The Government has launched its consultation on how to implement the Due Diligence obligation included in the Environment Act.
This will make it illegal for larger businesses in the UK to use commodities whose production is associated with large-scale forest loss such as cocoa, beef, soy, coffee, maize and palm oil, where they have not been produced in line with relevant local laws. Businesses will be also required to undertake due diligence to show that they have taken action to ensure this is the case, and report on this annually.
The consultation seeks views on:
- Which forest risk commodities should be brought under initial regulations
- Which businesses should be in the scope of the regulations
- How businesses should conduct due diligence exercises to identify, assess and mitigate risk; and what information should be included in their annual reports:
- What elements of business reports should be made public
- How the enforcement authority will monitor and ensure compliance with regulations.
The consultation runs for 14 weeks (closes 11th March 2022) and is available here: https://consult.defra.gov.uk/international-biodiversity-and-climate/implementing-due-diligence-forest-risk-commodities
The BRC will be responding to this consultation and will organise a call for members in early 2022.
The consultation seeks feedback on the following four key areas:
Defra is seeking views as well as evidence in the following three areas.
- Firstly, which commodities are key drivers of deforestation and are therefore in scope of the Environment Act provision. Defra believes the evidence suggests cattle (beef and leather), cocoa, coffee, maize, palm oil, rubber and soy are the seven forest risk commodities responsible between them for driving the majority of recent and ongoing global deforestation and should be considered for initial inclusion under the due diligence regulations. Please note that timber and timber products are out of the scope of the due diligence regulations, as they are regulated under the UK Timber Regulations.
- Secondly, the order in which key forest risk commodities should be introduced under the regulations (legislative sequencing). On this point, Defra is proposing to sequence the introduction of the legislation for different commodities (phased approach) and are seeking feedback on the criteria they propose for how these should be sequenced (i.e. the commodity’s impact on global deforestation, the UK’s role in this global deforestation, the ability to deliver effective regulation, etc.).
- Thirdly, the number of commodities that should be regulated through the first round of secondary legislation. On this point, Defra is seeking views on the considerations deemed important in deciding how many commodities are regulated in the first instance (i.e. speed of implementation, ability to learn lessons, the strength of evidence on the relative impact of different commodities on deforestation, the overall impact in first 5 years). Three options have been proposed: to regulate 2, 3/4 or 5/7 commodities in the first round of legislation.
Defra proposes to obligate larger businesses that have a greater influence on forest risk commodity supply chains while minimising the regulatory burden on smaller businesses. To be within scope, the primary legislation states a business using regulated forest risk commodities must both exceed a specified turnover (or have a parent company that exceeds the specified turnover threshold) and exceed a threshold usage of forest risk commodity(ies). Defra is seeking feedback on a number of issues in relation to this, including:
- appropriateness of a turnover metric to capture regulated businesses;
- how to regulate UK versus non-UK based businesses (in the latter case Defra are currently proposing either turnover related to UK activity or global turnover);
- appropriate turnover threshold levels (e.g. £50, £100 and £200 million) and appropriate exemption threshold levels (Defra are currently proposing to set a single exemption threshold for each regulated forest risk commodity).
In addition, Defra is seeking information from businesses on the volumes of forest risk commodities used in their supply chains and methodologies used to calculate these volumes.
3) Due diligence activities and reporting requirements
Environment Act provisions require that businesses in scope establish and implement a due diligence system in relation to any regulated commodity that they use in their UK commercial activities. The provisions specify that, as part of this due diligence system, businesses in scope must identify, and obtain information about, regulated commodities, assess the risk that relevant local laws pertaining to land use and land ownership were not complied with in relation to those regulated commodities, and mitigate that risk. On this, Defra is seeking feedback on:
- the risk mitigation (‘burden of proof’) – Defra are proposing that businesses in scope should be required to ‘eliminate risk or reduce risk to as low as reasonably practicable;
- areas where guidance should be provided to support businesses to establish effective due diligence systems, for example on metrics and indicators to support risk assessment and the role of existing certification standards in helping to meet due diligence requirements;
- current business practices including the costs associated with carrying out due diligence activities relative to business size and commodity use;
- annual reporting requirements, including on how and what businesses should be required to report, and any commercial sensitivities in making any of this information publicly available.
4) How the requirements will be enforced?
Defra intends to appoint one or more enforcement authorities to monitor business compliance, investigate potential breaches of the requirements and instigate proceedings leading to sanctions.
Defra seeks feedback on the criteria that the enforcement authority should fulfil (i.e. UK-wide remit, capacity to regulate, capability and experience to deliver), and the proposed maximum variable monetary penalty of £250,000.