An introduction to forest biodiversity, key EU regulations and due diligence obligations, and how companies can meaningfully reduce deforestation throughout their operations and supply chains.
This edition of “The Just Transition Newsletter” by Palsa & Pulk was written by Christine Nikander and Heidrun Kordholste-Nikander.
What biodiversity is there in forests?
Healthy forests are hubs for biodiversity. They are considered to be “one of the most biologically rich terrestrial systems”. The biodiversity found in forests includes a “multitude of plants, animals and microorganisms that inhabit [the] forest areas”, as well as “their associated genetic diversity”. Over two-thirds of the terrestrial species on Earth are found in “tropical, temperate and boreal forests”.[i] More specifically, it is estimated that our global forests contain 60 000 different tree species and are home to 80% of the amphibian species, 75% of the bird species, and 68% of the mammal species on Earth.[ii]
While there is a lot of diversity in untouched virgin forests, the situation is completely different in commercial forests. Forests used for commercial purposes are managed by humans to produce wood for fuel, paper, packaging material, furniture, and building materials. Such forests often consist of very few different tree species. This may sometimes be just one species over a large area, and sometimes the species planted are not native to the area. Often times, all the trees are planted and harvested at the same time. These commercial forests can absorb less climate-damaging CO2 than untouched virgin forests. In addition, these monocultures are vulnerable to calamities.[iii]
Impact of deforestation on biodiversity and the climate
Deforestation occurs for a number of reasons. It can result from “[t]he conversion of forests to agricultural land, overgrazing, unmitigated shifting cultivation, unsustainable forest management, introduction of invasive alien plant and animal species, infrastructure development, mining and oil exploitation, human-induced forest fires, pollution and climate change”. All of these large-scale changes take a considerable “toll on forest biodiversity”.[iv] That said, even smaller changes to forests can have a huge effect on biodiversity.[v]
Many crucial species of fungi might be lost within the next decades as a result of forest habitat loss.[vi] Notably, as old growth forests disappear, so does the mycelium in these habitats. The mycelia in the underground of forests build a network comparable to the internet to exchange nutrients, water, and information. Through a symbiotic process called mycorrhiza, the mycelia absorb sugar from trees’ roots as a part of an exchange of minerals with the trees. Without the mycorrhiza network, trees would not be able to store carbon, to create oxygen, or to inform each other about danger – like predators or pathogenic microbes.[vii]
Notably, more diverse forests – with “more different species with individual genetic codes” living in them – are better at coping with environmental and climate change. In line with this, “[n]atural forests are one of the most important and stable stores of carbon” and deforestation is “estimated to contribute as much as 20% to global annual greenhouse gas emissions”.[viii]
It is also worth noting that forests provide a multitude of other ecosystem services. Over three-quarters of “accessible fresh water [globally] comes from forested catchments”. Forests are the source for many traditional medicines, which large populations in developing countries rely on.[ix] Forests also provide firewood, wild food, and resources for peoples’ livelihoods for over 90% of those living in extreme poverty. Overall, forests are estimated to “provide more than 86 million green jobs”.[x]
Biodiversity protection & reforestation under EU laws
Over the past 8000 years, around 45% of the original forest cover has disappeared globally. Notably, most of this original forest cover has been cleared and lost in this past century alone.[xi] Currently, China and the US are responsible for 30% of the global deforestation annually and the European Union for around 14%.[xii]
According to the not-for-profit initiative Trase (founded by the Stockholm Environment Institute and Global Canopy), the direct imports of the EU effectively exposed it to a yearly average of 190 500 hectares of deforestation, in the time frame from 2019 to 2021. For reference, the area deforested yearly is ten times greater than the size of Brussels. The EU’s deforestation occurred mostly (61% altogether) in Côte d’Ivoire (19.9%), Brazil (16.0%), Indonesia (11.6%), Ghana (8.7%) and Malaysia (4.7%). The EU commodities that caused the most deforestation (84% altogether) “were cocoa (33.7%), oil palm products (19.3%), coffee (13.0%), soy (9.2%), and cattle products (8.9%)”.[xiii]
As it is not possible to “protect the Earth’s biodiversity without protecting our forest”, action to halt deforestation needs to be taken urgently.[xiv] Over the course of the past few years, the EU has therefore enacted several new laws that aim to help prevent or reverse global deforestation and habitat loss trends. The most significant amongst these include the EU’s Nature Restoration Law, the Regulation on Deforestation-free Products (EUDR), and the Corporate Sustainability Due Diligence Directive (CSDDD). While the Nature Restoration Law sets binding targets on EU member states to restore ecosystems, the EUDR and CSDDD require companies to carry out due diligence and risk assessments.
Conducting due diligence & improving company policies
The EUDR aims to make sure that “the products EU citizens consume do not contribute to deforestation or forest degradation worldwide”.[xv] Under its mandatory due diligence requirements, companies must collect and provide detailed information on their raw materials, the origin countries and suppliers, as well as the relevant quantities. They must collect specific data and information on the geolocation of where their materials are cultivated or sourced – and where their products are manufactured. To be able to place materials or products on the EU market, companies need evidence of the “deforestation-free” status of these. Additionally, they must be able to show that they are in compliance with relevant national or local laws.[xvi]
To comply with the EUDR, companies have to develop strategies, controls, and procedures to adequately mitigate risks and adapt to new developments. Depending on the outcomes of the due diligence, taking both risk assessment and risk mitigation measures may be necessary. Overall, companies are expected to review and update their compliance policies annually. Notably, large companies must publicly disclose the measures they have implemented, along with their risk assessments.[xvii]
The EUDR also places several other reporting requirements on companies. Amongst others, large companies have to disclose all necessary information to show that they have carried out the required due diligence and to demonstrate that there was “no more than a negligible risk” found. Companies must provide due diligence declarations to their competent national authority and the reference numbers of these statements to others in their downward supply chains. To improve transparency, authorities, traders, and partially the general public will be able to access these statements. All relevant records must be kept for five years.[xviii]
Why is due diligence alone not enough?
Despite the enactment of the EUDR and the CSDDD, there is a real risk that the EU could “merely becom[e] a niche market, while tropical forest loss for the most part [c]ould continue unabated”.[xix] In line with this, Trase warns that companies “should not treat traceability as a silver bullet”, but that they “must think bigger to tackle deforestation”.[xx] This also means that “additional measures are needed” to make sure that the due diligence obligations under the EUDR or the CSDDD “translat[e] into actual reductions in deforestation on the ground”.[xxi]
A key issue, according to Trase, is that “while commodities linked to deforestation may be removed from the EU’s supply chain”, they may still be “sent to countries without these environmental regulations or consumed domestically”. If this is the case, there is “little benefit” to conducting the due diligence and more broadly, to having the EUDR or the CSDDD in place. As a real-life example, it is already known that “Brazil’s exporters […] sell soy to Denmark and Norway that is four-times less exposed to deforestation than soy sent to China or used domestically”.[xxii]
It is, however, possible for companies to help to tackle these issues by going beyond mere due diligence and building “meaningful partnerships with producer[s]”.[xxiii] While companies “cannot just rely on traceability as a solution”, they can “act at multiple levels, not just on farms but across whole landscapes” through “multi-stakeholder efforts” to have a meaningful impact.[xxiv]
Using different tools and “policy instruments such as agricultural cooperation, development aid and incentives for the promotion of sustainable value chains – including those around the bioeconomy or novel products that spur local economic development while keeping forests standing” is one potential avenue that companies can take. On a more practical level, companies could also “engage more strategically to support activities such as sustainable land uses by smallholders, SMEs and indigenous peoples that can hedge against deforestation, but which often fail due to lack of economic or technical support”.[xxv]
In this context, it is key to note that forests globally have become incredibly fragmented. Of the global forest area, 20% are “located in more than 34 million patches across the world”. The vast majority of these patches have a size that is smaller than 1000 hectares. The fragmentation of forests sadly also means that the forests’ genetic diversity is split up and cannot interact. In line with this, cooperation across sectors and countries is “needed to restore degraded and damaged forest ecosystems”.[xxvi]
Circular and regenerative forestry practices
There are a number of ways that companies can contribute to protecting forests and biodiversity throughout their operations. Both circular and regenerative measures can play a significant role here. Not planting monocultures, leaving stripes of older forest standing when harvesting trees, reforesting lands with native species, and creating permacultures are all more obvious examples of more sustainable – or even regenerative – forestry practices.
Examples of circular solutions directly applicable to forestry, wood, and paper companies include using better wood harvesting technologies to reduce the waste produced in the wood harvesting process, recycling or upcycling wood and paper waste products, or simply making sure less products and materials from forests or deforested areas are used. More broadly, businesses across all different sectors can take a variety of circular actions to halt and reverse biodiversity loss. The Finnish Innovation Fund Sitra recently outlined six broader circular business models, with examples from practice, in a handbook they published in April 2024.[xxvii] This acts as a good source of inspiration for circular ideas and steps to start taking as a company.
The EUDR, CSDDD, and the EU’s Nature Restoration Law should not be seen as a codification of the highest ambitions for companies. Companies willing to take on responsibility for protecting forests and their biodiversity should, therefore, not only carry out due diligence and risk assessments. They should also set up better company policies, collaborate with producers and other stakeholders, and shift over to using near to fully circular and regenerative business models. Moreover, companies looking to have a meaningful impact should also move away from using monocultures and clearcutting, create permacultures with native species, use single-tree selection methods where applicable, and help to defragment global forest areas.
The next newsletter will explore how companies can help protect Indigenous People’s rights by caring for forests. If you want to be notified when it comes out, please subscribe to our mailing list.
About the authors
Christine Nikander is the founder of the environmental and social sustainability consultancy, Palsa & Pulk. She regularly helps companies navigate the complex regulatory and compliance obligations around their global supply chains. Christine studied law at the universities of Columbia (New York), Edinburgh (Scotland), and Leiden (the Netherlands). She has been writing The E-Waste Column weekly since 2022.
Heidrun Kordholste-Nikander is a freelance biodiversity & forestry consultant at Palsa & Pulk. Her core competences lay in implementing sustainability into forestry and agricultural practices. Heidrun also advises clients on how to protect biodiversity. She studied forest management and environmental protection technology in Munich (Germany) and North American studies in Helsinki (Finland). Through her consultancy work, she hopes to help companies make science-based sustainability decisions that are practical, pragmatic, and effective.
About Palsa & Pulk
Palsa & Pulk is an environmental and social sustainability consultancy. It provides compliance, governance, policy, and strategic advice to its clients. The consultancy’s work is mostly focused on supply chain governance, the just transition, circular economy, and human rights.
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[i] Convention on Biological Diversity: Forest Biodiversity. https://www.cbd.int/doc/meetings/cop/cop-09/media/cop9-press-kit-forest-en.pdf (21.08.2024)
[ii] UN Environment Programme: Earth’s biodiversity depends on the world’s forests. https://www.unep-wcmc.org/en/news/earths-biodiversity-depends-on-the-worlds-forests (21.08.2024)
[iii] Greenpeace: Urwald vs. Nutzwald. https://greenpeace.at/hintergrund/unterschied-urwald-nutzwald/ (24.04.2024)
[iv] Convention on Biological Diversity: Forest Biodiversity. https://www.cbd.int/doc/meetings/cop/cop-09/media/cop9-press-kit-forest-en.pdf (21.08.2024)
[v] Greenpeace: Urwald vs. Nutzwald. https://greenpeace.at/hintergrund/unterschied-urwald-nutzwald/ (24.04.2024)
[vi] Fungi Foundation, Decomposition. https://www.ffungi.org/why-fungi/decomposition (26.04.2024)
[vii] Fungi Foundation, Biodiversity. https://www.ffungi.org/why-fungi/biodiversity (26.04.2024)
[viii] Convention on Biological Diversity: Forest Biodiversity. https://www.cbd.int/doc/meetings/cop/cop-09/media/cop9-press-kit-forest-en.pdf (21.08.2024)
[ix] Convention on Biological Diversity: Forest Biodiversity. https://www.cbd.int/doc/meetings/cop/cop-09/media/cop9-press-kit-forest-en.pdf (21.08.2024)
[x] UN Environment Programme: Earth’s biodiversity depends on the world’s forests. https://www.unep-wcmc.org/en/news/earths-biodiversity-depends-on-the-worlds-forests (21.08.2024)
[xi] Convention on Biological Diversity: Forest Biodiversity, What’s the Problem? https://www.cbd.int/forest/problem.shtml (21.08.2024)
[xii] Maxwwell, Radwin: Mongabay News & inspiration from nature’s frontline; Mining may contribute to deforestation more than previously thought, report says. https://news.mongabay.com/2023/04/mining-may-contribute-to-deforestation-more-than-previously-thought-report-says/ (20.04.2024)
[xiii] Trase: EU27 countries in the spotlight for deforestation exposure. https://trase.earth/insights/eu27-countries-in-the-spotlight-for-deforestation-exposure (21.08.2024)
[xiv] UN Environment Programme: Earth’s biodiversity depends on the world’s forests. https://www.unep-wcmc.org/en/news/earths-biodiversity-depends-on-the-worlds-forests (21.08.2024)
[xv] European Commission: Regulation on Deforestation-free products. https://environment.ec.europa.eu/topics/forests/deforestation/regulation-deforestation-free-products_en (21.08.2024)
[xvi] Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023R1115 (21.08.2024)
[xvii] Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023R1115 (21.08.2024)
[xviii] Regulation (EU) 2023/1115 of the European Parliament and of the Council of 31 May 2023. https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32023R1115 (21.08.2024)
[xix] Trase: How to ensure due diligence policies actually tackle deforestation. https://trase.earth/insights/how-to-ensure-due-diligence-policies-actually-tackle-deforestation (21.08.2024)
[xx] Trase: Traceability is not a silver bullet for reducing deforestation. https://trase.earth/insights/traceability-is-not-a-silver-bullet-for-reducing-deforestation (21.08.2024)
[xxi] Trase: How to ensure due diligence policies actually tackle deforestation. https://trase.earth/insights/how-to-ensure-due-diligence-policies-actually-tackle-deforestation (21.08.2024)
[xxii] Trase: How to ensure due diligence policies actually tackle deforestation. https://trase.earth/insights/how-to-ensure-due-diligence-policies-actually-tackle-deforestation (21.08.2024)
[xxiii] Trase: How to ensure due diligence policies actually tackle deforestation. https://trase.earth/insights/how-to-ensure-due-diligence-policies-actually-tackle-deforestation (21.08.2024)
[xxiv] Trase: Traceability is not a silver bullet for reducing deforestation. https://trase.earth/insights/traceability-is-not-a-silver-bullet-for-reducing-deforestation (21.08.2024)
[xxv] Trase: How to ensure due diligence policies actually tackle deforestation. https://trase.earth/insights/how-to-ensure-due-diligence-policies-actually-tackle-deforestation (21.08.2024)
[xxvi] UN Environment Programme: Earth’s biodiversity depends on the world’s forests. https://www.unep-wcmc.org/en/news/earths-biodiversity-depends-on-the-worlds-forests (21.08.2024)
[xxvii] Sitra: Circular Solutions For Nature: Handbook for businesses. https://circulareconomy.europa.eu/platform/sites/default/files/2024-05/sitra-circular-solutions-for-nature-handbook-for-businesses.pdf (21.08.2024)
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