Cost of environmental compliance: overview
- The EU’s deforestation law takes effect in December 2026, with lower compliance costs for businesses
- Food companies are investing in traceability systems for cocoa, coffee, soy and palm oil
- Many manufacturers see EUDR and ESG spending as a long-term business investment
- Smallholder farmers face challenges with data, geolocation and compliance requirements
- Better traceability is improving risk visibility and supplier relationships
With the European Union Deforestation Regulation (EUDR) expected to come into force by the end of 2026 and environmental, social and governance (ESG) policies increasingly shaping food strategies, what does sustainability mean for the balance sheet?
Food and drink firms are engaging in ESG initiatives that tackle a broad range of sustainability issues. For many, these are considered an investment in the planet’s – and their business’s – long-term futures.
But, with sustainability targets extensive and urgent, just how many slices of the financial pie are environmental needs devouring? And does it even matter if this consumption creates sales and loyalty?
Third-time lucky for the EU’s deforestation law
After being delayed twice, the revised and simplified EUDR will enter into force on 30th December 2026, with a longer implementation period for many micro and small operators.
“The Commission’s focus is now on the implementation of the EUDR, to provide legal certainty and clarity for all stakeholders in the EU and in partner countries,” says a spokesperson for the European Commission.
In December 2025, the European Parliament and Council adopted the revised EUDR, “providing the legal stability needed for successful implementation”, the spokesperson said.
Further Spring 2026 measures aim to provide greater clarity, guarantee legal stability and predictability, and reduce the administrative burden for businesses.
The EUDR aims to ensure key goods placed on the European Union (EU) market do not contribute to deforestation and forest degradation, both within the EU and globally. These activities are among the most significant drivers of climate change and biodiversity loss.
The main driver of deforestation is the expansion of agricultural land linked to the production of seven commodities covered by the regulation, four of which are produced by the food sector: cocoa, soy, palm oil and coffee.
A competing cost centre or innovative investment?
Delays to the EUDR’s arrival raise questions about how much its pushback relates to cost. And whether EUDR-related requirements and an increasing focus on ESG could mean green actions are now the industry’s biggest cost centres, potentially overtaking health and safety, ingredients and people.
In its April 2026 EUDR simplification review package, the European Commission estimated that the simplification measures introduced so far would reduce recurring annual compliance costs by around 75%.
The significant cut would take these from approximately €8.1 billion under the Regulation as it entered into force in 2023 to €2.0 billion once all simplification measures are taken into account.
“It would be misleading to describe the EUDR as simply another cost centre,” says Christian Hohlfeld, public affairs lead at the Rainforest Alliance. The regulation does require investment, particularly in traceability, supplier data, due diligence systems and staff. However, these capabilities are increasingly becoming core components of supply chain infrastructure rather than isolated compliance expenditures.
For industry, from a medium-term cost perspective, getting ready for the EUDR’s arrival may increase costs. “Primarily due to supply limitations in sourcing raw materials that meet all requirements,” says Julia Ocampo, VP cacao sourcing and sustainability at Luker Chocolate.
However, the brand also recognises that these compliance efforts benefit the entire value chain by strengthening it, making it more sustainable and improving traceability.
“We do not consider this expense a cost, but rather an investment,” said Ocampo. With all actions relating to environmental, economic and social needs, enabling consumers to evaluate their purchasing decisions with data and evidence, potentially directing companies’ investments towards ESG.
Preparing for the EUDR and ongoing ESG-related actions are not isolated from other business functions. “We would not frame these priorities as competing cost centres,” said Pia Decarsin, global press relations manager at Danone Group. Instead, Danone sees EUDR and ESG requirements, health and safety, ingredients and people as all integral parts of how it builds a more resilient and responsible food business.
The era of better supply chain intelligence
“The greater long-term risk is maintaining opaque and fragile supply chains while climate impacts, ecosystem degradation and producer vulnerability increasingly affect the availability, price and quality of agricultural commodities,” says Hohlfeld.
Beyond environmental benefits, the EUDR and stronger ESG expectations can create more transparency, more consistent due diligence and greater collaboration across the value chain. These efforts can support better risk management, more resilient sourcing, stronger supplier relationships and greater trust.
For manufacturers sourcing EUDR-relevant commodities, particularly cocoa and coffee, understanding the origins of raw materials can deliver operational benefits.
“One of the clearest additional benefits is better supply chain intelligence,” says Hohlfeld. The systems created for EUDR implementation can provide a foundation for better sourcing decisions, stronger supplier relationships and continued access to the European market.
“Traceability should not be viewed as paperwork for its own sake,” adds Hohlfeld. Instead, used effectively, it can function as an early warning system for procurement. More reliable information about origins, producers and land-use risks can help manufacturers identify vulnerabilities and concentration risks before they lead to supply disruptions.
It can also support earlier engagement with suppliers and more targeted investment in the regions and producers on which companies depend.
“For Danone, protecting forests and natural ecosystems is both a moral and business imperative because our business depends on healthy ecosystems, thriving farming communities and reliable access to quality raw materials,” says Decarsin.
Comprehensive traceability enables businesses to meet the demands for stronger, more reliable relationships with suppliers, fostering longer-term partnerships and shared responsibility.
“Equally key is the ‘professionalisation’ of the agricultural sector, in the case of cacao, through the company’s support of the supplier,” says Ocampo.
To realise the full value of these systems, companies can combine traceability with investment at the point of origin, including farmer training, climate-resilient production, income diversification and longer-term commercial relationships. “That is how EUDR implementation can become a platform for stronger supply chains rather than a box-ticking exercise,” says Hohler.
Practical hurdles exist
In preparation for the EUDR’s arrival in December 2026, food firms continue to face practical and sector-wide challenges. Namely, businesses are grappling with how to improve traceability across complex, global supply chains, collect and verify reliable data, engage with many different suppliers and across geographies, and ensure that smaller producers are not left behind. “This is why collaboration is essential,” says Danone’s Decarsin.
For the EUDR, the main challenge is translating the legal requirements into workable systems across complex, often fragmented global supply chains. Companies need reliable information to navigate multiple tiers of suppliers, processors and manufacturers.
The Commission’s 2026 Guidance and FAQs provide greater clarity and several simplifications, but companies still need robust data governance, functioning traceability and reliable upstream information.
Consistent implementation and enforcement across EU Member States is also vital.
“Companies and producers need predictability, particularly as updated Information System functions and revised obligations for different supply chain actors are implemented,” Hohlfeld added.
The risk of excluding smallholder farmers remains an obstacle, as does securing farmer buy-in. “Distrust from small-scale farmers around the georeferencing process”, Ocampo says, is a key challenge. While many smallholders outside the EU are not regulated operators, buyers may still require geolocation, production and legality information from them.
Without finance, technical assistance and fair commercial relationships, companies may choose to avoid complex suppliers or sourcing regions rather than invest in addressing risks. “That would undermine farmers’ livelihoods and the environmental purpose of the regulation,” says Hohlfeld.
EUDR readiness should be seen as an investment in future supply security. Meeting these challenges requires shared responsibility.
“Companies need to invest in their suppliers and in credible long-term risk mitigation,” said Hohlfeld. “Governments need to support implementation and partnerships with producer countries.”