On 30 December 2025, the European Regulation on Deforestation-free Products (EUDR) will become applicable. The new rules aim to guarantee that the products consumed in Europe do not contribute to deforestation or forest degradation worldwide. They will have a significant impact on business and transform entire industries.
What is the EUDR and why is it important for Swiss businesses?
The EUDR aims to prevent deforestation-linked products from entering the EU market. By reducing the EU’s impact on deforestation and forest degradation, the regulation aims to bring down greenhouse gas emissions (GHG) and biodiversity loss.
The regulation requires companies trading in select commodities, known as the main drivers of deforestation, and the derived products from those commodities to conduct due diligence on their value chain. By encouraging organizations to source responsibly, these new rules play a critical role in enhancing traceability in global supply chains.
While the primary responsibility lies with the company placing the products on the EU market, the regulation affects the upstream value chain with non-EU companies expected to provide information to their customers. Therefore, Swiss groups trading and exporting the in-scope commodities to the EU can be directly or indirectly impacted by the regulation.
When will the EUDR come into force?
In December 2024, the European Union granted an additional 12-month phasing-in period to comply with the regulation, giving companies more time to prepare.
The regulation is now applicable on 30 December 2025 for large and medium operators and traders, while micro and small enterprises will have until 30 June 2026 to comply.
While the Information System for companies to submit their due diligence statements is ready and classification of countries that present a low or high risk shall be published no later than 30 June 2025, companies still have until the end of the year to comply. Despite the EUDR’s delay, companies are encouraged to start now by considering the impacts of the EUDR on their products and supply chain due diligence.
Who needs to comply? Impact on Swiss businesses and financial institutions
Swiss groups trading and exporting the in-scope commodities to the EU may be directly or indirectly affected by the regulation and will need to consider a centrally managed approach for companies within the group. Swiss businesses trading and exporting the in-scope commodities to the EU will be required to provide information on the commodities they export to the EU market. This means that they will need to ensure that the commodities they source are not linked to deforestation and may need to demonstrate compliance with the regulation to investors.
Swiss financial institutions are not currently subject to the EUDR regulation, although this could change as the European Commission has committed to conduct an impact assessment to evaluate the role of financial institutions in preventing financial flows that contribute directly or indirectly to deforestation and forest degradation by no later than 30 June 2025.
Regardless of the outcome of the impact assessment, financial institutions are indirectly exposed to the regulation through their investments in companies that trade and export the in-scope commodities to the EU. As deforestation poses substantial risks to many companies, they pose risks to the instruments in which financial institutions invest.
What does EUDR compliance require?
Companies that place the in-scope commodities on the EU market or export them from the EU must ensure that they:
- are not produced on deforested or degraded land since 31 December 2020,
- have been produced in accordance with the laws of the country of production, and
- are covered by a due diligence statement
Challenges and risks: Why EUDR compliance is complex
EUDR compliance is complex because it involves a variety of information and expertise from multiple sources. There are many internal and external challenges that companies face and need to resolve to ensure compliance with the regulation. Internal challenges range from getting relevant functions (e.g., Legal, Purchasing, IT, etc.) onboard to setting up the right governance structure and implementing the right technology, while external challenges lie in supplier engagement and data collection.
Starting with the internal challenges, one key challenge may be to determine who is responsible for implementing the required measures to comply with the regulation as there are different functions involved in that process. Another internal challenge is internal traceability as the identification of products in scope can be complex and requires internal traceability from the purchase of raw materials to the selling and shipping of products.
Other key challenges relate to the traceability of commodities in complex global supply chains and the potential use of technology to achieve traceability and demonstrate compliance with the EUDR requirements. Companies that don’t have technological solutions in place may need to consider identifying the right technology before deploying it with their partners along the value chain.
Disruption of supply chains is another key challenge companies may face where suppliers struggle to comply with the EUDR requirements and demand for eligible raw materials outpaces availability. Companies will need to closely engage with their suppliers through awareness raising, collaboration and data collection. Moreover, in a context of geopolitical tensions, resource scarcity and limited supply, they may need to redefine their sourcing strategy on select commodities and potentially look for new suppliers.
The implementation of due diligence (e.g., applicability assessment, selection and audit of suppliers, evidence of compliance with the laws of the country of production) combined with the sourcing of sustainable raw materials could lead to increased costs.
Consequences of non-compliance
Consequences of non-compliance should not be underestimated. Beyond the reputational damage companies may suffer, penalties for non-compliance with the EUDR include fines of at least 4% of the entity’s total annual EU turnover, confiscation of products and revenue, prohibition from commercial activities within the EU; and exclusion from public tenders.
Turning compliance into opportunity
Compliance with the EUDR can be challenging, but it is also an opportunity to refine your ESG strategy, review your internal policies and processes as well as enhance traceability in your supply chains. Starting with an impact assessment and a gap analysis, companies first need to assess their compliance readiness to the regulation.
Once they are clear on the regulation’s impact on their products and supply chains and are aware of the gaps they need to close to meet the requirements of the regulation, they can design or strengthen their due diligence framework and engage with their suppliers. Leveraging this work, companies can respond to and anticipate other relevant EU regulations (e.g. Corporate Sustainability Reporting Directive, Corporate Sustainability Due Diligence Directive, etc.).
Conclusion and next steps
Companies are given extra time to comply with the regulation, but they need to start now because implementation of the regulation can be timely and challenging. Companies need to adopt a structured approach to ensure they meet every aspect of the regulation. KPMG’s multidisciplinary expertise and global presence can help companies navigate the complexities of the EUDR’s journey by assisting companies in performing readiness assessments and supporting them with the implementation of due diligence from supplier engagement to deployment of technology and submission of due diligence statements.
We can help you turn compliance into opportunity by establishing a transformation roadmap that will help you prepare for other relevant upcoming EU regulations.
Navigating EUDR compliance with confidence
The EU deforestation regulation (EUDR) poses new challenges for companies trading with the EU. KPMG Switzerland provides a structured approach to help companies assess their readiness, navigate compliance and implement effective solutions.
Our experts assist with readiness assessments, awareness workshops and the evaluation of technology solutions to ensure sustainable and transparent supply chains.
