Deforestation: What is it and how does it affect business companies?

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Deforestation is the permanent or significant removal of forest cover to make way for activities such as agriculture, livestock, urbanization, or resource extraction. This phenomenon contributes to the climate crisis by increasing greenhouse gas emissions, especially through fires, and reducing the ability of forests to absorb carbon. According to the IPCC, deforestation is responsible for 11% of global greenhouse gas emissions. Moreover, it compromises biodiversity, destroying habitats and making ecosystems more vulnerable to diseases, pests, and climate change.

Deforestation is a crucial issue for companies as well, as it has direct and indirect impacts on operations and reputation. The growing awareness of consumers and investors towards sustainable practices obliges companies to monitor and reduce their ecological footprint along their supply chain. Deforestation can indeed compromise corporate reputation, with a negative impact on brand value, consumer trust, and competitiveness, especially in sectors like agribusiness, fashion, and retail.

In response to these concerns, the European Union introduced the EU Regulation on Deforestation (Regulation 2023/1115), which aims to prevent the import of products linked to deforestation, such as cocoa, coffee, palm oil, and timber. This regulation, which came into effect in 2023, requires companies to demonstrate that imported products do not come from illegally deforested or unsustainably managed land. Businesses that do not comply with the regulation risk economic sanctions and the inability to market these products within the European market. The European regulation also requires companies to trace the origin of raw materials and provide evidence of compliance.

The EU regulation on deforestation aligns with the New York Declaration on Forests, which aims to stop the loss of natural forests by 2030. The Glasgow Declaration on Forests and Land Use also emphasizes the importance of transformative actions in various areas, such as sustainable production and consumption. The European Union, as a member of the WTO, is committed to promoting sustainable and inclusive trade, extending the deforestation regulation to both produced and imported raw materials.

The EU deforestation regulation requires companies operating in the EU market to conduct due diligence to trace the origin of raw materials and ensure they are not associated with deforestation or forest degradation. Additionally, they will need to provide compliance statements certifying adherence to the regulation's requirements. Finally, they will have to maintain detailed records of their supply chains to ensure transparency and traceability. The EU deforestation regulation will come into force in 2025, with specific deadlines for different categories of companies: large companies must comply by December 2025, while small and medium-sized enterprises have until June 2026 to adapt.

EU Regulation 2023/1115 on deforestation represents a significant step in the fight against global deforestation, imposing stringent requirements on companies to ensure sustainable supply chains. Despite its ambitious goals, the regulation has raised concerns among various stakeholders. Some governments and trade organizations fear it could act as a trade barrier, penalizing small farmers and disrupting supply chains, especially in countries like Brazil, Indonesia, and Ivory Coast. Additionally, companies have expressed concerns about increased bureaucracy and compliance costs, which could affect their competitiveness.

This article was produced as part of the "Biodiversity services EU expansion" project (CUP: E43D22000480009) under the Regione Lombardia "PR FESR 2021-2027 – LINEA INTERNAZIONALIZZAZIONE 21-27" call, aimed at supporting the internationalization of Italian companies. 3Bee is the naturetech company that develops innovative technologies for the monitoring, protection, and regeneration of biodiversity, supporting companies in defining customized climate strategies based on the analysis of their impacts and dependencies on nature. With an established portfolio in Italy, Germany, and France and significant partnerships, 3Bee continues its expansion into international markets to create a concrete impact through technology.