Deforestation rules sharpen sourcing duties

The government is preparing new rules that would require businesses trading in forest risk commodities to check that their supply chains are not contributing to illegal deforestation, bringing procurement, ESG reporting, and product traceability into closer alignment.

Defra said the planned Great Britain regime will use powers including the Environment Act 2021, alongside legislation strengthening the UK Timber Regulation. The government intends to consult businesses, civil society, and international partners later this year on the substance of the proposed policy.

The approach would apply to businesses in Great Britain with annual turnover above £1 million that use forest risk commodities and wood products. The intended scope includes wood, cattle, cocoa, coffee, palm oil, rubber, soy, and certain derived products such as chocolate and furniture.

Businesses in scope would need to establish a due diligence system, report on activity, and hold proof of compliance by collecting geolocation data about the origin of specific products. The government also wants the Great Britain regime to operate consistently alongside the EU Regulation on Deforestation-free Products, reducing duplication for companies working across the UK internal market and the EU single market.

Nature Minister Mary Creagh said: “Tackling global deforestation is one of the most effective ways we can address climate change.”

The policy is expected to be implemented in Great Britain in 2027. Northern Ireland will follow the EU deforestation regulation in phases from 30 December 2026, reflecting its dual access to the UK internal market and the EU single market.

The proposals are commercially important because they give legal weight to sourcing evidence that has often sat within voluntary sustainability programmes. Companies using affected commodities will need to know where products were sourced, whether production complied with local laws, and whether the evidence is strong enough to withstand scrutiny.

That will test procurement systems. Many supply chains for cocoa, coffee, palm oil, rubber, soy, cattle, and timber involve multiple intermediaries, processors, traders, and jurisdictions. Product level geolocation data is not always simple to obtain, especially where commodities are aggregated, blended, or transformed before reaching manufacturers and retailers.

Food, retail, cosmetics, apparel, furniture, automotive, packaging, hospitality, and consumer goods businesses could all be affected. The risk is not limited to companies buying raw commodities directly. Derived products can carry embedded deforestation exposure through ingredients, materials, leather, tyres, timber components, packaging, or processed food inputs.

The financial sector has already been under scrutiny over the same issue. Finance lags on deforestation risk examined how major financial institutions often lack policies covering key high risk commodities. The Defra proposals shift the immediate burden towards operating companies, but lenders and investors will have stronger grounds to ask clients how commodity exposure is governed.

The alignment with EU rules will be watched closely. Companies trading between Great Britain, Northern Ireland, and the EU want consistent information requirements, predictable enforcement, and clarity around which entities are operators, traders, first placers, or downstream businesses. Divergence could create additional cost, while alignment may still impose new administrative obligations on companies that have not previously tracked commodity origin to the required level.

Procurement teams may need more than supplier declarations. Companies could require supplier mapping, geolocation records, risk assessment, audit rights, contractual warranties, escalation procedures, and evidence retention. Larger businesses may be able to incorporate these controls into existing responsible sourcing programmes. Smaller companies above the £1 million threshold may need external support or new systems.

Deforestation risk also connects to climate, biodiversity, land use, food security, water systems, human rights, and commodity availability. Illegal deforestation can create reputational damage, legal risk, investor scrutiny, and supply disruption. Due diligence therefore becomes a commercial control as well as an ESG requirement.

Retailers and consumer brands have already faced pressure from campaigners and customers over palm oil, soy, cocoa, leather, and timber sourcing. A statutory framework will make those questions less discretionary. Broad policy commitments may no longer be enough where the law requires product specific information.

The consultation will need to settle exact scope, enforcement, reporting frequency, penalties, transition periods, SME treatment, recognition of existing certification schemes, and how geolocation data will be collected and verified.

Companies using forest risk commodities now have a clear preparation signal. Sourcing data, supplier governance, and ESG compliance are no longer separate workstreams where the commodity can be traced back to deforestation exposure.