ANNEX TO THE RESOLUTION:

RECOMMENDATIONS AS TO THE CONTENT OF THE PROPOSAL REQUESTED

1. Objective

The proposal for a Regulation (‘the proposal’) should provide the basis for the assurance of a high level of protection for natural resources, such as natural forests, biodiversity and natural ecosystems, as well as contribute to a strengthened framework for their sustainable management to avoid their degradation and conversion, by ensuring that Union market and consumption patterns do not detrimentally affect them. The protection of human rights and both formal and customary rights of indigenous peoples and local communities to lands, territories and resources affected by harvesting, extraction and production of products should also be covered by the proposal.

It should provide transparency and certainty with regard to:

(a) commodities covered by the proposal and their derived products which are marketed on the Union internal market,

(b) the supply practices and financing of all operators active on the Union internal market,

(c) production practices, including the water abstraction aspect, of operators harvesting, extracting, supplying, and processing forest and ecosystem-risk commodities (FERCs) covered by this proposal or producing FERC-derived products in the Union internal market, as well as the practices of their financiers;

It should contribute to the fulfilment of international environmental and human rights commitments taken by the Union and its Member States, such as the Paris Agreement, the Sustainable Development Goals, and human rights obligations, set out in international human rights treaties and establish legally binding sustainability criteria for human rights, and the protection of natural forests and natural ecosystems against their conversion and degradation, as set out in the proposal. The proposal should be risk-based, proportionate and enforceable.

2. Scope

The proposal should apply to all operators, irrespective of their legal form, size or complexity of their value chains, i.e. any natural or legal person (excluding non-commercial consumers) that places commodities that are covered by the proposal and their derived products on the Union internal market for the first time, or that provides financing to the operators undertaking these activities. This should apply to both Union and non-Union-based operators. Operators that are not based in the Union should mandate an authorised representative to perform the tasks (in accordance with Regulation (EU) 2019/1020 of the European Parliament and of the Council (1)).

All operators should be entitled to lawfully place FERCs and FERC-derived products on the Union market only when, in accordance with provisions referred to in -Section 4 of this Annex, they are able to demonstrate that within their own activities and all types of business relationships that they have with business partners and entities along their entire value chain (i.e. transport companies, suppliers, traders, franchisees, licensees, joint ventures, investors, clients, contractors, commercial customers, consultants, financial, legal and other advisers) that, at the very most, there is a negligible risk level, that the goods placed on the Union market:

— originate from land obtained via the conversion of natural forests or other natural ecosystems;

— originate from natural forests and natural ecosystems undergoing degradation, and

— are produced in, or are linked to, violation of human rights.

Financial institutions providing finance, investment, insurance or other services to operators engaged in the supply chain of commodities also have a responsibility to undertake due diligence to ensure that supply chain companies are respecting the obligations laid down in this proposal.

Operators should take appropriate and transparent measures to ensure that these standards are respected throughout their entire supply chain.

The proposal should cover all commodities that are most frequently associated with deforestation, degradation of natural forests and conversion and degradation of natural ecosystems due to human activity. A list of these commodities should be prepared on the basis of an independent expert evaluation, taking into account the precautionary principle, and should be provided in an annex to this proposal and comprise at least palm oil, soy, meat, leather, cocoa, coffee, rubber, and maize and all intermediate or final products that are derived from these commodities, and products that contain these commodities. In the event that the derived products contain input from more than one commodity covered by the proposal, due diligence should be performed with respect to each of these commodities. Commodities covered by Regulation (EU) No 995/2010 (2) of the European Parliament and of the Council (‘the EU Timber Regulation’) should be integrated into the scope of the proposal, following the Commission’s assessment on the basis of an independent, expert evaluation, taking into account the precautionary principle, within three years from the date of entry into force of the proposal.

The Commission should adopt delegated acts in a timely fashion on the basis of an independent, expert evaluation, taking into account the precautionary principle, to revise and amend the list with any additional commodities, and their derived products to be covered by the proposal if evidence or significant indications emerge concerning the detrimental impact of their harvesting, extraction or production on natural forests, natural ecosystems or human rights formal and customary rights of indigenous peoples and local communities to lands, territories and resources . The Commission should have a vigilant, proactive role in identifying emerging risks, and actively consult a diversity of stakeholders with relevant experience to maintain a list of commodities that reflects the state of knowledge about human rights and environment risks in relevant sectors.

The proposal should equally apply to all financial institutions authorised to operate in the Union which provide finance, investment, insurance or other services to operators that harvest, extract, produce, process, trade or sell forest and ecosystem-risk commodities and their derived products to ensure that these financial institutions themselves and their supply chain companies respect the responsibilities on the environment and human rights as set out in the proposal.

The proposal should apply to a trader, i.e. any natural or legal person that in the course of a commercial activity, sells to or buys from operators on the Union internal market any commodity covered by the proposal or a derived product that has been already placed on the Union internal market. Operators on the Union internal market should not be able to engage with traders, unless traders are able to:

— identify the operators or traders that supplied the commodities covered by the Regulation and their derived products; and

— where applicable, identify the traders to which they supplied the commodities covered by the proposal and their derived products; and

— ensure the traceability of their products, in order to be able to identify their origin, when they are placed on the Union Internal Market.

3. General obligations

3.1. Deforestation and conversion of natural ecosystems

Commodities covered by the proposal and their derived products that are placed on the Union market should not result in, or derive from, deforestation or the conversion of natural ecosystems.

For that purpose, FERCs placed on the Union market, in raw form or as products derived from or containing such commodities, should not be harvested, extracted or produced from land that at a cut-off date that lays in the past, but no later than 2015, that is science-based, justifiable, implementable in practice and in line with EU international commitments, had the status of natural forest or natural ecosystem, in accordance with the definition laid down in Section 3.3 ‘Definitions’, but had since lost that status as a result of deforestation or conversion.

3.2. Degradation of natural forests and natural ecosystems

Commodities covered by the proposal and their derived products placed on the Union market should not result in, or derive from, the degradation of natural forests or natural ecosystems due to human activity.

For that purpose, FERCs placed on the Union market, in raw form or as products derived from or containing such commodities, should not be harvested, extracted or produced from land that, at a defined cut-off date, had the status of natural forest or natural ecosystem in accordance with the definition laid down in Section 3.3. The cut-off date must be set in the past, but no later than 2015, and must also be science-based, justifiable, implementable in practice and in line with Union international commitments. It should only be legally possible to place on the Union market a commodity that has been harvested, extracted or produced in compliance with conservation objectives and it did not lead to the loss or degradation of ecosystem functions on or adjacent to the land from which it was harvested, extracted or produced.

3.3. Definitions

The Commission's legislative proposal should contain definitions as to what constitutes a ‘forest’, a ‘natural forest’ that possesses many or most of the characteristics of a forest native to the given site, even in the presence of human activities, ‘deforestation’, ‘forest degradation’, a ‘natural ecosystem’, ‘ecosystem degradation’ and ‘ecosystem conversion’. Those definitions should be based on objective and scientific considerations and take into account relevant sources of international law and international organisations, as well as other initiatives providing for suitable definitions, such as the Food and Agriculture Organisation of the United Nations, the European Environmental Agency, the Accountability Framework Initiative or the High Carbon Stock Approach.

The definitions should be based on the following principles

— they should allow the achievement of the highest level of environmental protection, notably for forests and other natural ecosystems, and be consistent with the Union's international and domestic commitment on forest, biodiversity and climate protection,

— they should support the Union's goal of preserving natural forests and ecosystems, including in particular primary and regenerated forests, and prevent their replacement with forests and ecosystems derived from human activities, such as tree plantations,

— they should be sufficiently comprehensive to grant protection to other natural ecosystems that, as forests, are important for the preservation of biodiversity or for the achievement of the climate objectives set out in the Paris Agreements,

— they should aim at ensuring that the adoption of Union measures to protect the world’s forests might result in the problem of conversion and degradation being shifted onto other natural ecosystems that are as important as natural forests for biodiversity, climate and human rights protection.

3.4. Human rights violations

FERCs placed on the Union market, in raw form or as products derived from or containing such commodities, should not be harvested, extracted or produced from land obtained or used in violation of human rights embedded into national laws, nor those rights expressed, as a minimum, in the EU Charter of Fundamental Rights or in international agreements, such as the rights of indigenous peoples and local communities, including tenure rights and the procedural right to give or withhold their free prior and informed consent as set out for example by the UN Permanent Forum on Indigenous Issues and UN and regional treaty bodies, the right to water, the right to environmental protection and sustainable development, the right to defend human rights and the environment, free from any form of persecution and harassment, labour rights as enshrined in ILO fundamental conventions and other internationally recognised human rights related to land use, access or ownership, as well as the human right to a healthy environment, as defined in the Framework Principles on Human Rights and the Environment and the standards and good practices identified by the UN Special Rapporteur on human rights and the environment.

Special attention should be paid to child labour with the aim to eliminate it.

At all stages, harvesting, extracting or producing covered commodities should respect local communities’ and indigenous peoples’ community and land tenure rights in all forms, whether they are public, private, communal, collective, indigenous, women’s or customary rights. Indigenous peoples’ and local communities’ formal and customary rights to lands, territories and resources should be identified and respected, as should their ability to defend their rights without reprisals. Those rights include the rights to own, occupy, use and administer these lands, territories and resources.

Commodities covered by the proposal should not be obtained from land whose acquisition and use affects community and land tenure rights. In particular, commodities placed on the Union market should not be harvested, extracted or produced from the lands of indigenous peoples and local communities, both those lands formally titled and those under customary ownership, without their free, prior and informed consent.

4. Duty to identify, prevent and mitigate harm in value chains

4.1. Duty of due diligence

Operators should take all necessary measures to respect and ensure the protection of human rights, natural forests and natural ecosystems, as set out in the proposal, throughout their entire value chain. This should include all types of business relationships of the undertaking with business partners and entities along its entire value chain (such as suppliers, traders, franchisees, licensees, joint ventures, investors, clients, contractors, commercial customers, transport companies, consultants, financial, and legal and other advisers), and any other state or non-state entity directly linked to its business operations, products or services.

In doing so, operators should take a risk-based approach to due diligence, where the nature and extent of due diligence corresponds to the type and level of risk of adverse impacts. Higher risk areas should be subject to enhanced due diligence.

The following measures should be adequately and effectively included:

(a) Mapping the entire value chain

Operators should determine whether the commodities and products in their entire value chains comply with the sustainability and human rights criteria of the proposal, by accessing and evaluating information on the precise land area(s) from where these goods originate. In addition to the environmental criteria, access to information must allow the operator to conclude that those using the land to produce FERCs are entitled to do so and have obtained Free, Prior and Informed Consent (FPIC) from those holding rights on those land areas and that they are not violating, or have violated, any human rights referred to in this proposal.

In particular, operators are required to have, and make available, information on:

(i) the precise area or areas of harvest or extraction or production of the commodities; in relation to cattle, beef and leather, operators must be able to obtain information about the various areas of pasture where cattle has been fed or, where cattle is raised using feed, about the origin of feed used;

(ii) the present ecological status of the area of harvest, extraction or production;

(iii) the ecological status of the area at the indicated cut-off date of this proposal.

(iv) the legal status of land (ownership/title including both formal and customary rights of indigenous peoples and local communities to lands, territories and resources) and evidence of Free, Prior and Informed Consent (FPIC).

(v) the elements of the supply chain of the commodity in question, with the aim of having information about the likelihood of contamination risks with products of unknown origin or originating from deforested areas, or from areas in which natural forest, forest and ecosystem conversion and degradation occurred, and information about where, by whom and under which conditions the commodities have been harvested, transformed or processed, with a view to determine compliance with the human rights obligations of this proposal.

Operators should have access to all the information related to the origin of the products entering the Union internal market through the systematic declaration of GPS coordinates for these commodities, after the entry into force of the proposal as laid down in Section 4.1 of this Annex.

(b) Identify and assess real and potential forest and ecosystem risks in the value chains, on the basis of the criteria laid down in the proposal

Where an operator sets up new operations or engages new business partners, it should identify the actors involved in the new supply and investment chains, and assess their policies and practices, as well as their harvesting, production, extraction and processing sites. For existing operations, ongoing adverse impacts and harms as well as potential risks should be identified and assessed. Risk analysis should be done with regard to the risks occurring from the operator’s activities to, or impact on, natural forests and natural ecosystems, indigenous peoples, local communities and individuals affected, rather than material risk to corporate shareholders. When operators have large numbers of suppliers, they should identify general areas where the risk of adverse impacts is most significant and, based on this risk assessment, prioritise suppliers for due diligence.

When operators have large numbers of suppliers, they should identify general areas where the risk of adverse impacts is most significant and, based on the risk assessment, prioritise suppliers for due diligence.

(c) Preventing risks and mitigating risks to a negligible level

Except where the risk identified in the course of the risk identification and assessment procedures referred to in point (b) is negligible, and therefore the operator has no residual reason to be concerned that the commodities and products may not meet the criteria set out in this framework, the operators should adopt risk mitigation procedures. Those procedures should consist of a set of adequate and proportional measures that effectively and demonstrably reduce to a negligible level all identified risks e.g. amending contracts with suppliers, providing support to suppliers to change their practices, changing its purchasing and investment practices, for the purpose and in view of the lawful placing of the covered commodities and products on the internal market.

(d) Ceasing environmental and human rights abuses

Where, after thoroughly following the requirements referred to in points (a), (b) and (c), operators come to the conclusion that operations, or parts of operations, contribute to or potentially cause or contribute to adverse impacts on human rights, natural forests, or natural ecosystems, as set out in the proposal, that cannot be prevented or mitigated, they should cease all of these operations, or parts of operations.

(e) Monitoring and continuously improving the effectiveness of their due diligence system and its implementation

Operators should periodically check to see if their due diligence system is fit for preventing harm and ensure the compliance of commodities and products with the framework and if not, adjust it or develop other actions. The evaluation of the due diligence system should be based on qualitative and quantitative indicators, internal and external feedback and clear accountability processes.

(f) Integrating third-party certification schemes

Third-party certification schemes can complement and ensure the identification of origin of products, risk assessment and mitigation components of due diligence systems, provided that these schemes are adequate in terms of scope and strength of sustainability criteria for the protection of natural forests and natural ecosystems against their conversion and degradation, as set out in the proposal and in terms of their ability to monitor the supply chain, and provided that they meet adequate levels of transparency, impartiality and reliability. By means of delegated act, the Commission should establish minimum criteria and guidance for operators to assess the credibility and solidity of third-party certification schemes. Those minimum criteria should in particular ensure independence from the industry, inclusion of social and environmental interests in standard-setting, independent third-party auditing, public disclosure of auditing reports, transparency at all stages, and openness. Certification schemes should only award certification to products with 100 % certified content. Only certification schemes meeting those criteria can be used by operators for their due diligence systems. Third-party certification should not impair the principle of the operator’s liability.

(g) Role of Voluntary Partnership Agreements

The Union may negotiate Voluntary FERC Partnership Agreements with FERC-producing countries (partner countries), which create a legally binding obligation for the parties to implement a licensing scheme and to regulate trade in FERCs in accordance with the national law of the FERC-producing country and the environmental and human rights criteria laid out in the proposal. FERCs under the scope of the proposal which originate in partner countries with Voluntary FERC Partnership Agreements should be considered to be of negligible risk, as far as the partnership agreement is implemented, for the purpose of the proposal. Such agreements should be based around national multi-stakeholder dialogues with effective and meaningful participation of all stakeholders, including civil society, indigenous peoples and local communities.

4.2. Duty of consultation

Operators should:

(a) adequately, timely and directly consult impacted and potentially impacted stakeholders;

(b) properly take into account stakeholders’ perspectives in the definition and implementation of the due diligence measures;

(c) ensure that representative trade unions and workers’ representatives are involved in the definition and implementation of the due diligence measures;

(d) establish an early-warning mechanism that give an opportunity to workers and interested parties with substantiated concerns to inform the operator about any risk of harm to natural forests, natural ecosystems and human rights throughout the entire value chain; the operator should take this information into account in its due diligence processes;

(e) properly take into account indigenous and local knowledge and risks an concerns expressed by local communities, indigenous peoples, land and environmental defenders.

4.3. Duty of transparency and reporting

Operators should annually report on their due diligence and consultation processes, the risks identified, their procedures for risk analysis, risk mitigation and remediation, and their implementation and outcomes to the competent authority and in a public, accessible and appropriate manner, which will not disproportionately in particular burden small and medium-sized enterprises.

The Commission should adopt delegated acts to set out the format, and the elements of the reports. In particular, operators should, inter alia, report on the system they use and how they apply it to the commodities in question, identified risks and impacts; the actions taken to cease and remedy existing abuses and to prevent and mitigate risks of abuse, as well as their outcomes; the measures and results of monitoring the implementation and effectiveness of such actions, warnings received through the early-warning mechanism and how the operator took them into account in their due diligence processes, and a list of all subsidiaries, subcontractors and suppliers, products and their quantity and origin. A failure to publish complete and timely reports should be penalised and ultimately lead to the suspension of authorisation to place products on the Union internal market.

4.4. Duty of documentation

Operators should maintain a written record of all due diligence actions and their results and make it available to the competent authorities upon request.

4.5. Commission guidelines

The Commission should develop guidelines and guidance to facilitate compliance with the legal obligations contained in the proposal, in particular to clarify the due diligence expectations for specific contexts, sectors, or in relation to certain types of operators. When doing so, the Commission should build on and extend good practices present in existing environmental management systems.

To support economic operators in conducting their due diligence obligations, the Commission should publish regional hotspot analyses with regard to FERCs.

5. Control, monitoring, enforcement, sanctions and access to justice

5.1. Public enforcement

Member States should ensure, in accordance with their national law and practice, the enforcement of the duties referred to in Section 4 by:

(a) providing for proportionate, effective and dissuasive penalties and sanctions for non-compliance with any of the obligations set out therein or where non-compliance with any of those obligations causes, contributes to, is linked to, or aggravates damage to natural forests or natural ecosystems or human rights abuses or the risks thereof; these should include: i. effective, proportionate and dissuasive penalties proportionate to the damage to natural forests, natural ecosystems or human rights, as set out in the proposal, the cost of natural forest and natural ecosystem and human rights restoration and the economic prejudice resulting from the infringement to the affected communities; ii. permanent seizure of covered commodities and derived products concerned; iii. immediate suspension of authorisation to place products on the Union internal market; iv. exclusion from public procurement processes; v. criminal penalties to individuals and, where allowed, for legal entities in the case of the most serious offenses;

(b) designating competent national investigating and enforcement authorities (‘competent authorities’); the competent authorities should monitor that operators effectively fulfil the obligations laid down in the proposal; for that purpose, the competent authorities should carry out official checks, in accordance with a plan as appropriate, which may include checks on the premises of operators and field audits, and should be able to adopt provisional orders and, in addition and without prejudice to the application of sanctions, should have the power to require operators to take remedial actions; the competent authorities should also carry out timely and thorough checks when in possession of relevant information, including substantiated concerns from third parties, and should treat information related to their activity in accordance with Directive 2003/4/EC on public access to environmental information;

(c) ensuring that members of the public have the right to challenge non-compliance before the judicial or administrative authorities, which should include any individuals or groups whose rights and obligations or interests are affected, directly or indirectly, by the undertaking’s total or partial failure to perform its duties, including employees, customers, consumers and end-users, trade unions, transnational trade union federations, local communities, national or local governments or institutions, journalists, NGOs and local civil society organisations.

The Commission should adopt delegated acts to lay down legally binding standards and guidelines applicable to national competent authorities to ensure effective and uniform implementation and enforcement of the proposal across the Union, in particular with regard to:

— listing and making public operators falling under the remit of the proposal in a public register;

— setting standards for the quality and quantity of compliance checks conducted by national competent authorities;

— further guidance on how to conduct compliance checks, such as guidance for national competent authorities that specifies criteria for checks to better analyse and evaluate the risk level of products and sufficient documentation of due diligence systems in use;

— guidance on third-party concerns to establish Union-wide criteria to assess whether a concern is substantial and reliable enough to be processed, and develop clear procedural standards for the timely, impartial, effective and transparent responses by the national competent authorities towards third-party concerns;

— Union-level criteria to help specify when an operator should be given a notice of remedial action, a penalty or when other penalties should apply; and

— obligations on competent authorities to report publicly about control and enforcement activities, infringements detected and responses to substantial concerns.

5.2. Civil liability and access to remedies

(a) Civil liability

Operators should be:

i) jointly and severally liable for harm arising out of human rights abuses or damage to natural forests and natural ecosystems, as set out in the proposal, that has been caused, aggravated, contributed by or linked to controlled or economically dependent entities;

ii) liable for harm arising out of human rights abuses or damage to natural forests and natural ecosystems, as set out in the proposal, directly linked to their products, services or operations through a business relationship, unless they can prove they acted with due care and took all reasonable measures given the circumstances that could have prevented the harm; operators may therefore discharge their liability if they can prove that they took all due care to identify and avoid the damage.

(b) Disclosure of evidence

Where a plaintiff has presented reasonably available facts and evidence sufficient to support their action, the defendant should bear the burden of proving:

i) the nature of its relationship with the entities involved in the harm;

ii) whether it acted with due care and took all reasonable measures to prevent the harm from occurring.

(c) Access to remedies

Damaged parties should have the right to accessible and effective judicial remedies to seek redress against operators that cause, aggravate, or are linked to or contribute to an adverse impact on their rights. Non-State grievance mechanisms should complement judicial remediation mechanisms to improve accountability and access to remedy.

6. Final provisions

6.1. Non-regression

The implementation of the proposal should in no way constitute grounds for justifying a reduction in the general level of protection of human rights, both formal and customary rights of indigenous peoples and local communities to lands, territories and resources, or the environment. In particular, it should not affect other existing subcontracting or supply chain liability frameworks.

6.2. More favourable provisions

Member States may introduce or maintain provisions that go beyond the provisions set out in the proposal as regards the protection of human rights and the environmental standards along the FERCs supply chain.

(1) Regulation (EU) 2019/1020 of the European Parliament and of the Council of 20 June 2019 on market surveillance and compliance of products and amending Directive 2004/42/EC and Regulations (EC) No 765/2008 and (EU) No 305/2011 (OJ L 169, 25.6.2019, p. 1).

(2) Regulation (EU) No 995/2010 of the European Parliament and of the Council of 20 October 2010 laying down the obligations of operators who place timber and timber products on the market Text with EEA relevance (OJ L 295, 12.11.2010, p. 23).