Seeing the wood for the trees:Developments in deforestation legislation and litigation
Forests play a critical role in maintaining our planet’s health, providing clean air, purifying waters and soils and acting as an important natural brake on the rate of climate change by sequestering and storing carbon. It is unsurprising, then, that deforestation – defined as the conversion of forest to other land use, whether human-induced or not – poses a particular threat to the climate in that it reduces the capacity of the ecosystem to store carbon, as well as, for example, causing and contributing to wild fires which produce greenhouse gas emissions. And yet deforestation has been occurring at an alarming rate: the United Nations’ Food and Agriculture Organization estimates that an area of forest larger than the European Union has been lost worldwide between 1990 and 2020.
This post addresses two legal responses to accelerating deforestation. First, governments have sought to tackle deforestation by implementing demand-side market prohibitions on deforestation-related products, including in the United Kingdom and the European Union (which are the focus of this post). Second, private parties have used litigation to attempt to hold corporate actors and governments accountable for deforestation in their supply chains and territories.
Legislation against deforestation in supply chains
Historically, regulation of deforestation has been concentrated in jurisdictions where deforestation actually occurs. Two fundamental problems in relation to this approach have been evident. First, if demand for a deforestation-related product remains high abroad, there is an economic incentive for producers to breach national laws in their own jurisdiction (where enforcement may not always have been reliable). Secondly, national laws have not succeeded in tackling deforestation. For those reasons, in 2021, the UK and EU introduced laws to regulate global supply chains associated with deforestation-related products – namely Regulation (EU) 2023/1115 (“the EU Regulation”) and the Environment Act 2021 (“the UK Act”), respectively. Both laws seek to incentivise producer countries to reduce deforestation by prohibiting trade of the commodities which represent the largest share of deforestation in these importer jurisdictions (see for example the EU’s Explanatory Memorandum, para. 47). Demand-driven legislation of this sort is not new, with similar examples existing in the form of sanitary standards in the agricultural sector and market prohibitions on illegal logging.
In broad terms, both the EU and UK regimes have the same goal: to suppress the sale of certain deforestation-related products. They also employ the same basic method: they impose an obligation on regulated persons to conduct a three-stage due diligence system throughout their supply chains, involving: (i) data collection about a particular commodity; (ii) assessment of the risk of non-compliance with the EU Regulation or UK Act; and (iii) risk mitigation measures and annual reporting to the relevant authority on their due diligence system (EU Regulation, Articles 8-12(3); UK Act, Schedule 17, paras. 3-4).
However, the regimes differ in key respects. In relation to all the matters addressed below, the EU Regulation is more exacting than the UK Act and is likely to be more immediately effective in combating deforestation.
- Targeted commodities: whereas Article 1 of the EU Regulation identifies the commodities to which it applies (namely, cattle, cocoa, coffee, oil palm, rubber, soya and wood), Schedule 17, para. 1(1) of the UK Act delegates this power to the Secretary of State, subject to the proviso that the commodities in question should be living organisms for the purposes of which the forest is being used or may be converted to use agriculturally. The UK Act’s Explanatory Notes provide as examples of commodities “likely to be considered for inclusion within this definition”: beef, cocoa, leather, palm oil, rubber and soya (para. 1790). Only once secondary legislation is enacted will any substantive obligations under the UK Act be engaged.
- Regulated persons: Article 2(15) of the EU Regulation states that the EU Regulation applies to natural or legal persons which, in the course of a commercial activity, place relevant products in the market, make relevant products available on the market or export relevant products. In contrast, Schedule 17, para. 7(1) of the UK Act limits regulated persons to those who carry out commercial activities which meet turnover conditions to be stipulated by the Secretary of State. Different turnover thresholds may be set for different commodities (UK Act’s Explanatory Notes, 1822). The same caveat above regarding the need for secondary legislation also applies here.
- Scope of the prohibition: the prohibition under the EU Regulation applies to any listed commodity which is not “deforestation-free” (Article 3(a)), irrespective of whether the deforestation in question was unlawful in the place where it occurred. This is because “[a] focus only on legality could potentially entail a risk of lowered environmental standards with a view to obtaining market access” (recital (34)). The prohibition in Schedule 17, para. 2(1) of the UK Act is narrower: its application is limited to commodities which have been produced contrary to local laws. This means that the UK Act does not tackle legal deforestation, which amounts to around 30% of global deforestation (EU’s Explanatory Memorandum, para. 24).
- Country risk: Article 29 of the EU Regulation divides countries into three risk categories depending upon: (i) the rate of deforestation and forest degradation; (ii) the rate of expansion of agricultural land for the relevant commodities; and (iii) production trends of relevant commodities and products. This risk-based approach informs the approach of both operators (who may conduct simplified due diligence on products from low-risk countries) and competent authorities (who are to pay special attention to high-risk countries when carrying out checks). The UK Act makes no provision for country risk, but pursuant to Schedule 17, para. 3(b), country risk may form part of the “criteria to be used in assessing risk” in secondary legislation.
- Cooperation: Article 30 of the EU Regulation provides for a coordinated approach with producer countries as well as partnerships to address root causes of deforestation and “focus on the conservation, restoration and sustainable use” of forests (including topics such as deforestation). There is no equivalent provision in the UK Act. This is a notable omission: given that the underlying aim of the regimes is to influence the practices of operators in a foreign country, cooperation with that foreign country is likely to play a crucial role in achieving that aim.
- Detail: the precise content of the operator’s due diligence obligations is set out in detail in Articles 4-12 of the EU Regulation. In contrast, the regulated persons’ due diligence obligations under the UK Act are to be set out in secondary legislation (Schedule 17, para. 3(3)).
Deforestation and supply chain litigation
Alongside the development of such legislative regimes, a further legal response to deforestation has been litigation both ‘locally’ (i.e. in the country where the deforestation has occurred) and in ‘foreign’ jurisdictions (i.e. other than where the deforestation occurred).
Local claims have occurred in many places, including South America (in particular, in Brazil, where the Amazon rainforest is a notable target of deforestation) and Asia (where cases have been brought against the Pakistani and Indonesian governments over their alleged failures to prevent deforestation in violation of their international climate obligations). The respondents to these local claims so far have been either governments and companies (who are sued for allegedly engaging in, enabling, or failing to prevent unlawful deforestation which is alleged to interfere with the claimants’ property and/or human rights) or the direct perpetrators of deforestation. A recent example of the former is a case brought against a livestock farmer by the Brazilian Federal Environmental Agency in September 2023 seeking financial compensation for the social cost of the carbon emitted as a result of the livestock farmer’s deforestation activities. Meanwhile, the claim against Brazilian farmer de Rezende is an example of a case brought directly against a perpetrator of deforestation.
As for claims outside the jurisdiction where the deforestation occurred, these have been brought (often by NGOs) against corporates accused of contributing to or facilitating deforestation, such as through their overseas subsidiaries or, most commonly, through their supply chains. These claims have alleged variously that companies have misrepresented or ‘greenwashed’ the impact of their activities and products on forests, that their supposed action to eradicate or minimise deforestation in their supply chains is inadequate, or that deforestation they have enabled or caused entails a breach of human rights.
While such litigation has not yet reached the English courts, it has occurred in continental Europe. For example, claims have been brought under the French Duty of Vigilance Law (Law No. 2017-399 of 27 March 2017) against the supermarket Casino (in relation to alleged deforestation in its supply chains) and the bank BNP Paribas (in relation to its alleged financing of companies which contribute to deforestation). The French Duty of Vigilance Law provides that certain large companies must establish a ‘Vigilance Plan’ to prevent the violation of human rights and environmental damage which may occur in the course of their business. Under this law, if a company’s Vigilance Plan is inadequate, the company will be liable for the damages it might have prevented had its plan been adequate. In Envol Vert et al v Casino, the claimants argue that the Casino group regularly bought beef produced on deforested land. They are asking the court to order Casino to produce a detailed Vigilance Plan identifying the human rights and deforestation risks caused by the group’s activities. They also seek compensation for indigenous groups for the loss of opportunity and damage stemming from Casino’s failure to adhere to its duty of vigilance. In Notre Affaire à Tous Les Amis de la Terre and Oxfam France v BNP Paribas, the claimants allege that BNP Paribas did not carry out sufficient due diligence before providing financial services to businesses which sourced beef from suppliers allegedly responsible for deforestation of the Amazon rainforest and that its Vigilance Plan is inadequate to measure and prevent the risk of deforestation and human rights. The claimants are asking the court to order BNP Paribas to improve its Vigilance Plan. Finance providers such as banks have increasingly become the target of sustainability-related litigation as an indirect means of applying pressure to the strategies of operator companies.
Future trends in deforestation regulation and litigation
As more jurisdictions, including the EU, UK and indeed the US, begin to implement legislation with a specific focus on deforestation, we anticipate an escalation in regulatory scrutiny, including in particular on due diligence and supply chains. As to litigation, future trends may include the following:
- An increase in litigation brought by indigenous groups, which have already spearheaded legal proceedings in courts in European states relating to environmental damage in their home jurisdictions (such as a claim before Dutch courts in relation to a hydroelectric dam in Honduras).
- An increase in allegations of greenwashing against corporates, given the increase in reporting obligations which may lead to more instances of a company being said to have made incorrect and misleading statements about the lack of deforestation in its supply chains.
- A stronger emphasis on the link between climate and deforestation. A potential area of focus is whether corporates’ use of carbon offsetting schemes could be argued to constitute ‘greenwashing’. Such arguments may be made if carbon offsetting schemes rely on reforestation or deforestation-avoidance projects which are alleged to be ineffective, which have been oversold or which concern land where it is said that deforestation has occurred.
- The development of other innovative liability theories used to bring claims against corporates that are alleged to have contributed to or enabled deforestation, such as the strategy adopted under the French Duty of Vigilance law outlined above. Claimants in other types of ESG cases have attempted to attribute responsibility for illegality in supply chains (including human rights abuses) to corporates which have held themselves out as conducting due diligence on their supply chains. For example, in Josiya v BAT (ongoing), farmers have brought claims in negligence and unjust enrichment against tobacco companies in relation to dangerous working conditions and alleged child labour in their Malawian tobacco leaf supply chains. In addition, a claim has recently been brought in the English High Court against the London Bullion Market Association which alleges that its issuance of a Responsible Gold certificate to a refinery constituted verification to the market and the general public that gold refined at that refinery had been responsibly sourced, including at an individual mine level. Such third-party liability arguments could be raised in the analogous context of deforestation-related claims, especially as supply chain due diligence will now be mandatory under the legislation referred to above.
- Derivative claims by shareholders on the basis that a company’s directors have failed to manage risk related to deforestation in their supply chains. ClientEarth’s unsuccessful attempted derivative action against the directors of Shell (which the Court of Appeal very recently declined to hear) is evidence of the considerable procedural hurdles such claims will need to overcome even to be considered on the merits.
The importance of deforestation as a key environmental concern of policy-makers, regulators and the public is demonstrated by new legislative regimes related to supply chain due diligence. It is also reflected in shareholder resolutions which commit companies to tackling deforestation – although a recent decision by Procter & Gamble to withdraw its pledge not to buy wood pulp from degraded forests shows that the issue remains controversial. In our view, the volume of litigation surrounding deforestation, including in importer jurisdictions in relation to supply chains and foreign subsidiaries, is only likely to increase.
This note is provided free of charge as a matter of information only. It is not intended to constitute, nor should it be relied upon as constituting, legal advice, and no responsibility is assumed in relation to the accuracy of the contents of the same as regards anyone choosing to rely upon it.