Commodity trade related to deforestation creates significant environmental and social problems. According to the Accountability Framework initiative (AFi) and the CDP 2024 report It’s time for transparencyland clearing for agriculture accounts for more than 10 percent of human-caused greenhouse gas emissions and is linked to at least a third of global biodiversity loss. When forests are cleared, we not only reduce nature’s carbon sequestration capacity, but also create emissions that release the carbon they store when they are cut down, burned, or decayed.
Agricultural expansion, driven in part by demand for commodities, accounts for about 90 percent of global forest loss. As the World Resources Institute points out. This expansion also threatens the rights and resources of indigenous peoples and local communities.
The role of companies in eliminating deforestation
Companies play an important role in eliminating global deforestation by adopting, financing and monitoring sustainable and fair practices in their supply chains. However, a gap remains between corporate commitment and implementation.
The 2024 AFI and CDP report notes that while 1,152 companies reported on deforestation management in 2023, only 21 percent provided high-quality information for at least one commodity.
More than a third (36 percent) had key data missing or inconsistencies, highlighting the need for more robust and consistent reporting practices.
Barriers to achieving deforestation-free and conversion-free (DCF) supply chains include information gaps and inconsistencies, complexity and opacity of supply chains, and technical and financial barriers.
These challenges are compounded in small supply chain contexts. Achieving full transparency is especially daunting for large consumer goods companies that may source products from more than 50,000 direct (Tier 1) suppliers and many more indirect suppliers at any given time.
New rules
The EU Deforestation Regulation (EUDR) From 30 December 2024, it raises the stakes by requiring companies to demonstrate that the products they place on the EU market or export are:
- It is free from deforestation and degradation
- It is produced in accordance with the laws of the country of manufacture
- Covered by a due diligence statement.
Commodities covered are timber, soybeans, coffee, cocoa, palm oil, cattle and rubber. Operators must ensure compliance by collecting data, conducting risk assessments and mitigation measures, segregating materials based on deforestation risk, submitting due diligence reports and maintaining relevant data.
Who is responsible for what?
The EUDR is the first regulation to require this level of deforestation tracking for globally produced goods other than wood. This paves the way for similar regulations in other jurisdictions and accelerates corporate action.
The Commission stated that there will be no green belt for certified materials entering the EU, as it is the operator responsible for the due diligence, not the sustainability system.
However, it is clear that reliable continuity systems will play an important role in supporting their corporate partners with the collection and transfer of data, in addition to mitigating risks.
Sustainability systems are ready to support partners
ISEAL Community Members have been fighting deforestation and conversion in their system for many years.
As a result, they have developed effective tools and systems to support data collection and verification, data transfer, multi-stakeholder collaboration and capacity building. They are now adapting these solutions to support their corporate partners to effectively meet their AID obligations.
For example, the Forest Stewardship Council (FSC) has recently started its activities FSC adapted for EUDR A strategy to help companies that buy FSC products meet their AIFM obligations. Its proposal included a revised risk assessment framework and FSC Trace – A blockchain-based platform that will enable FSC licensees to securely access, verify and exchange monitored data in near real-time.
ISEAL Community Members collaborate with external solution providers to meet clients’ needs, while developing internal deforestation risk maps and improving their existing monitoring systems.
For example, Fairtrade International partnered with Satelligence to expand satellite monitoring of woodlands, while the Roundtable on Sustainable Palm Oil (RSPO) worked with agrotechnical partners NGIS, Agridens and CIED to develop. PRISMa new certification, trading and traceability system.
Complementing these initiatives, ISEAL has launched an ambitious two-year program, funded by the Walmart Foundation, to support companies in meeting their deforestation commitments and AIU commitments.
In addition, we work with ISEAL Community Members to improve their inspection and information systems, share good practices and develop innovative technical solutions.
Controlled mass balance
Tracking is key and remains a critical challenge for companies preparing for the ECHR. Many companies use mass balance chain-of-control approaches. These allow certified materials to be mixed with other materials in the supply chain when it is difficult to separate them.
While mass balance systems track the volume of certified material in the supply chain, they do not track the physical products to their point of origin – which is what the ECtHR requires.
As a result, sustainability systems are now exploring adaptations to the mass balance approach that include minimum performance, verification and data requirements for non-certified materials entering the mass balance stream.
This new form of “controlled mass balance” has the potential to meet the requirements of the ECHR while maintaining market competitiveness, flexibility and inclusiveness.
In the coming months, we will be consulting on what this approach might look like. This is just one example of how ISEAL and its members are innovating to provide effective solutions for companies to meet their due diligence obligations.
If you’d like to join the conversation and help build consensus on managed mass balance, contact Track Manager Josh Taylor. jo**@is************.org.
ISEAL’s work on deforestation-free supply chains is generously supported by the Walmart Foundation.
More resources on deforestation.
This article was previously featured ISEALs website.
