Consultations are underway on a proposed law to prohibit large UK businesses from using products sourced from illegally deforested lands.
By Paul A. Davies and Michael D. Green
On 25 August 2020, the Department for Environment, Food and Rural Affairs (Defra) launched a consultation on a new law aimed at preventing large companies from using commodities grown on land that has been illegally deforested (known as forest risk commodities). The consultation includes seven questions to assess whether large companies should be obligated to perform due diligence on their supply chains, and whether large companies should be prohibited from using forest risk commodities. Key forest risk commodities include palm oil, cocoa, soy, and rubber.
The consultation stems from recommendations made by the Global Resource Initiative, an independent taskforce established by the UK government in 2019 as part of its 25 Year Environment Plan. The goal is to introduce new legislation to promote sustainable commodities and ensure that the UK has a lighter environmental footprint. International Environment Minister Lord Goldsmith emphasised that “there is a hugely important connection between the products [we] buy and their wider environmental footprint”. Today the demand for agricultural commodities drives 80% of deforestation. In turn, deforestation leads to higher carbon emissions, accounting for 11% of global greenhouse gas emissions. The government highlighted that this “increases the risk of extreme weather events, drives biodiversity loss, and exacerbates the spread of infectious diseases”.
The proposed law focuses on large businesses, as they have “the influence to send a positive signal to producers,” according to Defra. In particular, the proposed law would:
- Require large businesses to carry out due diligence on their supply chains to ensure that key commodities are produced in accordance with local laws protecting forests
- Prohibit certain businesses from using products grown on land that was deforested illegally
- Impose fines for non-compliance
Secondary legislation is expected to determine the levels of fines and also what factors would bring businesses under the scope of the law (i.e., the threshold for classification as a large company). Observers expect that factors such as employee numbers and turnover thresholds will be relevant to determining what constitutes a large business. Secondary legislation is also expected to further detail what due diligence will be required.
Although the consultation has generally been welcomed, it has also come under criticism from a number of NGOs. For example, Greenpeace’s forests campaigner Elena Polisano highlighted that:
- Nothing in the proposals addresses the reality that some commodity producers have multiple distribution lines. For example, a commodity producer may have one distribution line with a sustainable supply chain but also numerous other distribution lines that fall short of complying with environmental safeguards. Thus, the proposals would likely only lead to a modest amelioration of the current situation.
- Demand for meat and dairy is one of the main causes of deforestation. As appetite for such products rises, so will the need for soybeans, which are necessary to feed the livestock. Thus, large companies would need to “reduce the amount of meat and dairy they sell and drop forest destroyers from their supply chain immediately,” according to Greenpeace.
This consultation reflects an increasing regulatory interest imposing due diligence obligations on large companies in respect of their supply chains. Outside of the UK, Switzerland, and France have put forth similar initiatives.
The consultation will close on 5 October 2020, after which the government will decide whether to legislate on the matter.
Latham & Watkins will continue to monitor developments in this area.
This post was written with the assistance of Sabina Aionesei in the London office of Latham & Watkins.
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