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July 17, 2024

Deforestation-Free Regulation : What Fashion Brands Must Understand

The European fashion industry faces a transformative period with the recent implementation of the European Regulation against Deforestation and Forest Degradation.

This regulation marks a significant stride in the European Union's commitment to combat imported deforestation, particularly in high-risk sectors like fashion.

As part of the EU Green Deal, this legislation targets seven key commodities: cattle products, cocoa, coffee, palm oil, rubber, soy, and wood, along with their derivatives (e.g. leather, viscose, cosmetics, chocolate etc.). However, this is just the beginning; further expansion into other product categories is anticipated in the future.

Timeline Overview

Understanding the timeline of this regulation is pivotal for industry stakeholders to adapt and comply effectively. The law came into effect on June 29, 2023, but what’s next?

  • December 30, 2024: Obligations are imposed on all companies (operators, traders or exporters) who put on the EU market products concerned or export them from EU.

  • June 30, 2025: Implementation of obligations extends to SMEs, subject to meeting specific criteria. These criteria include having a turnover exceeding 40 million euros and employing more than 250 individuals, or possessing a balance sheet totaling more than 20 million euros.

Compliance Criteria

To adhere to the regulation, fashion entities must ensure their products meet three key criteria:

  1. Deforestation-Free: Products must originate from areas free of deforestation, as per the newly established legal definition. Deforestation is now classified as the conversion of forested areas for agricultural purposes, whether human-induced or not. A forest is defined land that exceeds 0.5 hectares with trees higher than 5 meters and a canopy cover that exceeds 10%.
  2. Compliance with Local Legislation: All products must comply with the legislation of the country of extraction.
  3. Due Diligence Declaration: Companies must undergo a due diligence procedure, involving data collection, risk assessment, and risk mitigation actions. Without this declaration, products cannot be exported or placed on EU market.

Due Diligence Procedure

The due diligence procedure outlined in the regulation is a comprehensive approach to ensuring more sustainable sourcing practices:

  • Data Collection: Operators must gather detailed information regarding the product, including descriptions, production dates, supplier details, and geolocation data. Furthermore, they must provide their due diligence information to other operators and traders further down the supply chain.
  • Risk Assessment: A documented assessment of the risk of deforestation is conducted, considering factors such as the country's forest presence, corruption risk, and engagement with indigenous populations.
  • Risk Mitigation Plan: If the risk assessment indicates a non-negligible risk of deforestation, companies are obligated to implement mitigation plans, which may involve audits or additional information requests.

The European Commission has proposed categorizing producing countries (both EU and non-EU), enabling a simplified due diligence process for countries designated as low risk.

Controls and Sanctions

Non-compliance with the regulation carries significant consequences to be determined at a national level, including:

  • A maximum amount of fines being at least at 4 % of the operator’s or trader’s annual turnover in EU.
  • Confiscation of relevant products concerned and the revenues gained by the operator or trader from a transaction with the relevant products concerned.
  • Temporary exclusion for a maximum period of 12 months from public procurement processes and from access to public funding, including tendering procedures, grants and concessions.
  • Temporary prohibition from placing or making available on the market or exporting relevant commodities and relevant products, in the event of a serious infringement or of repeated infringements.

How to Be Compliant?

Achieving compliance with the European Regulation against Deforestation necessitates a robust due diligence procedure, and leveraging technology can streamline this process.

The Fairly Made® SaaS platform offers comprehensive support for the first two steps of the procedure: data collection and risk assessment.

With Fairly Made®, we facilitate the traceability of your supply chains by engaging with every supplier involved in garment production to gather essential information, subsequently centralized within the platform.

Furthermore, our platform conducts a comprehensive risk and compliance check, flagging any potential risks associated with the country of origin and the supplier.

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