The European Union has become the first trading bloc to agree on what is being termed a “historic” law to prevent companies from selling several commodities linked to deforestation and forest degradation.

The law will force firms supplying palm oil, cattle, soy, coffee, cocoa, timber and rubber – as well as some derived products such as beef or furniture – to the European market to prove their supply chains are not fuelling the destruction of forests.

Businesses that do not comply could face fines under the new rules, which were agreed by negotiators from European nations and the European Parliament on December 6.

The European Union is the world’s second largest importer of agricultural goods after China, so reducing the bloc’s deforestation footprint from imports could have massive significance for global efforts to protect forests, according to green groups.

Worldwide, tropical forest losses amounted to 3.75 million hectares (9.3 million acres) last year, a rate equal to 10 football pitches a minute, according to monitoring service Global Forest Watch.

Cutting down forests has major implications for global goals to curb climate change, as trees absorb about a third of the planet-warming carbon emissions produced worldwide.

The top five countries for loss of old-growth forests in 2021 were Brazil, the Democratic Republic of Congo, Bolivia and Indonesia, according to the Global Forest Watch, with agriculture expansion blamed for the high rates by many environmentalists.

Danny Marks, assistant professor of environmental politics and policy at Dublin City University, said the new law was “a huge step forward in curbing global deforestation and biodiversity losses”.

“It is a historic achievement because it is the first law to address the global drivers of deforestation,” he said.

Here’s what is known about the new EU law:

How and why did the law come about?

Large-scale production of agricultural commodities at the expense of tropical forests and peatlands is seen by most forestry experts as the main driver of tropical deforestation.

Many such commodities – and the goods they are turned into – are traded internationally, including into the European Union.

Following pressure from activists and consumers, the European Commission ran a public consultation in 2020 about how it should address the European Union’s contribution to global deforestation and forest degradation.

More than one million people responded, which was the highest number of responses for an European Union consultation on an environmental topic, and the second-highest on any issue, according to Kiki Taufik, head of Greenpeace Southeast Asia’s Indonesian forests campaign.

Efforts to pass the zero-deforestation regulation have since been supported by a wide range of civil society organisations, as well as also having the backing of a large number of multinational companies.

What might the law mean for corporate due diligence?

Under the new law, key commodities and derived products will not be permitted for sale in European markets if they have come from land that was deforested or degraded after December 2020.

Businesses will also have to demonstrate that the rights of indigenous people were respected in their operations.

“Companies will have to undertake due diligence to trace their supply chains back to the farm level, and government authorities will undertake checks,” said Julian Oram, senior director at campaign group Mighty Earth.

Firms that do not comply with the law risk fines of up to 4% of a company’s turnover in an European Union member state.

Charles Barber, a senior biodiversity advisor at the World Resources Institute, said the regulations would send a “shock” through corporate supply chains.

Trucks with palm oil fresh fruit bunches queue for unloading at a factory in West Aceh, Indonesia, May 17, 2022, in this photo taken by Antara Foto.. Antara Foto/Syifa Yulinnas/ via REUTERS

Importers, wholesalers and retailers will perceive a new legal and reputational risk from the threat of being detected and possibly prosecuted under the new law, he said.

They might then be more likely to inform their commodity suppliers about their concerns and demand more assurances about the products being deforestation-free, Barber added.

“Eventually the message gets down to producers on the ground and, in theory, this reduces deforestation pressures,” he said.

Who is for or against the law?

Nations that rely on exporting the listed commodities – including Brazil, Colombia and Indonesia – have been critical, saying that the rules will be burdensome and costly, and a restraint on free trade.

But many countries, and companies that care about slowing tropical deforestation are generally supportive of demand-side measures such as the new regulations, said World Resources Institute’s Barber.

Smaller farmers – often a significant part of supply chains – may struggle to prove that their produce is deforestation-free, he added.

While green campaigners have largely welcomed the law, they criticised its requirement for companies to prove they respected the rights of indigenous people, saying the deal only covers countries where those rights are already legally protected.

“The European Union has missed the chance to signal to the world that the most important solution to stopping deforestation is upholding indigenous’ rights,” said Nicole Polsterer of the forests and rights non-governmental organisation, Fern.

Could the law have any impact on the COP15 nature summit?

At the United Nations nature conference in Montreal – known as COP15 – about 195 countries are tasked with finalising a new global biodiversity deal to limit and reverse damage to plants, animals and ecosystems.

The European Parliament’s lead negotiator, Christophe Hansen, said he hoped the new law will “inspire other countries at COP15”.

Yet World Resources Institute’s Barber said there was a risk that the new regulations could sour debate with infighting between commodity producing and buying nations.

But that would be unlikely, by itself, to have much effect on the summit’s outcome, which will depend more on whether a “package deal” – combining robust conservation goals with credible ambition on finance for developing nations – can be achieved, Barber added.

Mighty Earth’s chief executive officer Glenn Hurowitz said the new law marked “a momentous occasion for the world’s forests, signalling that collective political action to end deforestation is possible”.

This article first appeared on Context, powered by the Thomson Reuters Foundation.