UK to introduce mandatory due diligence on forest risk commodities

Five key takeaways from the new legislation

On 11 November 2020, the UK government announced it will introduce new legislation to prevent illegal deforestation in the supply chains of UK businesses. This announcement follows a public consultation in which over 99% of responses were in favour of the law.

Companies that do not comply with these rules will be subject to fines.

The five key takeaways for UK businesses are the following:

1.    Companies will be mandated to undertake due diligence and disclose  information on their findings.

Large businesses will have to publicly declare the origin of the commodities they use and that they comply with local laws in how they were produced. This disclosure will need to be backed by due diligence establishing that the commodities were not produced from land that was illegally deforested. The law will establish a turnover-based threshold defining what size businesses have to adhere to the new regulation.

2.    The law will only apply to deforestation considering illegal in the country of origin.

The UK government rejected calls from NGOs and some businesses for a bill that would target all deforestation, regardless of local laws. The government is sticking to a legality-based approach, with the view that “supporting national governments’ own efforts provides the best path to sustainability”.

There are two weaknesses to a legality-based approach. First, it incentivises commercial interests to lobby to legalise deforestation. Second, it assumes commodity-producing countries favour environmental protections and apply their laws in a consistent manner.

3.    Human rights standards will not be included.

The government’s response outlines that even though there is overlap between illegal deforestation and human rights risks, the latter is a much broader issue that applies to all businesses. The document refers to the UN Guiding Principles on Business & Human Rights – a non-binding framework – for addressing human rights risks in companies’ operations.

4.    Reporting period will be aligned to the Modern Slavery Act.

The government’s response outlines that even though there is overlap between illegal deforestation and human rights risks, the latter is a much broader issue that applies to all businesses. The document refers to the UN Guiding Principles on Business & Human Rights – a non-binding framework – for addressing human rights risks in companies’ operations.

5.    The law will not apply to the financial sector

Several respondents to the consultation highlighted the need for mandatory due diligence for investors to prevent them from financing deforestation. Nonetheless, the government is signalling that the law will only apply to businesses that are closer to the commodities in the value chain, for instance those that directly handle commodities.