U.S. Companies Face EU Deforestation Rules on Coffee, Wood and Other Everyday Goods
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U.S. Companies Face EU Deforestation Rules on Coffee, Wood and Other Everyday Goods

Businesses are bracing for tough new regulations after voluntary corporate efforts failed

By DIETER HOLGER
Fri, Jun 30, 2023 7:56amGrey Clock 4 min

Companies selling everyday products such as leather shoes, coffee and chocolate in the European Union will soon need to prove their wares aren’t causing forest loss under a new law, after voluntary efforts largely failed.

The world’s toughest rules on deforestation come into force Thursday, meaning that companies have 18 months to prepare for proving the origin of seven commodities imported into the EU that are known to drive forest loss: cattle, cocoa, coffee, palm oil, soy, rubber and wood.

Almost 40% of the world’s 500 largest companies using the seven commodities covered by the new EU rules haven’t set a policy on forest loss, environmental nonprofit Global Canopy said in a report in February. The nonprofit estimates at least 37 big U.S.-based companies, including Starbucks and Kellogg, will be covered by the new rules.

“Our team is reviewing the regulations and working with our materials and ingredients suppliers to prepare,” a Kellogg spokeswoman said. Starbucks declined to comment.

Businesses will need to pinpoint the plot of land where the product came from and prove no forests have been cleared on the site since 2020. They will need to provide evidence of due diligence, which will likely include satellite imagery. Planet Labs and Airbus-owned Starling—two businesses that use satellites to monitor land use—said U.S. companies have shown interest in their services because of the new regulations.

Importers failing to meet the new rules face fines of up to 4% of their annual revenue in the bloc. The law requires the bloc’s national authorities to check 9% of shipments coming from countries it considers to have a high risk of deforestation, 3% for nations it labels standard risk and 1% from low risk nations.

Companies are still waiting for the EU to provide a list of countries designated as high risk. Nations such as Brazil, Indonesia and Malaysia are lobbying against being classified as high risk, fearing the label will hurt trade.

Loss of tropical primary, or mature, forests globally totalled 4.1 million hectares in 2022, the equivalent of losing 11 soccer fields of forest a minute, according to the World Resources Institute.

Many companies struggle to police their supply chains. Voluntary deforestation ambitions have failed, including the Consumer Goods Forum’s 2010 pledge to “achieve net zero deforestation” by 2020. In 2014, more than 200 companies pledged in the New York Declaration on Forests to eliminate deforestation by 2030, but they missed an interim target to halve deforestation by 2020.

Kellogg backed both initiatives and in a 2020 report identified a variety of reasons for the failure, including a lack of coordination between organisations, inconsistent regulations and opaque supplier ownership. It is among the companies working to fulfil the longer-term commitment of the New York Declaration on Forests to eliminate deforestation by 2030.

In 2021, leaders from more than 100 countries agreed to a deal at the COP26 climate summit aiming to end and then reverse deforestation by 2030.

The EU’s regulations aim to reduce the destruction of forests for economic activity and fight global warming. Trees absorb carbon dioxide, and forest loss and damage has caused around 10% of global warming, according to nonprofit World Wildlife Fund.

“Combating deforestation is an urgent task for this generation, and a great legacy to leave behind for the next,” Frans Timmermans, the EU official overseeing the bloc’s climate plans, said when political agreement on the regulations was reached in December.

The EU rules apply to companies meeting the bloc’s broad definition of an “operator,” which includes a business importing into the EU, exporting from it, or putting products on the bloc’s market. Operators can be big agribusinesses such as Cargill and Bunge supplying companies in the bloc, but also EU subsidiaries importing commodities to manufacture and sell products.

Guillaume Croisant, a Brussels-based lawyer at Linklaters, said that because the rules will be enforced by national officials, there could be discrepancies as “some authorities may be harsher.”

The EU has estimated the combined yearly due-diligence costs for importers to comply with the new rules could be as high as €2.6 billion a year, equivalent to roughly $2.8 billion.

Fast-moving consumer goods companies using coffee, cocoa, palm oil and soy could be hit with big compliance costs from the reporting requirements to trace precise geolocations as well as potential reorganisation of supply chains that are unable or unlikely to be compliant, according to an analyst report from Barclays.

The EU rules are expected to become stricter over time. A review on expanding them is scheduled in two years and some policy makers are pushing to have corn added to the list of commodities covered and for the financial sector to be regulated under the rules.

In the U.S., Democrats in Congress are pushing for similar legislation called the Forest Act. Sen. Brian Schatz, a Hawaii Democrat who is spearheading the effort, said the U.S. needs to follow the EU in enacting deforestation regulations on trade.

“If we do nothing, the U.S. market will become a dumping ground for commodities that can no longer make their way into Europe,” he said. “While companies talk a big game on preventing deforestation, we can no longer allow them to police themselves.”



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The Great Wealth Transfer: How rich millennials will invest the billions coming their way

The younger generation will bring a different mindset to how and where their newfound wealth is invested

By Bronwyn Allen
Fri, Mar 1, 2024 2 min

There is an enormous global wealth transfer in its beginning stages, whereby one of the largest generations in history – the baby boomers – will pass on their wealth to their millennial children. Knight Frank’s global research report, The Wealth Report 2024, estimates the wealth transfer set to take place over the next two decades in the United States alone will amount to US$90 trillion.

But it’s not just the size of the wealth transfer that is significant. It will also deliver billions of dollars in private capital into the hands of investors with a very different mindset.

Seismic change

Wealth managers say the young and rich have a higher social and environmental consciousness than older generations. After growing up in a world where economic inequality is rife and climate change has caused massive environmental damage, they are seeing their inherited wealth as a means of doing good.

Ben Whattam, co-founder of the Modern Affluence Exchange, describes it as a “seismic change”.

“Since World War II, Western economies have been driven by an overt focus on economic prosperity,” he says. “This has come at the expense of environmental prosperity and has arguably imposed social costs. The next generation is poised to inherit huge sums, and all the research we have commissioned confirms that they value societal and environmental wellbeing alongside economic gain and are unlikely to continue the relentless pursuit of growth at all costs.”

Investing with purpose

Mr Whattam said 66% of millennials wanted to invest with a purpose compared to 49% of Gen Xers. “Climate change is the number one concern for Gen Z and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders.”

Mike Pickett, director of Cazenove Capital, said millennial investors were less inclined to let a wealth manager make all the decisions.

“Overall, … there is a sense of the next generation wanting to be involved and engaged in the process of how their wealth is managed – for a firm to invest their money with them instead of for them,” he said.

Mr Pickett said another significant difference between millennials and older clients was their view on residential property investment. While property has generated immense wealth for baby boomers, particularly in Australia, younger investors did not necessarily see it as the best path.

“In particular, the low interest rate environment and impressive growth in house prices of the past 15 years is unlikely to be repeated in the next 15,” he said. “I also think there is some evidence that Gen Z may be happier to rent property or lease assets such as cars, and to adopt subscription-led lifestyles.”

Impact investing is a rising trend around the world, with more young entrepreneurs and activist investors proactively campaigning for change in the older companies they are invested in. Millennials are taking note of Gen X examples of entrepreneurs trying to force change. In 2022,  Australian billionaire tech mogul and major AGL shareholder, Mike Cannon-Brookes tried to buy the company so he could shut down its coal operations and turn it into a renewable energy giant. He described his takeover bid as “the world’s biggest decarbonisation project”.

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