The UK Government recently announced that it is developing legislation that would make it illegal for large businesses operating in the UK to use certain commodities that have not been produced in line with local laws, and require in-scope companies to conduct due diligence to ensure that their supply chains are free from illegal deforestation and ecosystem change. A failure to comply could result in significant fines (the precise levels of fines are yet to be determined).

The legislation has the potential to impose market restrictions and extensive supply chain due diligence obligations, but it appears that it will be limited to certain “forest risk” commodities —  including those embedded within products — whose rapid expansion is associated with deforestation. The UK Government is currently consulting on the potential law. The UK Government anticipates that the law will particularly impact supermarkets and fashion houses, meat and dairy producers and businesses using palm oil and other natural ingredients; and has suggested that legislating might offer legal certainty and clear obligations for businesses.

The UK Government’s proposed legislation seeks to clamp down on illegal deforestation and ecosystem change and to complement the current initiatives of producer country governments and businesses. In its announcement, the UK Government stressed the importance of forest protection in tackling climate change, noting specifically that:

  • deforestation accounts for circa 11% of global greenhouse gas emissions;
  • an estimated 80% of deforestation is caused by the production of agricultural commodities; and
  • much forest clearance to produce these commodities is not considered legal.

The impetus for this UK legislation comes from recommendations published earlier this year by the Global Resource Initiative (“GRI”), a UK independent taskforce. In this blog post, we consider the scope of the proposed legislation and what this could mean for in-scope businesses, and provide some context on the wider GRI recommendations and the international sustainability due diligence drive.

The scope of the proposed legislation

If promulgated, the UK’s “world-leading” legislation would forbid in-scope businesses from using products, unless they overcome an evidential burden to prove that they have been responsibly produced in a sustainable manner, and comply with local laws to protect natural ecosystems. According to the consultation paper,  the proposed law would effectively make it illegal for businesses in-scope to use, either in production or trade within the UK, forest risk commodities that have not been produced in accordance with the relevant laws in the country where they are grown.

Businesses in-scope of the legislation may be required to carry out extensive due diligence on their supply chains, publishing information denoting from where key commodities — currently anticipated to include beef, cocoa, leather, palm oil, pulp and paper, timber, rubber and soya — have been sourced. More specifically, businesses would be obliged to: collate information on exposure to specific risks within their supply chains; assess and take action to mitigate those risks and impacts; and publicly report on the steps they are taking. Importantly, “forest risk commodities” will likely include those embedded within products, intended to cover, for example, meat and dairy from soya-fed animals, and products containing palm oil.

The proposals currently focus on “large” businesses, to be determined by turnover and employee number.  It is possible that the law might follow other EU and UK environmental and sustainability initiatives that define large undertakings as those that are not small-medium enterprises (“SMEs”) in accordance with international and national accounting legislation. The Government anticipates that supermarkets and fashion houses are most likely to be impacted by the proposed legislation, in addition to “companies that place agricultural and forestry commodities or derived products on the UK market”. The determination of which businesses fall in-scope under similar diligence and reporting frameworks has proved complicated for many businesses, especially those with complex corporate structures and those going through expansion.

The Government intends to ensure that the legislation augments and aligns with existing UK non-financial corporate reporting and due diligence frameworks. Sanctions for non-compliance are still to be determined, but current high level proposals suggest that the Government will be able to levy fines and other civil sanctions against businesses that continue to use forest risk commodities that have not been produced legally and/or that do not have a robust system of due diligence in place.

The proposal against the backdrop of GRI’s Recommendations

The proposed legislation follows recommendations put forward by the GRI to the UK Government in March 2020. Formed in 2019 to consider how the UK could ‘green’ international supply chains and leave a lighter footprint on the global environment by slowing the loss of forests, the GRI is constituted of  leaders from the private sector, the public sector and NGOs and formed in 2019.

One of the key GRI recommendations was the introduction of a mandatory due diligence requirement. Some of the important scoping aspects of this GRI recommendation included that:

  • due to diligence obligations should cover both human rights abuses and environmental risks and impacts, which will need to be carefully and clearly defined; and
  • obligations for companies should be commensurate with the size of the organisation, their impact and ability to influence change;
  • the financial sector should also be covered by a similar mandatory due diligence obligation, undertaking due diligence in order to avoid their lending and investment activities funding deforestation.

The extent to which any eventual legislation will incorporate these suggestions is currently unclear.

The GRI also recommended the introduction of a legally binding target to end deforestation within UK agriculture and forestry supply chains as soon as practicable, by no later than 2030.

Next steps: consultation

The UK Government — in particular, the Department for the Environment, Food and Rural Affairs (“Defra”)  — has launched an online consultation on the draft legislation to solicit views from the UK and international stakeholders (closing on 5 October 2020). Feedback to the consultation will inform the Government’s response to the GRI’s due diligence recommendation, and assist in weighing the potential impacts of the proposed legislation on businesses and other interests.

If the Government decides to legislate, the intention currently seems to be to that the legal framework will be established in primary legislation, followed by more detailed secondary legislation, and subject to further consultation.

Wider context: the proliferation of due diligence obligations

Following the UN’s adoption of the Guiding Principles on Business and Human Rights (“UNGPs”), there has been an increasing trend of national and regional regulatory initiatives, including human rights and environmental due diligence and reporting requirements.

One such significant initiative is in motion an at EU level. On 29 April 2020, the EU announced that it would introduce legislation in 2021 to make human rights and environmental due diligence mandatory for EU companies (see our May 2020 blog post here). The European Parliament is currently preparing a Legislative Initiative Report on the topic and we are expecting a Commission consultation in the coming months. EU Commissioner for Justice and Consumer Affairs recently confirmed that the Commission will include the regulation in the next official Commission Work Program for 2021 (expected to be published in October 2020). These efforts are taking place in the context of the EU’s wide suite of regulatory initiatives that are part of the “European Green Deal” (see an overview webinar here).

The UK Government considers that by introducing a mandatory deforestation and ecosystem supply chain law, it will provide businesses with some legal certainty by setting a “floor” and minimum standards to meet.  However, against a backdrop of a rapidly evolving patchwork of due diligence requirements — including the more comprehensive, potential EU human rights and environmental due diligence regulation — it is possible that, for in-scope businesses, the UK’s introduction of further issue-specific due diligence obligations will exasperate the compliance challenges caused by a piecemeal approach.

If you have any questions concerning the material discussed in this client alert, please contact the following members of our Business and Human Rights, Environmental & Product Stewardship, Global Public Policy, and Compliance teams:

Dan Feldman
Sinead Oryszczuk
Hannah Edmonds-Camara
Atli Stannard
Paul Mertenskötter
Summreen Mahween (trainee)

 

 

 

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Photo of Sinéad Oryszczuk Sinéad Oryszczuk

Sinéad Oryszczuk is special counsel and solicitor advocate in Covington’s London Life sciences and Environment regulatory team. Ms. Oryszczuk’s UK and EU law practice is diverse, spanning energy, environment, life sciences, consumer products, and technology sectors. She supports a variety of internal and…

Sinéad Oryszczuk is special counsel and solicitor advocate in Covington’s London Life sciences and Environment regulatory team. Ms. Oryszczuk’s UK and EU law practice is diverse, spanning energy, environment, life sciences, consumer products, and technology sectors. She supports a variety of internal and in-house teams including corporate, real estate, projects, construction, planning, health and safety, IP, insurance, and banking. She is experienced in contentious matters, assisting clients before criminal, civil, administrative and specialist tribunals, and non-contentious (regulatory, transactional/M&A) matters. She has advised in relation to some of the UK’s most high profile recent environment cases up to Court of Appeal level, as well as large group actions, and has brought cases before the European Court in life sciences matters. Prior to joining the firm, Ms. Oryszczuk spent 5 years in the UK’s leading specialist energy, environment, and regulatory team.

Ms. Oryszczuk has broad experience in traditional environment areas such as contaminated land and allocation of environment liabilities in transactions, permitting, waste, climate change, species-specific requirements, emissions, and contentious work including prosecutions relating to large scale pollution incidents, environmental damage, and general regulatory and subject specific ad-hoc advice. Ms. Oryszczuk also provides advice on specialist scientific and technical regulatory aspects spanning a variety of sectors. She has built up particular expertise in chemicals law and hazardous/regulated substances (e.g. REACH, CLP, RoHS, biocides, nuclear/radiological), novel technologies and agri-tech (e.g. advanced genetic engineering, GMOs, nano), and corporate/accounting and regulatory energy and environment reporting and efficiency (e.g. EU ETS, CRC, mandatory energy audits (ESOS) and non-financial reporting).

Ms. Oryszczuk advises day-to-day on transactional matters and liability (including director/officer and parent company), land contamination and hazardous substances, and in multinational competitive bids. She has a broad experience including in relation to manufacturing and waste facilities, energy storage projects, wind farms, grid projects, redevelopments and remediation projects, landfills, mines and minerals operations, and nuclear and radioactive materials facilities. She has acted for a variety of parties including buyers/sellers, tenants/landlords, bidders, lenders, insurers, developers, authorities/regulators, trustees, insolvency practitioners, and private equity/funders. Ms. Oryszczuk provides specialist corporate due diligence (including vendor due diligence). She often acts as specialist outside counsel and has drafted bespoke instruments including transfer of liability deeds, contractor T&Cs, site remediation/investigation/access agreements, as well as environment indemnities and warranties. Ms. Oryszczuk often coordinates multinational projects and advice and regularly liaises and negotiates with regulators on behalf of her clients. On corporate work in particular, Ms. Oryszczuk assists very large multinationals (including global asset funds) with complex organisational structures through national and international compliance scenarios, including on corporate reporting and carbon .trading.

On contentious work, Ms. Oryszczuk has taken leading roles in some of the UK’s largest and most high profile environment cases, often building on her science background in respect of issues concerning hazardous substances. She regularly defends in relation to large domestic civil group actions relating to environment issues. More recently she has acted in contentious life sciences cases relating to medicinal products including before the European Court and national regulators, e.g. the UK’s NICE.

Photo of Hannah Edmonds-Camara Hannah Edmonds-Camara

Hannah Edmonds-Camara

Hannah Edmonds-Camara advises on a range of both international and domestic employment and human rights issues including drafting and implementation of policies and compliance programmes, international employment and human rights aspects of global transactions and contentious employment matters.

She has particular…

Hannah Edmonds-Camara

Hannah Edmonds-Camara advises on a range of both international and domestic employment and human rights issues including drafting and implementation of policies and compliance programmes, international employment and human rights aspects of global transactions and contentious employment matters.

She has particular expertise in helping businesses manoeuvre through the growing global regulatory landscape surrounding the corporate responsibility to respect human rights, through training on international human rights law and best practice, policy design and implementation, management of supplier relationships and due diligence.

Ms. Edmonds-Camara gained valuable experience while on secondment to a large pharmaceutical client. She is a member of the firm’s Diversity Committee, Public Service (pro bono) Committee, and Africa Initiative.

Photo of Atli Stannard Atli Stannard

Atli Stannard has broad experience related to genomics, distributed ledger technology (blockchain), tax, and trade policy issues.

Mr. Stannard has particular experience in EU trade policy and regularly advises on EU market access and customs classification issues. He has assisted a number of…

Atli Stannard has broad experience related to genomics, distributed ledger technology (blockchain), tax, and trade policy issues.

Mr. Stannard has particular experience in EU trade policy and regularly advises on EU market access and customs classification issues. He has assisted a number of clients affected by EU trade policy developments relating to the imposition of U.S. tariffs, and the potential disruption of Europe-wide supply chains due to Brexit.

Mr. Stannard also advises clients on developments in EU policy and regulatory action relevant to genomics (the in vitro diagnostic medical devices regulation, data protection and data transfer, provision through national health systems), and technology clients on EU and international regulatory initiatives on Blockchain. His practice also encompasses EU tax policymaking, and he has advised clients on the EU Digital Services Tax proposals.

Photo of Paul Mertenskötter Paul Mertenskötter

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new…

Paul Mertenskötter is an associate in the firm’s Brussels office and a member of the Public Policy and International Trade practice groups. He advises multinational companies, governments, and other clients on a range of matters related to public policy, international trade, and new technologies. Mr. Mertenskötter’s practice encompasses advising clients on the European Commission’s Digital Single Market strategy, including on the Payment Services Directive (PSD 2).

Prior to joining the firm, Mr. Mertenskötter clerked at the International Court of Justice in The Hague, and was a Fellow at the Institute for International Law and Justice at NYU Law School. His work has been published with Oxford University Press and the Cornell Law Review.

Summreen Mahween

Summreen Mahween is a Trainee Solicitor who attended Queen Mary, University of London.