Conducting Risk Assessment for Deforestation-Free Due Diligence in the Timber Supply Chain

Abstract

Regulatory changes can have profound managerial implications for companies. This is particularly evident with the introduction of the European Union Deforestation-Free Regulation (EUDR), which targets seven commodities closely linked to deforestation, forest degradation, and human rights violations. The regulation requires operators and traders of these commodities—namely palm oil, cattle, timber, coffee, cocoa, soy, and rubber—as well as derived products like chocolate, paper, and furniture, to conduct due diligence. The latter process must conclude that the commodity fulfills three conditions: it is deforestation-free, it has been produced in accordance with the relevant legislation of the country of production, and it is covered by a due diligence statement confirming a negligible risk of non-compliance with the first two conditions, based on a thorough risk assessment.

This thesis specifically examines the risk assessment aspect of due diligence for the timber commodity, focusing on operators of timber products. These operators are legal entities or individuals who place timber on the European market for the first time and, as such, bear the primary responsibility for complying with this regulation's requirements. Through a review of both academic and non-academic literature, this study explores the concepts of risk analysis, risk assessment, supply chain risk assessment, and sustainable supply chain risk assessment to identify frameworks, tools, and sources of information that can support a thorough risk assessment for deforestation-free due diligence in the timber supply chain.

The empirical component of this study includes data collected from interviews with ten stakeholders within the supply chain, including timber importers, consultants, and service providers, as well as visits to three different timber importers. This research aims to gain insights into the characteristics of the timber supply chain, the factors considered for risk assessment, the tools used for data validation and gathering, and current risk assessment practices under the EU Timber Regulation (EUTR).

The ultimate goal is to identify key lessons from previous practices and propose ways to address challenges in conducting risk assessments for the new deforestation-free regulation (EUDR).