“Where was the raw material produced?” 

For companies in the food and agriculture sectors, the pressure to answer this question  is rapidly increasing. Companies have made significant progress in their sustainability efforts　in recent years. Climate change has particularly been a major focus for many companies.  This has been driven in part by the growing adoption of international frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD)  and the Science Based Targets initiative (SBTi) . Many companies have been working to measure their greenhouse gas emissions and set emissions reduction targets. 

* The TCFD completed its work in 2023 after fulfilling its mandate. Responsibility for monitoring  progress on corporate climate-related disclosures was transferred to the IFRS Foundation. The TCFD’s recommendations have been fully incorporated into the IFRS Sustainability Disclosure Standards developed by the International Sustainability Standards Board (ISSB)  (*1) 

In addition to GHG emissions, companies are increasingly expected to understand and manage their impacts on the broader natural environment, including biodiversity, forests, and water resources. 

The food and agricultural sector is particularly connected to the natural environment through land use and raw material sourcing. Also, environmental impacts can vary significantly depending on where and how raw materials are produced. As a result, companies are increasingly expected to understand and explain not only what raw materials they source, but also where and how those materials are produced.” 

The European Union Deforestation Regulation (EUDR)  is a key example of this trend. The EUDR restricts the placing on the market and export of products associated with deforestation. At its core, however, the regulation requires companies to trace relevant products upstream through the supply chain and understand where and how relevant raw materials are grown.  

This article first examines the relationship between deforestation and the food and agriculture industry. It then explains the EUDR and its implications for companies. Finally, this article considers “environmental impact management at the raw material level,” which is expected to become increasingly important for food and agriculture ESG.  

The Relationship Between the Food and Agriculture Industry and Deforestation 

Trade-offs Between Food Production and the Natural Environment 

Global food demand continues to grow alongside population growth and economic development. At the same time, the expansion of food production has had significant impacts on the natural environment. 

According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), more than one-third of the world’s land is used for crop production and livestock farming (*2). 

Agriculture is an essential industry that supports people’s livelihoods. However, its expansion has contributed to the loss of forests, wetlands, and habitats, as well as the degradation of ecosystem services and biodiversity loss. 

Agricultural Expansion as a Major Driver of Deforestation

Deforestation has multiple underlying causes, but agricultural expansion is the largest driver. 

According to the Food and Agriculture Organization of the United Nations (FAO), approximately 420 million hectares of forest have been lost worldwide since 1990 (*3). It has also been found that agricultural expansion is estimated to drive approximately 90% of global deforestation (*4).  

At the regional level, the conversion of forests to agricultural land is a major driver of forest loss in Africa and Asia.   In South America, meanwhile, approximately three-quarters of deforestation is attributed to livestock grazing (*4).  

Further, according to the United Nations Environment Programme (UNEP), the global food system accounts for approximately one-third of global greenhouse gas emissions. It is also a major driver of biodiversity loss and deforestation. Agricultural activities are estimated to affect approximately 86% of species at risk of extinction (*5). 

Deforestation is therefore not simply a land-use issue. It is closely connected to a range of environmental challenges, including climate change, biodiversity loss, and pressure on water resources . For this reason, deforestation needs to be addressed as an issue that affects the entire food and agriculture supply chain. 

Corporate Responses to Forest-Related Risks 

Against this backdrop, companies in the food and agricultural sector is increasingly expected to identify and manage deforestation risks across their supply chains. 

According to CDP’s Global Forests Report 2024, 1,152 companies disclosed forest-related information in 2023. Of these, 186 companies provided more advanced disclosures using certification schemes, monitoring systems, and other tools (*6). CDP, formerly known as the Carbon Disclosure Project, is a global nonprofit organization that operates an environmental disclosure platform to help companies and local governments measure and disclose their environmental impacts (*7). 

Stakeholders such as investors, business partners, and regulators are placing greater importance on transparency regarding how companies manage their impacts on deforestation and land conversion risks. 

Addressing deforestation is no longer an initiative limited to a small number of leading companies. It is a growing issue for companies across global supply chains. 

EU Regulation Promoting Deforestation-Free Sourcing

What Is the EUDR? 

Against growing concerns over deforestation, the EU has introduced a new regulatory framework. The EUDR is a regulation designed to prevent products linked to deforestation and forest degradation from being placed on the EU market or exported from the EU (*8). Its objective is to reduce demand for products associated with deforestation and forest degradation and to address the drivers of forest loss across supply chains (*8). 

Forests are vital carbon sinks as well as habitats for a wide range of species. By restricting the placing of relevant products on the EU market and their export from the EU, the EUDR is expected to contribute to reducing greenhouse gas emissions and conserving biodiversity. On the other hand, concerns over rising compliance costs have led to calls to reduce the burdens on businesses. These concerns have also resulted in several delays in the implementation timeline. 

Covered Commodities and Corporate Requirements

The EUDR covers seven commodities: cattle, cocoa, coffee, oil palm, rubber, soy, and wood, as well as products derived from these commodities (*8). 

Under the EUDR, companies selling relevant products in the EU or exporting them from the EU are required to(*8): 

Deforestation-free: Ensure that the products are not derived from land that has not been subject to deforestation after December 31, 2020. For products containing or made using wood, ensure they must not have contributed to forest degradation. 

Legally produced: Ensure that the products have been produced in accordance with the relevant legislation of the country of production, including laws concerning land-use rights, environmental protection, labour, human rights, and the rights of Indigenous Peoples. 

Due diligence statement: Exercise due diligence and, where required under the Regulation, submit a due diligence statement before bringing relevant products onto the EU market or exporting them.  

Due diligence, under the EUDR, involves collecting relevant information, conducting a risk assessment, and, where necessary, taking risk-mitigation measures to demonstrate that relevant products comply with the Regulation before placing them on the EU market or exporting them (*9).  

Traceability back to the production site is paramount. Companies need to identify the land on which raw materials were produced and demonstrate that the land is not associated with deforestation. 

Note 1: The EUDR is also scheduled to apply in principle from December 30, 2026, to large and medium operators. (as of July 2026). Different application timelines have been established for small and micro enterprises (*10). 

Note 2:  The application timeline, covered products, and corporate requirements under the EUDR may change in the future. When taking practical steps toward compliance, please refer to the latest information published by the European Commission and other relevant authorities. 

Implications for Companies Worldwide 

Although operators in the EU market are the direct subjects of EUDR regulation, its impact extends beyond the EU. Companies involved in supplying or processing raw materials for products destined for the EU may be asked by their business partners to provide information on deforestation-related risks and identify traceability, regardless of where they are based. In other words, raw material suppliers and processors outside the EU, may be required to support deforestation-free sourcing if they form part of a supply chain connected to the EU market. 

For these reasons, the EUDR is attracting attention as a regulation whose effects extends beyond the EU and throughout global food and agriculture supply chains. 

The Need for Environmental Impact Management in Raw Material Sourcing 

Natural Capital and Biodiversity Beyond the EUDR 

The EUDR is a framework that addresses deforestation, but it is part of a broader trend. In recent years, the scope of corporate sustainability reporting has expanded beyond climate change to include natural capital and biodiversity. 

For example, Taskforce on Nature-related Financial Disclosures (TNFD) emphasizes the importance of understanding in which places companies depend on nature and where they impact nature when assessing the relationship between business activities and nature (*11). The GRI Biodiversity Standard also requires companies to disclose information about products that have a significant impact on biodiversity and the regions where production activities take place (*12). 

Why “Where It Was Produced” Matters 

Impacts on deforestation, water use, and biodiversity can vary significantly depending on the production region, even for the same agricultural commodity. For example, soy produced in a region with a high risk of forest conversion can have different environmental impacts from soy produced on existing agricultural land. This means that in future ESG efforts, simply knowing which raw materials a company sources will no longer be sufficient. Companies will increasingly need to understand where and how raw materials were produced and explain the environmental impacts associated with them. 

Toward Environmental Impact Management at the Raw Material Level 

The Science Based Targets Network (SBTN) also promotes an integrated approach to environmental action that goes beyond climate to address areas such as freshwater, land, oceans, and biodiversity (*13). 

Against this backdrop, ESG management in the food and agricultural industry will increasingly require companies to identify environmental impacts at three levels: 

• the raw material level 

• the production region level 

• the production process level 

Establishing systems that enable companies to assess and explain their impact based on data is necessary. 

From Deforestation-Free Sourcing to Broader Environmental Impact Management  

The Data Infrastructure Required for Food and Agriculture ESG

The growing focus on deforestation-free sourcing, partly driven by regulations such as the EUDR, is not simply about regulatory compliance. Going forward, companies are expected to take a comprehensive view of their impacts on natural capital. These include considering not only deforestation, but also issues such as biodiversity, water resources, land use, and climate change. 

A key requirement will be data infrastructure that enables companies to understand environmental impacts at the raw material level. Connecting information on which raw materials are sourced, and where and how they are produced, with data on their environmental impacts will become a significant  foundation for ESG management in the food and agricultural industry. 

An Approach to Visualizing Environmental Impacts at the Raw Material Level

Life cycle assessment (LCA) and natural capital assessment are increasingly being used to assess the environmental impacts of individual raw materials. cuoncrop’s My-Eco-Ruler is one example of a tool designed to visualize the environmental footprint of food products and their ingredients. A key feature of My-Eco-Ruler is its use of multiple environmental indicators to assess the impacts of food products and raw materials, covering not only greenhouse gas emissions but also biodiversity and land conversion. 

Companies in the food and agricultural sector will need to go beyond simply identifying their suppliers and develop a more detailed comprehension of environmental impacts at the raw-material level.  For more information about My-Eco-Ruler, please feel free to contact cuoncrop.