INTRODUCTION

Deforestation is now the second leading cause of climate change globally, after burning fossil fuels, and is responsible for around 11% of all greenhouse gas emissions. In the last 60 years more than half of tropical forests worldwide have been destroyed, reducing biodiversity and endangering rare species (see Fifth Special Report of Session – 2023-24: The UK’s contribution to tackling deforestation: Government's Response to the Committee’s Fourth Report).

Commodities such as cattle and palm oil (used in frying fats, chocolate and cosmetics) have been identified as some of the key drivers of deforestation. From December 2024, the EU Deforestation Regulation ("EUDR") prohibits the placing on the market or making available in the EU, certain commodities and products unless they are de-forestation free and produced in compliance with local law. Stringent due diligence and reporting requirements are imposed on in-scope large and medium size companies and, from 30 June 2025, micro-undertakings and small companies.

The UK is developing its own Forest Risk Commodity ("FRC") regime: the enabling legislation is set out in the Environment Act 2021 and, through a recent consultation process, the Government has set out the details of the proposed scheme. This will require secondary legislation which was expected in early 2024, but this has been delayed by the General Election.

In this update, we summarise the key design features of the UKFRC and highlight some of the key ways it diverges from the EUDR.

KEY DESIGN FEATURES OF THE UKFRC

There are three core requirements on in-scope businesses:

• it prohibits them from using illegally produced forest risk commodities (including both raw and derived products);
• it requires them to establish a due diligence system for each regulated commodity; and
• it requires that they report annually on their due diligence exercise.

IN SCOPE BUSINESSES AND EXEMPTIONS

Only those businesses with a global annual turnover of £50 million or more are required to comply with these obligations. In addition, businesses using 500 tonnes of less of each commodity per annum can apply for an exemption: note that the exemption is not automatic

There will also be a "grace period" to enable businesses to prepare following the introduction of secondary legislation. The Government has not said what that period will be.

A discussion is underway at both EU and UK levels as to whether the financial sector should be in-scope, though there is no exclusion in the current EU regime. So far neither scheme envisages that this is the case but there will be a review of the scope of both schemes approximately 2 years after the come into force.

IN-SCOPE COMMODITIES

The following commodities are covered by the UKFRC:

• cattle products (excluding dairy);
• cocoa;
• palm oil; and
• soy.

The UK Government say that these commodities account for 64% of the UK's tropical deforestation footprint and as much as 93% of this is likely to be in violation of local laws.

This is key because under the proposed UKFRC, only deforestation that is illegal in the local jurisdiction is in-scope. This is a significant differentiator with the EUDR under which the relevant prohibitions apply to goods produced from recently deforested land (see Table 1 below) and relevant entities must be in compliance with local laws (ie. not just laws relating to deforestation a such but labour, human rights laws etc).

Under the UKFRC, all products delivered from the above-mentioned commodities are also regulated. This includes products that may currently be considered as "waste products" or "by-products".

ENFORCEMENT

The secondary legislation will provide for a range of enforcement options. Amongst these will be an unlimited monetary (civil) penalty for significant breaches of the Regulations. There will also be criminal penalties for failure, without reasonable excuse, to comply with some of the data requirements. The details are to follow when the draft Regulations are published.

COMPARISON OF UKFRC AND EUDR

The final details of the UKFRC are yet to be settled and the new Government may take a different view on some of the design features. At the same time, 20 Member States of the EU have written to the EU Commission to ask it to consider changes to the EUDR and in May 2024, the EU Farm Commissioner wrote to the EU President asking for a deferral of the date of entry to the EUDR. No such deferral has been announced. Subject to those points, the main differences between the two regimes are set out below.

Table 1: Comparison of main design features of UKFRC and EUDR.

CONCLUSION

The UKFRC and the EUDR diverge in quite significant ways and it is quite likely that a large number of organisations will be required to comply with both regimes. This will mean significant upfront costs and time will need to be incurred in setting up the systems to diligence in-scope commodities (especially where these are derivations from the principal commodity). It is also possible that the design of the UK scheme in particular, may change depending on the outcome of the general election: there is political pressure for greater alignment with the requirements of the EU scheme, in particular, as regards the commodities covered and also that the main diligence obligations should apply to any deforestation after a cut-off date (e.g. 2020 as in the EU scheme) regardless of whether that deforestation complies with local laws.

In any event, the UK approach to deforestation is one to watch for the coming year.

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