Request Free Trial
December 6, 2022

EU’s deforestation law considers due diligence obligations for banks

After months of negotiations, EU institutions have agreed a position on rules to reduce deforestation and will decide in two years whether new measures are needed to force banks to carry out due diligence to ensure investments are not causing the destruction of forests.

The European Parliament and Council came to an agreement early on Tuesday morning on an anti-deforestation law, committing to a review within two years after the rules enter into force that will assess whether existing EU legislation is sufficient to tackle the role of financial institutions in global deforestation or whether new rules are needed to force the sector to conduct due diligence checks on their activities to verify they are not linked to deforestation. 

The law includes a list of products linked to deforestation and forest degradation, including coffee, timber, palm oil, cattle, soy and cocoa and their derived products. Producers will have to prove these commodities are not to be linked to the destruction of forests to be sold in the EU. Negotiators agreed to add rubber, charcoal and printed products like books to the original list proposed by the Commission.

Other wooded land such as the Brazilian Cerrado, which is not fully considered as forest, yet has been linked to soy-related deforestation, will be included within one year after the entry into force of the law.  

Signed off a day before the COP15 biodiversity conference opens in Montreal, Canada, Giulia Bondi, senior EU forests campaigner at Global Witness, a non-for-profit organisation, said the decision “could be a historic moment in the fight against deforestation, as for the first time a major economy has put itself on a path towards making sure it stops financing the destruction of the world’s forests”. She urged governments around the world to use the EU legislation as “a blueprint for a wave of new laws to help save our remaining forests”.

“As a major trading bloc, the EU will not only change the rules of the game for consumption within its borders, but will also create a big incentive for other countries fuelling deforestation to change their policies,” said Anke Schulmeister-Oldenhove from WWF’s European policy office in a press statement.

A report by WWF from 2021 found the EU was the world’s second largest importer of tropical deforestation and associated emissions, behind China. 

A spokesperson for sustainability-focused lender Triodos Bank said: “We are disappointed the financial sector is not included at this time, but consider it an important step the EU will reassess this at a later date.”

The final text of the regulation will be rubber-stamped by the European Parliament and Council in 2023 and EU member states must start applying it within the following 18 months. In September, the parliament had voted in favour of obliging EU-based banks to conduct due diligence to prevent investment projects linked to deforestation and toughened up the commission’s initial proposal in this area.

Amended on December 6 after publication to correct an error — financial institutions’ due diligence requirements will be considered after a review, not immediately imposed by the anti-deforestation law — and to add a comment from Triodos Bank.

Photo credit: Getty Images

A service from the Financial Times