At the end of August, the UK Government announced a public consultation on legislative proposals which would introduce a due diligence requirement for companies whose supply chains may be contributing to deforestation.
The proposals would make it illegal for businesses within its scope to use “forest risk commodities” (commodities that can cause wide-scale deforestation), either in production or trade within the UK if they have not been produced in accordance with applicable laws in their country of origin.
The roots of the movement
The proposals stem from a March 2020 report by the Global Resource Initiative Taskforce (GRI) which made 14 key recommendations to reduce the effects of UK supply chains on the global climate and environment. Created in July 2019, the GRI is a UK Government driven taskforce comprising representatives from large UK businesses, the Green Finance Institute, WWF and Forest Coalition. One of the GRI’s aims is to drive more resilient and sustainable global supply chains, while supporting jobs and livelihoods.
In a nutshell
The proposals build on the Environment Secretary’s recent speech which laid out plans for a ‘green recovery’ from the coronavirus pandemic and align with a growing international drive from regulators, civil society groups, leading companies and investors to improve supply chain due diligence in this area. The consultation also follows a continuing trend among private sector actors, who are reaffirming their commitment to long-term climate change initiatives in the face of the pandemic (see Oliver Dudok van Heel's recent post here).
The details of the proposals contained in the consultation document are pitched at a high level but we have picked out some of the headlines.
- The proposals would only apply to ‘larger businesses’ (based on turnover and employee number) ‘operating’ in the UK. No details of the threshold have been provided yet.
- Beef, cocoa, leather, palm oil, rubber and soya are all given as examples of “forest risk commodities”, which are those that can cause wide-scale deforestation including those embedded within products. It remains to be seen whether an exhaustive list will be produced.
- There are reporting parallels with the Modern Slavery Act 2015, although the underlying obligations would arguably go further in that companies would be required to have a robust system of due diligence in place to show that they have taken proportionate action to ensure that their supply is legal.
- An important area in which the consultation asks for views is whether companies should be required to carry out due diligence and report on this publicly.
- Companies would need to show that items have been produced according to local laws which protect forests and other natural ecosystems from being converted into agricultural land. Local law expertise and closer communication with upstream members of the supply chain will be vital to ensure compliance with new laws.
- Fines could be imposed for failing to comply with the legislation (levels to be confirmed) and offences relate to the use of forest risk commodities which break local laws or a failure by businesses to carry out due diligence.
- This consultation is associated with other movements geared towards reducing the UK’s environmental footprint and the proposal intends to ensure alignment of this proposal with similar international reporting frameworks, for example the recommendations of the Taskforce on Climate Related Financial Disclosures (read more in Vanessa Jakovich’s blog on the FCA’s TCFD consultation).
How can businesses prepare?
For now, businesses potentially affected by the proposals should consider participating in the consultation. Important questions remain regarding the level of due diligence which would be required, the level of local law scrutiny that would need to be applied, how the UK Government would analyse local laws, the scope of the fines and the form that the reporting would take. It is also not yet clear how the legislation would apply to group companies – and whether individual subsidiaries which may qualify in their own right will be required to make their own disclosures, or whether it would fall to parent companies to report on compliance within the group. Our “Beyond the pandemic: rethinking the supply chain” piece highlights a number of ways in which companies can think about and review their supply chain management.
The consultation period on the proposals closes on 5 October 2020. You can respond here. If the Government proceeds to legislate, a further consultation period will follow in which views on the exact details of the framework will be sought. We look forward to seeing how those proposals will address some of the issues highlighted above.