1. Introduction
Forests play a crucial role in the functioning of ecosystems and social life. They not only serve as a natural carbon store but also provide habitat for numerous plant and animal species. Forests provide renewable resources such as timber, and also serve recreational and protective functions. For society, forests are an invaluable resource, ensuring clean air, climate stability, and protection against soil erosion.
The timber industry is a significant sector of the Polish economy. Poland is a leading producer and exporter of timber and wood-based products in the European Union. According to Central Statistical Office data, in 2022, the value of timber product exports exceeded €15 billion, and the sector employs approximately 400,000 people. The State Forests manage approximately 7.3 million hectares of forests, which constitute a key resource for the national economy.
Regulation (EU) 2023/1115 of the European Parliament and of the Council on deforestation and forest degradation (EUDR) represents a significant step in the fight against global deforestation and forest degradation. The new regulations impose strict requirements on economic operators, particularly in the trade of timber and forest products.
Poland, a country with a high percentage of forest area (approximately 30% of its territory), is not considered a high-risk area for deforestation. However, the EUDR will impact both the Small and Medium-Sized Enterprise (SME) sector and the State Forests, imposing traceability requirements and monitoring the origin of wood raw materials. The new regulations will also impact the ESG reporting process, changing the way companies assess their environmental footprint.
2. Objectives of the EUDR Regulation
The main goal of the EUDR is to prevent products that contribute to deforestation and forest degradation from entering the EU market. The regulation applies to key raw materials such as timber, soy, cocoa, coffee, palm oil, and beef. Operators must ensure that their products do not originate from land deforested after December 31, 2020, and that their production complies with national regulations. The regulation introduces a definition of forest based on the FAO (Food and Agriculture Organization of the United Nations) definition, which defines a forest as an area exceeding 0.5 hectares, covered with trees over 5 meters high, and with more than 10% forest cover. Land is considered deforested when trees have been cut down and its intended use has been changed (e.g., for agricultural crops, palm oil plantations, coffee, soybean plantations, cattle ranching), or has been converted in a way that prevents forest regeneration, for example, through intensive economic use. Sustainable forest management, where forests regenerate naturally or are replanted, does not constitute deforestation.
3. Obligations for SMEs and State Forests
3.1. Small and Medium-Sized Enterprises (SMEs)
For SMEs, this means maintaining full transparency regarding the origin of their raw materials. Timber traders must demonstrate that their raw materials come from legal sources that comply with EU regulations. To achieve this, companies are required to implement due diligence procedures, which include collecting detailed information on the origin of the raw material, including geolocation data. This documentation will be a key element of compliance monitoring, and companies will be required to retain it for at least five years. The introduction of the EUDR also means conducting regular audits to verify supplier compliance with the new regulations. Companies will need to systematically monitor and analyze their supply chain, eliminating potential risks associated with sourcing raw materials from illegal sources. For many companies, especially those operating on a smaller scale, implementing such mechanisms can entail additional operational and administrative costs. Violation of these rules may result in sanctions, including financial penalties of up to 4% of the company's total annual turnover in the EU for the previous financial year, confiscation of products and revenues, and temporary exclusion from public procurement procedures and access to public funding through inclusion on a supplier blacklist.
3.2. State Forests
The State Forests, as the main supplier of timber to the Polish market, will also face significant challenges related to EUDR implementation. Intensified control of the origin of raw materials will be necessary, meaning that all timber sold will have to be thoroughly verified for compliance with the new requirements. A key aspect will be the need to confirm that the timber does not originate from areas that have been subject to deforestation since 2020.
The new regulations also entail increased documentation requirements for forest districts, which will be required to provide detailed geolocation data regarding the timber they sell. Each batch of raw material must be properly documented, ensuring its traceability and compliance with EU regulations.
4. The impact of EUDR on ESG
The EUDR has a significant impact on sustainability principles and ESG reporting, covering three key areas: environment, social aspects and corporate governance.
The regulations introduced force companies to implement sustainable forest management by requiring them to monitor the origin of raw materials and confirm that they do not come from areas deforested after December 31, 2020. This also forces companies to be more responsible in managing their supply chains, as they must provide credible evidence confirming the legality and compliance of their products with the new regulations.
Social aspects also play a significant role within the regulation. The EUDR indirectly contributes to protecting the rights of local communities by limiting illegal land acquisition for cultivation and industrial activities that lead to deforestation. The introduction of new rules may also improve working conditions in the forestry and agricultural sectors, as raw materials will be sourced in accordance with more stringent environmental and ethical standards. Furthermore, the increased transparency resulting from the need to collect and store data on the origin of raw materials will require companies to eliminate unethical practices, which will positively impact corporate reputation and consumer trust.
In the area of corporate governance, the regulation introduces new obligations for businesses. Companies will be required to implement effective risk management mechanisms in their supply chains, which includes detailed risk analysis and identification of potential threats related to illegal logging of timber and other regulated raw materials. Companies must also maintain accurate records of the origin of raw materials and retain this information for at least five years.
Additionally, companies subject to the EUDR will be required to include data on the impact of their operations on deforestation in their reports, which will be particularly important in the context of carbon footprint and supply chain sustainability. Companies will be required to monitor their suppliers and ensure the geolocation of raw materials such as timber, soy, coffee, and cocoa to demonstrate compliance with the regulations. These requirements are consistent with broader EU sustainability standards, such as the Corporate Sustainability Reporting Directive (CSRD), which introduces new rules for reporting corporate environmental impact.
5. Summary and conclusions
The EUDR presents a significant challenge for the Polish timber sector, particularly for SMEs and the State Forests. The new regulations introduce requirements for raw material traceability and due diligence, which will impact operating costs. The regulation will impact approximately 120,000 companies operating in sectors related to these products. These companies will need to adapt their supply chains and management systems to comply with the new requirements, which may entail additional costs and the need to invest in traceability technologies.
Despite the challenges, the EUDR can contribute to greater forest protection and ensure sustainable timber trade. Companies and institutions should take action now to comply with the new regulations to avoid the risk of sanctions and loss of access to the EU market. Complying with these requirements may be challenging, but it also creates an opportunity to strengthen Poland's position as a supplier of sustainable forest products in the EU market.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of March 18, 2025
author/editor of the series:
Be the first to receive our articles and legal alerts, straight to your inbox! Sign up for our newsletter by clicking the link or contact us at social@kglegal.pl to personalize your content.
