This article first appeared in The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025
On Nov 14, the European Union (EU) reached an agreement to delay the European Union Deforestation Regulation (EUDR), and this decision has given developing countries more time to prepare for the regulation.
The regulation has been heavily criticised for the risk of excluding smallholders, especially in developing countries where smallholders are dominant producers, but some believe the EUDR is necessary to prevent further destruction of forests, which are an important carbon sink.
One of the notable gripes has been the requirement to use geolocation data to verify that sources of the seven affected commodities are not harvested through deforestation, as this — along with other compliance requirements — requires additional resources from companies.
Additionally, it was announced that the EU would be introducing a new tier of classification for its forest benchmarking system, which is the no-risk category. While many countries are striving to achieve a no-risk status, there still has not been a proper rubric for the conditions that must be met, and many other details for compliance remain up in the air.
With this latest development, ESG spoke to several organisations on what should be the next step.
The Malaysian Palm Oil Council (MPOC) has demands for the EU Commission, stemming from its concern about the regulation’s effects on smallholders.
MPOC CEO Belvinder Kaur Sron has been very vocal about her opinions on the EUDR. She believes that Malaysia, being a country where smallholders are dominant, may find compliance to the EUDR difficult due to their lack of resources, subjecting them to increased costs and added risks.
Belvinder says traceability is not as easy as it sounds, and even if rural smallholders were to receive a smartphone to track the geolocation of their farms, such communities may not have the digital literacy or internet facilities to continue performing such due diligence.
The EUDR might be a step forward in addressing environmental concerns, but Belvinder does not see it as a balanced measure in each country, and it only adds on to the challenges for smallholders.
“No matter how hard we try, a lot of the big companies are probably going to take the smallholders out of the supply chain, and all practicalities will be tougher,” she says.
Belvinder also wants Malaysia to be considered a low-risk country according to EUDR’s future forest benchmark.
Countries that are considered high risk will be subject to more scrutiny when exporting commodities. However, she says the methods to be used by authorities to conduct spot checks are still unclear.
She also fears that the due diligence criteria may differ from one another, creating an uneven playing field.
“If the country is considered low risk, your due diligence criteria gets less stringent. You do not need to do the risk assessment and the risk mitigation. But if your benchmark is medium or high risk, you will have to follow the entire process,” she points out.
In contrast, a coalition of non-governmental organisations — including Human Rights Watch, RImbaWatch, SAVE Rivers, Keruan, Bruno Manser Fonds and The Borneo Project — called for the EU to classify Sarawak as high risk under the EUDR in October, based on their assessment of the state’s environmental and human rights risks in relation to deforestation activities.
On the other hand, Belvinder says Malaysia has emphasised yield improvement instead of land expansion when tackling deforestation issues. However, there is no telling of the strain a medium or high risk classification can pose to the country.
“In Malaysia, there’s no more land expansion going on. We are just not opening up any land in this country. The 5.65 million hectares we have, that's how much it has remained, because we realise that there are just too many stringent requirements out there,” she says.
“Production has gone down, supply has not increased and prices are going up. Who is going to suffer? It's you and I, consumers, and the European consumers who will need the oil.”
Furthermore, Belvinder requests for the EU to acknowledge the Malaysian Sustainable Palm Oil (MSPO) certification as EUDR-aligned to streamline compliance and reduce unneeded efforts for both smallholders and the EU when sorting through shipments.
She says this will make smallholders more ready for the EUDR, and a Malaysian standard can reflect the country’s landscape more accurately than any global standard.
“Due diligence statements can be simplified if they start just recognising the MSPO or any certification scheme. We already have a mandatory certification scheme whereby we have many principles and criteria, just like RSPO, to ensure the oil is coming from areas that are deforested or areas that are not high conservation value areas.”
Belvinder also says MSPO is able to understand the nuances of the Malaysian palm oil industry, how it operates and how it moves about with its supply chains, and has a locus standi to take action in the country.
“We have the licences of all the areas which are planted with oil palm. The Malaysian Palm Oil Board (MPOB) knows where they are, and they have to comply with the rules and regulations of the country. If something goes wrong, MPOB, as the regulator, can always remove the licence,” she says.
The Roundtable on Sustainable Palm Oil (RSPO) certification is considered one of the highest standards of sustainability that an oil palm plantation can receive. And while this may not necessarily guarantee a farmer’s success in being EUDR-compliant, the RSPO is confident in its scheme.
RSPO CEO Joseph D’Cruz believes that RSPO has been sufficiently robust to face the EUDR, and that the recent amendments of its methodologies to take into account the varying standards across countries solidify this claim.
“One of the advantages we have with the RSPO system is that we have consistently been applying this methodology, so our growers have data that goes back well beyond the cut-off data of the EUDR to demonstrate what they've been doing on deforestation. And that's a huge advantage,” he says.
Despite the EUDR’s mission for the environment, one of the biggest discussion points concerning the EUDR and its delay is its effects on smallholders.
Smallholders who have already taken up the duty of greening their farming practices would want the investments they have made to be recognised. With the EUDR delay, it is not ideal for these smallholders, who have to continue implementing sustainability initiatives and servicing the market, says D’Cruz.
However, this does not mean the efforts working towards the EUDR are a waste. Smallholders who have a sustainability certification like RSPO show that they have gone through a due diligence process, and this could be helpful in proving their credibility when being vetted by the EU’s authorities.
The vetting process will only be conducted on a certain percentage of imports coming in from different jurisdictions, and the authorities must make judgement calls based on their level of confidence when scrutinising each shipment, he says.
Having a certified standard of sustainability could signal to authorities that imports with such evidence will have fewer risks compared to another shipment from an unfamiliar market without any documented processes.
This prompts D’Cruz to address the claim that even if the RSPO system is not officially recognised as “EUDR compliant”, the farmers’ history of using sustainable practices will put them in a good position and add value to their sales.
Overall, the opinion of the RSPO on the EUDR is one that sees it as an unavoidable policy, a contribution in the push towards sustainability rather than a road block.
D’Cruz says many countries have already implemented their own deforestation policies, but the EUDR is just part of the driving force that pushes countries to move away from deforestation.
The High Conservation Value Network (HCVN), which has long collaborated with RSPO, is also supportive of the EUDR, saying that the regulation is needed to push things along, and that the risk of the delay is a potential gateway for dismantling the regulation, which could lead to no action being taken at all.
The HCVN is a member-based organisation that promotes the HCV Approach, which is a methodology to identify and protect ecosystems, biodiversity and needs of indigenous peoples and local communities where development takes place.
“Deforestation and biodiversity loss is at a high rate. A delay kind of sends the signal that we don't need to change the market. But we do if we want to achieve the global and sustainable development goals,” says Belinda Bowling, global director of the HCVN.
Even with the delay announced, there is still concern that smallholders may struggle in the journey of being EUDR-compliant, and thus the RSPO and HCVN acknowledge that there should be actions taken to ensure equity.
“[The EUDR] is a great step in the right direction, but the devil's in the details, and that is where we need to make sure that there's equity [for the smallholders],” says Bowling.
The Malaysian Rubber Council’s (MRC) approach to the EUDR has been a collaborative one, where the council is proactively engaging with representatives from the European Commission.
The organisation finds that constant dialogue with the EU will be crucial in addressing the challenges faced by small and medium enterprises and smallholders when dealing with the geolocation data provision and supply chain traceability.
“With 93% of Malaysia’s rubber industry made up of smallholders, our challenges are particularly complex,” says MRC CEO Muhammad Eizaaz Muhammad Redzuan.
“We urge the EU Commission to adjust its expectations to reflect the varied readiness levels in the upstream, midstream and downstream sectors, acknowledging that environmental goals must not come at the expense of people’s livelihoods.”
He says the organisation has held three meetings with EU delegations so far to raise industry concerns and communicate the potential of collaboration to bridge the gaps in EUDR requirements.
These engagements are also taking place with local authorities such as the Ministry of Plantation Commodities with regard to data privacy when submitting documents to the EU, calculating costs of compliance, and forming partnerships with supplier countries.
Eizaaz also makes a request that another initiative, the Malaysian Sustainable Natural Rubber (MSNR) certification, be qualified by the EUDR to prevent the exclusion of smallholders.
The MSNR is an initiative by the Malaysian Rubber Board to ensure the sustainable value of Malaysian rubber exports, and the MRC is hopeful for an alignment of sorts for the certification and the EUDR to achieve a harmony of being sustainable.
“Specifically for Malaysia, in its guidance document and the original EUDR text, we can see that it mentioned certification schemes may be considered to [provide] support. So, we can see that there is room for some alignment [to be] conducted here,” he says.
Not only has communication been sustained with EU delegates, the MRC has taken the initiative to reach out to rubber players as well. Eizaaz says a follow up webinar was conducted to inform and educate the industry on the requirements demanded by the EUDR.
Additionally, the MRC has been actively implementing capacity-building programmes for the industry to focus on becoming a responsible producer that is both sustainable and prepared for the EUDR.
The MRC has funded these initiatives to create an inclusive environment for rubber players, and motions the EU to facilitate funding as well.
“These commitments will be continuously done for the years to come, and we hope that every engagement that we have will bring a specific answer to every concern our industry is having at their level,” says Eizaaz.
In the upcoming months, one key guideline the MRC would like clarification on would be surrounding the information on composite products. The composition of rubber has become increasingly complex in current times, as many manufacturers blend it with other materials such as synthetic rubber or plastics to reduce costs.
Eizaaz gives an example of pneumatic tyres, where producers must report their sources for acquiring natural rubber. But it is difficult to obtain information on the mix of materials in composite products.
In view of the EUDR delay in implementation, he thinks this will be an opportune moment to revisit the implications of the regulation and increase readiness of compliance.
“In this market, if we lose, we are going to lose to our neighbouring countries, which are our competitors. So we don't hope for that. We hope we will maintain our market share in the EU,” says Eizaaz.
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