Investors should reassess their portfolios due to new European Union regulations targeting deforestation, which are expected to impact companies dealing with key commodities, according to analysts at Jefferies Financial Group Inc. This was reported by Bloomberg.
Companies that use raw materials like rubber, palm oil, and cocoa, or livestock products such as beef, may face challenges under new EU regulations aimed at reducing global deforestation. The EU’s rules, which apply to all investors and businesses operating within or with the EU, aim to cut deforestation by 10% and reduce CO2 emissions by at least 32 million metric tonnes annually.
According to Jefferies analysts, companies with insufficient policies on deforestation and biodiversity risk being hit by “the increased due diligence requirements” imposed by the EU’s Deforestation Regulation (EUDR).
Jefferies has identified several companies that could be affected, including DN Automotive Corp., Hankook Tire and Technology Co., Kuala Lumpur Kepong Berhad, Nexen Tire Corp., Golden-Agri Resources Ltd., Darling Ingredients, and SD Guthrie Berhad.
The EUDR mandates that companies trace the raw materials in products entering the EU all the way back to their place of origin. Corporations must provide documentation proving that their goods are not made from commodities sourced from deforested land and that human rights were not violated during production. These checks must cover materials dating back to December 31, 2020, with non-compliance potentially resulting in significant fines.
The regulation is already making an impact. Concerns over a potential coffee supply squeeze caused September futures to surge against December contracts earlier this month in New York, resulting in the widest spread since trading began in January 2022. In July, U.S. papermakers warned of increased prices for diapers, sanitary pads, and other hygiene products due to the EUDR.
Companies and government officials have urged the EU to delay the regulation, citing its wide-reaching implications. But the EU has so far refused to alter its rollout, with the EUDR set to take effect on December 30 (small businesses will have a six-month grace period).
Despite strong concerns from countries and industry stakeholders, Jefferies said it expects the regulation to move forward as planned.
