EUDR, CSRD and CSDD: what now? The consequences of ambitious impact regulation

Sustainability and social impact legislation are rapidly evolving worldwide. While the EU’s EUDR, CSRD and CSDD are the most ambitious and advanced, other countries are exploring how to tighten up supply chains and using the EU’s blueprint as a guide on how, or how not, to strengthen deforestation and social impact legislation.

As with any groundbreaking legislation, the full range of effects is impossible to predict. EUDR is no different. 

The unintended consequences of EUDR are potentially far-reaching. One of the most significant concerns raised by experts is the potential exclusion of smallholder farmers. As a major component of EUDR’s purpose, such a negative result would come as a major failure of the regulation. 

Similarly, the risk of dropping suppliers that don’t have the education or resources to meet compliance standards is high in less-developed nations. During a recent Innovation Forum webinar focused on corporate resilience under incoming regulation, Felipe Carazo, head of alliance management at the Tropical Forest Alliance commented on the incentives and ability for producers to participate in the EU market with heightened supply chain standards and reporting requirements. “There is a need to improve measurement and data,” he said. “It is not available in many producer areas, so the traceability approach, which is at the core of regulation, can be really tricky. You may spend a lot of resources answering a question we already know the answer to.” 

To mitigate these risks, the EU will need to provide substantial support and educational resources to ensure suppliers are not cut off from the market, but are instead guided and assisted in meeting the new requirements.

 

Downstream, the European market risks losing access to products as suppliers pivot to markets with less stringent regulations. While Europe remains a valuable market, if the EU enforces these regulations too harshly, or fails to support struggling suppliers, some may conclude that market access is not worth the additional costs and complications.

Certainly, the legislation will bring a higher price tag for products that will need to be absorbed at some point along the value chain. While policymakers will expect that to be absorbed by major brands, there is the obvious risk of that cost being passed on to consumers or growers. 

During the recent webinar, Belinda Borck, global public policy coordinator at Tony’s Chocolonely, commented on business responsibility in the wake of these legal changes. “Passing on the costs to consumers isn’t the approach we want to see,” she said. “This is a responsibility we need to take as companies.”

Many companies and their suppliers already experience audit fatigue, so additional robust compliance requirements could easily exacerbate that burden.

In a similar fashion to the potential impacts of EUDR, small-to-mid-sized companies may struggle to meet the CSDDD and CSRD compliance standards, potentially leading to their exit from the EU market—an outcome that would leave workers even more vulnerable, contrary to the legislation's intent to protect them.

Additionally, the focus on compliance may make over approaches more superficial with companies diverting resources to ticking the boxes mandated by the EU rather than focusing on their operations and potential for impact. This mindset in turn opens the door for greenwashing and, more recently, greenhushing where companies will meet the specified requirements while concealing other significant operational issues not explicitly covered under CSRD or CSDD. This could lead to short-term compliance rather than long-term change. 

How do organisations avoid these unforeseen threats? Preparation for these pieces of legislation will be paramount. Rather than waiting for the regulations to be enforced, companies should begin building their strategies with the intention of avoiding these risks. A full roadmap to compliance can be in place by the time the regulations come into full effect. 

When commenting on how best to bring together corporate strategies, Borck suggested: “Put data ownership firmly with [small farmers] because that is where the data is being collected.” She continued, “Keep the beginning of the supply chain and the smallholders in the dialogue as probably the most important stakeholder to implement your due diligence.” 

But, what is happening elsewhere? There are a number of other notable regulatory changes already on the table and emerging. 

The Lacey Act, amended most recently in 2008, protects wildlife by requiring importers to declare the species and country of origin of the plant materials used in their products; it prohibits the import of products stemming from illegal logging and other illegal sources.

Like much legislation in the US, the strength of the Lacey Act hinges on political impact. A conservative government would likely pose rollbacks on the legislation and defunding programs set to enforce the act. A liberal administration contrarily would see heightened strength and enforcement alongside ambitions of additional legislation that would mirror EU standards.  

Brazil and Indonesia are both linked significantly to deforestation, though in recent years have taken some strides to minimise the impact of outsourcing. Under President Lula da Silva’s more progressive administration in Brazil, forest watchers hope to see an increase in protected areas and greater commitment to global ambitions. Indonesia has also committed to restoration programmes, moratoriums and certifications to curb deforestation. It is also recognising global and indigenous pressures to protect forests and lands. In both regions, logistical challenges, economic pressure and barriers, and varying degrees of governmental corruption will likely cause the greatest obstacles to radical change. 

Other regions introducing more rigorous protection and stricter parameters on land use include:

While the details and potential ramifications of the EU’s evolving legislation will present many challenges, there is evidence that progress is being made. Adjustments to policies will likely be necessary as enforcement difficulties become apparent, but ultimately, these changes will raise awareness and reduce deforestation on a global scale. 

As a final thought during the Innovation Forum webinar, Pallavi Sharma, lead for food, agriculture and biodiversity at Global Rights Compliance emphasised a mindset-shift businesses should consider. “Regulation is a good thing. Consider this a positive thing for your business,” she said. “In the next two years, it will actually make your life much easier.” 

As the world watches to see how these regulations will impact global supply chains, the best course of action is to prepare for the inevitable changes, allowing us to collectively take a step forward in protecting the most vulnerable landscapes and the communities that depend on them.