The UK is to press firms to conduct supply chain due diligence for deforestation. Can reform deliver?
The UK government has announced that it will introduce a “world leading” new law that is aimed at protecting rainforests and clamping down on illegal deforestation. The proposed law would introduce mandatory supply chain due diligence obligations in relation to “forest risk” commodities. Whilst civil society has welcomed this announcement, there is a risk that the UK's piecemeal approach to supply chain due diligence will create a patchwork of rules that impose a greater burden on businesses and which will ultimately be less effective than the comprehensive approach being pursued in the EU.
The UK Government’s announcement follows the recommendations set out in a March 2020 report prepared by the Global Resource Initiative taskforce, a group comprising business representatives and environmental groups which has been tasked to find ways to reduce the climate and environment impacts of key UK supply chains. The taskforce's report highlighted the important role of businesses, via their supply chains, and the finance sector, through lending and investments, in combatting deforestation. Whilst very few details have been published so far on the potential new law, the UK Government has suggested that it should include mandatory due diligence and reporting obligations and potential fines and civil sanctions.
The UK Government is currently consulting on the potential law, including by way of an online survey. The survey questions are also set out at the end of the consultation paper for those who wish to respond by post or email. The consultation closes on 5 October 2020.
Since the adoption by the UN in 2011 of the Guiding Principles on Business and Human Rights, there has been an increasing trend towards the introduction of human rights reporting requirements, and more recently, environmental and human rights due diligence laws. In circumstances where the EU, Germany, Switzerland, the US and many other jurisdictions are considering, or are in the process of implementing, mandatory human rights and environmental due diligence laws (and where France already has done so), it is not surprising that the UK would look to introduce new legislation of this type.
However, in circumstances where the UK Government will need to consider how to respond to the proposed EU human rights due diligence legislation, civil society has questioned why the UK is not going further. As presently proposed, the deforestation due diligence law will require just “a relatively small number of larger businesses to make sure that the ‘forest risk’ commodities they use – commodities that can cause wide-scale deforestation – have been produced legally”. For these purposes, "forest risk” commodities will include “seven commodities whose rapid expansion is associated with deforestation, often in contravention of local laws: beef and leather, cocoa, palm oil, pulp and paper, timber, rubber and soya”.
It seems that the proposed new law is intended to replace the EU Timber Regulation, which will cease to apply after the UK’s post-Brexit transition period on 31 December 2020. In this regard, the proposed law seeks to be broader that the EU Timber Regulation, in that it is proposed that it will apply to more than just timber. However, the number of the companies potentially in scope of this new law and the human rights and environmental issues covered by it indicate that it is highly unlikely to extend as far as the proposed EU human rights due diligence law. In contrast to the proposed new EU law, the proposed UK law will effectively only seek to tackle part of the “E” of ESG and will not mandate companies to conduct broader due diligence into human rights or other “social” risks in their supply chains.
This decision by the UK Government to propose specific issue-based legislation (in this case, deforestation) could lead to new legislation on the statute book to sit alongside another piece of specific issue-based legislation (in the form of the UK Modern Slavery Act). In contrast to the proposed EU human rights due diligence law, the UK’s approach would be much more piecemeal. This kind of approach to legislation and regulation can lead to a patchwork of rules that impose a greater burden on businesses and that risks being less effective than a more comprehensive approach contained within a single piece of legislation.
In addition, the new law would only seek to make it illegal for businesses to use “forest risk” commodities that have been produced in contravention with relevant laws in the country where they were grown. In other words, the new law will likely not require businesses to comply with international standards. In circumstances where local law might be inadequate to protect the environment or human rights, this new law would risk failing to raise standards or achieving the aim of preventing deforestation.