Complying with the new EU Deforestation Regulation (EUDR) can feel overwhelming for many businesses. One of the key requirements is having the Due Diligence System (DDS) - but what is that really?

In this post we will break it down for you: why do you need it, what is it exactly, how it works, and how to start implementing one without getting lost.

Why do You Need a Due Diligence System in Place?

Under the EUDR regulation, for every batch of products you sell, import, or export, you must submit a statement confirming that the risk of deforestation and/or illegally sourcing logs is minimal.

A Due Diligence System (DDS) is the process that allows you to assess this risk. It ensures that all materials from your suppliers comply with EUDR requirements for deforestation and legality. If you are an operator, this is not optional, but the core of your compliance.

What Does Risk Assessment in Deforestation or Illegality?

Risk assessment is at the heart of the EUDR. While it’s a common concept in supply chain management, many timber industry businesses haven’t needed to implement one as they have worked with stable, low-risk supply chains. Now, the regulation requires a system to assess the risk that products come from deforested areas or were sourced illegally. It is a process that helps companies identifying potential risk factors and guides on how to respond when risks are high.

For example, consider you’re buying oak from a German sawmill that sources logs from Romania - a country known for corruption and deforestation issues. Even if the sawmill is reputable, the risk is high. For this reason, you would need more info from your supplier:

• Is the supplier certified?
• Can you check the forest location with open-source data?

If the data shows deforestation, the risk increases, but it’s not a guarantee—open data can be inaccurate, or the area may have been deforested for natural reasons.

At this point, you have two options: stop buying from the supplier or, if the timber is crucial, ask for more evidence such as documents from the forest operator. In extreme cases, you could hire an external audit to get a clear picture of the risk.

A Due Diligence System is exactly this process for all products covered by the regulation, in order to assess both deforestation and illegal sourcing risks.

How Can You Implement a Due Diligence System?

The legal requirements for a solid and compliant DDS are clearly outlined in the EUDR (Article 2.8.2). You must:

• Collect detailed information
  You need to be able to trace your materials from each supplier back to their origin - plots of land are geolocation data in the format of a JSON file. This often means you will need to go beyond your direct suppliers and gather data from their suppliers, right down to the forest exploitant. Obtaining accurate information is complex and it may seem overwhelming at first, but remember, your suppliers need this information too to remain compliant. In a well-structured supply chain, this information will flow down efficiently if you’re working with reliable suppliers.
• Assess the deforestation risk
  Using geolocation data of the logs’ origin and the overall state of deforestation in the country of production. With online open-source tools, you can verify if the location falls in a protected area or an area that was previously forested, which would signal a high deforestation risk.
• Assess the illegality risk
  This can be more complex, as you need to ensure the logs weren’t harvested in violation of laws, such as breaching the rights of indigenous populations or disregarding labor laws. A common approach is to survey the forest exploitant about their practices and collect all possible documentation that can serve as proof. Here too, if you’re not directly buying the logs, your supplier will need to follow the same process to comply and share this information with you (EUDR Article 10).
• Risk mitigation
  In cases where the risk is high, you need to have an action plan in order to mitigate that risk before continuing doing business with this supplier. Only once you’ve reduced the risk to a negligible level can you issue the required statement and move the product through the supply chain.

What Do You Need to Stay Compliant?

To fully comply, you must demonstrate that you have a Due Diligence process consistently in place. While the law doesn’t prescribe an exact format, it does require your system to:

• Perform due diligence regularly
  Check your supply chain at least once per year, or more often if your suppliers or sourcing area change frequently. For stable supply chains - for example, working with a sawmill that always sources from the same forest operators - an annual review may be enough.
• Keep records
  Retain all information and risk assessments for at least five years. If you’re audited or inspected, this documentation will be required to prove your compliance.

Key Takeaway

A Due Diligence System is your protective shield that helps you prove that you’re not contributing to illegal logging or deforestation, and keeps you compliant with EUDR rules.

Need Help Setting Up Your DDS?

Setting up a robust due diligence system can be complex, but you don’t have to do it alone. Reach out to us to learn how we can help you keep your compliance hassle-free!

Contact us today to get started!