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EU lawmakers target trade finance lenders in proposed deforestation reforms

Banks that finance the production, import or export of commodities could be dragged into incoming EU due diligence reforms, after a European Parliament committee voted to broaden the scope of the proposed law. 

In draft legislation unveiled in November, the European Commission proposed mandatory due diligence rules for producers and non-SME traders of commodities deemed high-risk for deforestation, including soy, beef, palm, oil, wood, cocoa and coffee. 

Following pressure from campaign groups, the European Parliament’s Committee on the Environment, Public Health and Food Safety this week voted to expand the reforms to the banking sector – as well as to other commodity types such as rubber. 

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“We are serious about fighting climate change and biodiversity loss,” says Christophe Hansen, Member of the European Parliament (MEP), who is leading the committee’s response to the Commission’s proposals. 

“Acknowledging that the EU is responsible for around 10% of global deforestation, we don’t have a choice but to ramp up our efforts to halt global deforestation. If we get the balance right between ambition, applicability and World Trade Organization compatibility, this new tool has the potential to pave the way to deforestation-free supply chains.” 

The initial proposal already required larger commodity traders – defined as those with a net turnover of over €40mn, a balance sheet of over €20mn and at least 250 employees – to carry out due diligence on goods being sold. 

This would include establishing geographic co-ordinates of relevant plots of land, then assessing the risk of any potential exposure to deforestation in those areas. Non-compliance would be punishable with fines of up to 4% of a company’s annual turnover. 

However, the revised text agreed in Brussels this week also aims to prohibit banks from supporting the production, supply, import or export of listed commodities unless there is “no more than a negligible risk” of exposure to deforestation or forest degradation. 

Non-government organisation Global Witness, which has campaigned for an expansion of the reforms to cover banks and other critical commodities, welcomed the parliament committee’s proposals. 

“If the package that was agreed today ends up being included in the final law, the world’s remaining forests and the indigenous communities who protect them would be in a much safer place,” says Giulia Bondi, senior EU forests campaigner. 

Bondi previously said the European Commission was “not ambitious enough” in its initial draft text. 

The parliament committee has also proposed adding several commodities to the high-risk list, including pig meat, sheep and goats, poultry, maize and rubber, as well as charcoal and printed paper products. 

Rubber has proven a flashpoint in the deforestation debate. In a report published in late June, Global Witness accused European lenders of “propping up” deforestation by financing rubber producers in West and Central Africa 

Rubber supply chains are suspected of destroying swathes of rainforest in Cameroon, Côte d’Ivoire, Gabon, Ghana, Liberia and Nigeria, it said, following the examination of satellite data collected since 2000. Around a third of rubber produced on African plantations is exported to the EU. 

The parliament committee also suggests the reforms could later be expanded to sugar cane, ethanol and mining products, following a feasibility review. 

The proposals have been met with concern within the European grain, oil seed and feed sectors, however. In a joint statement, three trade bodies – Coceral, Fediol and Fefac – said that the requirement that producers provide geolocation co-ordinates for plots of land would prove challenging and unnecessary. 

Production area traceability, satellite monitoring and on-ground inspections would be “sufficient to prove negligible risk of deforestation… especially when audited annually”, the statement says. 

“It is apparent that those challenges have been underestimated, given the short timeframe for implementation relative to the number of years required to make progress in this area.” 

The adopted text is expected to face a full European Parliament vote in September this year. Once agreed, negotiations will begin with the European Commission and Council, with a view to finalising the reforms. 

“It’s now up to the rest of the European Parliament to back this proposal to protect forests and indigenous communities, end EU banks’ complicity in deforestation and make sure imports of rubber and leather are deforestation-free,” says Global Witness’ Bondi. 

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