The Department for Environment, Food and Rural Affairs (Defra) recently published the outcome of a consultation on the implementation of due diligence provisions aimed at tackling deforestation in UK supply chains (reported on here). The consultation proposed measures to make it unlawful for businesses in scope operating in the UK to use certain commodities in their UK commercial activities unless relevant local laws were complied with in relation to those commodities. The consultation was required in accordance with the Environment Act 2021 (the Act) setting goals and the need for secondary legislation for environmental protection purposes. The proposals will be brought forward with regulations expected to be passed in 2023. Further commodities could be phased in on a timeline basis.
Forest risk commodities understood to be impacting on deforestation are defined in the Act as being produced from a plant, animal or other living organism. The consultation raised questions regarding specified commodities proposed by the original 2020 consultation on the issue, being cattle (beef and leather), cocoa, rubber, palm oil and soy. Coffee and maize were introduced by the 2021 consultation, and timber, which was originally proposed, was determined to be out of scope due to already being regulated under the UK Timber Regulations. It is currently unclear whether all, or a certain number of these commodities, said to be responsible between them for driving the majority of recent and ongoing global deforestation, will be included in the first round of secondary legislation.
Key elements of the official response are as follows:
- Businesses in scope will be “large” companies determined through turnover as defined in the Companies Act. The resounding response in the consultation is that this should be based on the previous year, similar to regimes such as energy usage and packaging monitoring, and to include subsidiaries of any company reaching the threshold. The majority of responses said that these should be UK companies. Some considered group structures to be relevant because a focus on UK activity turnover only could skew the focus where a wider impact of this environmental challenge is relevant in the context of supply chains which are so often across legal borders. The figures to determine thresholds are yet to be determined, with the consultation asking for views on specific turnover thresholds of £50, £100 or £200 million with over half of the 16,838 respondents favouring a threshold of £50 million.
- The due diligence system as set out in the Act is for the collection of information on the regulated commodities, assessing the risk these commodities were produced in violation of local laws, and mitigating those risks. The additional regulations will identify the relevant information to be obtained, the criteria for assessing the risk, and how those risks may be mitigated. The consultation response has indicated that the risk should be eliminated or reduced to a reasonably practicable level, akin to health and safety law, or to a negligible risk, in alignment with the Timber Regulations.
- The extent and content of reporting is likely to include supply chain maps, environmental impacts and due diligence strategy, although the precise content is yet to be solidified. The majority of responses considered a commodity’s geographical origin, including references to the country of origin, and farm-level data. This raises the question of whether reporting of this granular data is feasible in practice - will we be more likely see information on suppliers and the types and volumes of raw and / or embedded commodities used? Also raised was evidence of legal land use such as land tenure documentation.
- An enforcement regime will be established with variable monetary penalties, which take into account the annual reporting on submissions made. We await with interest as to which regulator will have these powers.
In terms of deliverability, respondents highlighted the importance of considering industry readiness to allow sufficient time for businesses to implement supply chain traceability systems, noting that some commodity areas have more advanced traceability than others. It is also argued that legislation should be used to drive sectoral transformation, and not be restricted by current readiness to comply, in order to avoid excluding sectors where change and support is most needed.
The Government will lay draft regulations before Parliament at the earliest opportunity, and we may see additional consultations. Defra have confirmed that they will provide guidance to help businesses understand how to comply, including on how to use certifications and standards to contribute to an evidence base on compliance. The design of the secondary legislation and accompanying guidance will be informed by responses received through the consultation and published in due course. Businesses that may be in scope should monitor developments in this regard.