestation-free, and EU supply chain due diligence is critical.

• This major move in government-regulated compliance marks a large step toward encouraging - and enforcing - businesses to prove their sustainability.

• Major products affected include palm oil, cattle, soy, coffee, cocoa, wood, and rubber as well as derived products (such as leather, furniture, or chocolate).

• Companies hoping to remain compliant, particularly larger enterprises with international supply chains, must ensure compliance–down to the geo-location of the land where raw materials were sourced–ASAP.

• Consequences of non-compliance include large financial penalties, fines, and reputational damage.

Deforestation is a major environmental issue that severely affects the planet, including biodiversity loss, climate change, and soil erosion. In recent years, there has been increasing pressure on companies to take action to achieve deforestation-free supply chains. This guide will help you with your EU supply chain due diligence.

In response to this pressure, the European Union (EU) has recently introduced new regulations aimed at combating deforestation and promoting sustainable sourcing practices. It has quickly become clear that no single policy will be a quick fix to encouraging sustainable business, but it’s a huge step in the right direction. No single action or tool alone will be a quick fix for companies looking to comply.

So how can companies ensure their supply chains are deforestation-free and compliant, without sacrificing business growth? The following five steps are essential for kickstarting a sustainable, compliant supply chain journey (that keeps you in compliance with recent EU regulations):

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1. Conduct a supply chain assessment and map all the tiers all the way to the first mile

When it comes to EU supply chain due diligence, a great first step conducting a thorough assessment of your current supply chain. This will help you identify any potential risk areas, such as suppliers that may be sourcing materials from deforested land. The EU’s new regulations require companies to conduct due diligence on their supply chains to identify and mitigate the risk of deforestation and other environmental and human rights impacts. The extent of the due diligence includes getting down to the geo-coordinates of the land from which the raw materials were sourced.

The due diligence requirements aim to ensure that companies take into account the risks of illegal logging and deforestation in their supply chains and take steps to address them. Without a deep and verifiable knowledge of your supply chains, there is no way to prove your efforts or compliance. Often companies don’t know past their tier 1 or 2 suppliers. Mapping all tiers is critical to ensure full compliance. Luckily, there are traceability solutions that can support and ease your efforts.

2. Establish deforestation solution policies

Once you have identified any potential risk areas in your supply chain, the next step is to establish policies that prohibit the use of materials sourced from deforested land. These policies should be clearly communicated to all suppliers and should include clear guidelines for how to comply with and report on these policies. It is also important to ensure that the right incentives are in place so that all tiers are motivated to operate with transparency.

Under these regulations, companies will have to demonstrate - i.e. prove -  not only that they have a sustainable sourcing policy in place, but that their policies have been communicated to their suppliers and implemented effectively.

3. Implement traceability systems

To ensure that your supply chain is truly deforestation-free, it is important to implement traceability systems. These need to allow you to track the origin of materials all the way back to their source. This will help you ensure that your suppliers comply with your deforestation-free policies and allow you to make informed decisions about your sourcing practices.

Traceability systems help companies gain source-to-shelf visibility into their supply chains. Choosing and implementing a traceability solution that gets you geo-located, unaggregated data at every tier, powers you to protect your business and prove your compliance.

For example, many coffee companies sourcing cocoa and coffee beans are often aware of their initial supply chain tiers (e.g., the manufacturers or refineries). However, most have no idea where their cocoa and coffee beans originate to the farm level, whether the farmers were paid a living wage, and if sourcing contributed to deforestation! Without that level of traceability, true supply chain protection, and compliance are impossible. 

4. Take a data-first approach

In the past, you could use third-party spot audits and aggregated shipping data to check compliance and prove sustainability. Under these new EU deforestation regulations, these methods no longer cut it. Proving a deforestation-free supply chain will require geo-located data and proof of provenance tied throughout the entire chain of custody all the way to a finished product.

Taking a data-first approach–whether you’re narrowing down carbon and sustainability KPIs, monitoring progress, or generating a report–will be key to ensuring your deforestation-free claims are backed by solid evidence.

5. Monitor and report on progress using an “audit” lens

The new EU regulations require companies to monitor, mitigate, and report on their efforts to ensure products are not sourced or produced with deforestation. Companies will be subject to audits to ensure compliance and that any claims they make are substantiated. Thus, any efforts you make to ensure deforestation-free compliance across your supply chain should be easily auditable, including supplier compliance with your established policies. The traceability solution you choose should allow you to see data in real-time, run your own internal audits in preparation for external audits, and be easily accessible for purposes of an external audit.

Conclusion on EU supply chain due diligence

In light of the EU’s recent regulations, companies sourcing affected commodities (i.e., palm oil, soy, coffee, cocoa, cattle, wood, rubber) and related products can’t afford to hesitate on data-driven action. By following the above five steps, companies can take meaningful action to prove sustainability and compliance, while protecting their business. Those five steps will help you be compliant with EU supply chain due diligence.

BanQu is a leading traceability solution helping manufacturers and brands to boost supply chain resilience, track key ESG metrics, and access geo-located data at all tiers of their supply chain — on a single platform. If you’re looking for a solution with a globally experienced team to help you jumpstart your deforestation-free supply chain journey, schedule a free demo with us today!