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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Israel Defies Expectations With Surge in Tech Funding Despite War

The 28% increase buoyed the country as it battled on several fronts but investment remains down from 2021

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As the war against Hamas dragged into 2024, there were worries here that investment would dry up in Israel’s globally important technology sector, as much of the world became angry against the casualties in Gaza and recoiled at the unstable security situation.

In fact, a new survey found investment into Israeli technology startups grew 28% last year to $10.6 billion. The influx buoyed Israel’s economy and helped it maintain a war footing on several battlefronts.

The increase marks a turnaround for Israeli startups, which had experienced a decline in investments in 2023 to $8.3 billion, a drop blamed in part on an effort to overhaul the country’s judicial system and the initial shock of the Hamas-led Oct. 7, 2023 attack.

Tech investment in Israel remains depressed from years past. It is still just a third of the almost $30 billion in private investments raised in 2021, a peak after which Israel followed the U.S. into a funding market downturn.

Any increase in Israeli technology investment defied expectations though. The sector is responsible for 20% of Israel’s gross domestic product and about 10% of employment. It contributed directly to 2.2% of GDP growth in the first three quarters of the year, according to Startup Nation Central—without which Israel would have been on a negative growth trend, it said.

“If you asked me a year before if I expected those numbers, I wouldn’t have,” said Avi Hasson, head of Startup Nation Central, the Tel Aviv-based nonprofit that tracks tech investments and released the investment survey.

Israel’s tech sector is among the world’s largest technology hubs, especially for startups. It has remained one of the most stable parts of the Israeli economy during the 15-month long war, which has taxed the economy and slashed expectations for growth to a mere 0.5% in 2024.

Industry investors and analysts say the war stifled what could have been even stronger growth. The survey didn’t break out how much of 2024’s investment came from foreign sources and local funders.

“We have an extremely innovative and dynamic high tech sector which is still holding on,” said Karnit Flug, a former governor of the Bank of Israel and now a senior fellow at the Jerusalem-based Israel Democracy Institute, a think tank. “It has recovered somewhat since the start of the war, but not as much as one would hope.”

At the war’s outset, tens of thousands of Israel’s nearly 400,000 tech employees were called into reserve service and companies scrambled to realign operations as rockets from Gaza and Lebanon pounded the country. Even as operations normalized, foreign airlines overwhelmingly cut service to Israel, spooking investors and making it harder for Israelis to reach their customers abroad.

An explosion in negative global sentiment toward Israel introduced a new form of risk in doing business with Israeli companies. Global ratings firms lowered Israel’s credit rating over uncertainty caused by the war.

Israel’s government flooded money into the economy to stabilize it shortly after war broke out in October 2023. That expansionary fiscal policy, economists say, stemmed what was an initial economic contraction in the war’s first quarter and helped Israel regain its footing, but is now resulting in expected tax increases to foot the bill.

The 2024 boost was led by investments into Israeli cybersecurity companies, which captured about 40% of all private capital raised, despite representing only 7% of Israeli tech companies. Many of Israel’s tech workers have served in advanced military-technology units, where they can gain experience building products. Israeli tech products are sometimes tested on the battlefield. These factors have led to its cybersecurity companies being dominant in the global market, industry experts said.

The number of Israeli defense-tech companies active throughout 2024 doubled, although they contributed to a much smaller percentage of the overall growth in investments. This included some startups which pivoted to the area amid a surge in global demand spurred by the war in Ukraine and at home in Israel. Funding raised by Israeli defense-tech companies grew to $165 million in 2024, from $19 million the previous year.

“The fact that things are literally battlefield proven, and both the understanding of the customer as well as the ability to put it into use and to accelerate the progress of those technologies, is something that is unique to Israel,” said Hasson.

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