The EUDR: What it means for banks

The EU Deforestation Regulation (EUDR) does not directly regulate banks. Instead, it regulates companies placing cattle, coffee, cocoa, palm oil, rubber, soy, wood and certain derived products on the EU market. But for banks, the more relevant question is no longer whether the EUDR matters, it’s how indirect exposure could translate into financial risk for their clients

This piece does not revisit the details of the regulation. For an overview of who is in scope, the due diligence requirements, and the implementation timelines, please refer to our guide here. Instead, this article explains the EUDR’s implications for banks and sets out practical first steps.

Indirect exposure is still exposure

Banks aren’t regulated by the EUDR – but their clients are.

When a client fails to comply – losing EU market access, facing fines, or being dropped by buyers – that could translate into financial exposure. It can show up as credit risk (as cash flows weaken), collateral risk (as asset values fall), and stranded asset risk (where operations can no longer reach their intended market).

This is not confined to one geography or one sector. Exposure risk exists anywhere a bank finances forest-risk commodity supply chains – production, processing, trading, manufacturing, or the downstream goods that contain any of these seven commodities. A loan to a furniture manufacturer, a trade facility for a coffee importer, and financing a food producer each can carry EUDR risk, even if it hasn’t been identified as such.

Deforestation has always carried some financial risk, whether it is reputational or regulatory, but the EUDR could make those risks more immediate, measurable and visible in credit portfolios. The economy is not separate from the natural systems it depends on, and forests more broadly are among the major nature-related dependencies and impacts to which financial institutions are exposed. The EUDR is one of the first regulations to translate that connection into enforceable market access and compliance requirements, with indirect financial implications for the institutions that finance forest-risk supply chains.

The EUDR is reshaping the market

The regulation is likely to reshape how forest-risk commodities move through global supply chains, affecting pricing, supply and market responsiveness. Under the regulation, EU-bound supply chains will need traceability information back to the specific plot of land where commodities were produced and harvested. Producers, processors and traders outside the EU, and the buyers who depend on them, will need to adapt to provide this information, or risk losing market access to better-prepared competitors. For banks, this creates a new way of assessing portfolios: identifying which clients are positioned to remain competitive, which supply chains are resilient to regulatory change, and where value may become exposed over time.

Demand is moving in the same direction. According to studies by Boston Consulting Group, around 70% of consumers say they are willing to pay roughly 5% more for sustainably produced goods. This was seen in 2024, when UK grocer Waitrose raised prices on its ethically sourced cocoa range and reported a 34% uplift in sales. While regulatory compliance is the primary driver, growing demand for traceable and sustainably produced goods may provide an additional commercial advantage for clients able to demonstrate deforestation-free sourcing.

A signal of regulatory direction

The EUDR is also a marker of where regulation is heading. Nature is increasingly written into disclosure frameworks. Similar laws also are also under development for the UK and other markets, so exposure to this risk is likely to grow over time.

The Taskforce for Nature-related Financial Disclosures, which includes guidance on deforestation, is growing in acceptance as the de-facto voluntary standard and is likely to be reflected in mandatory regulation over time. Deforestation and land use change are appearing in transition plans and credit policy. The EUDR is the most concrete signal of a broader move to hold supply chains accountable for their impact on forests.

For financial institutions, the regulatory landscape is likely to evolve. While the EUDR and the UK’s proposed rules do not currently impose direct obligations on the finance sector, both jurisdictions are considering its role in addressing deforestation finance. At the EU level, this includes a commitment to review the finance sector’s role, while in the UK, the introduction of the new rules will prompt an assessment of whether existing financial regulation is sufficient to eliminate the financing of activities driving deforestation.

Banks that don’t assess the potential EUDR risk may underestimate the regulation’s significance. A more useful framing is to see it as an early, enforceable example of a broader regulatory direction. Building the capability to respond now is an investment that will strengthen banks’ ability to manage future nature-related regulation and market expectations.

Coffee: one of seven regulated commodities

So where can banks start?

Knowing that the EUDR matters is one thing. Acting on it is another. These three stages are a good place to start:

Stage 1: Screen and prioritise client exposure

Banks can start by screening their portfolio using sector information, geography, client type and, where available, commodity exposure to identify the clients likely to carry the highest EUDR risk. This helps prioritise engagement. Almost everything that follows, from frontline conversations to product design, depends on having this baseline. Without it, engagement is guesswork, and any new product is built on assumptions.

Stage 2: Equip the frontline

Relationship managers sit at the interface between portfolio risk and client action. As well as supporting clients through implementation, they provide valuable insight into where barriers exist and where transition opportunities are emerging. Building on the prioritised view from Stage 1, the priority is enabling relationship managers to get better informed and to engage clients on the EUDR – understanding the barriers clients face, asking the right questions, and recognising where a client is, and is not, prepared. Our guide sets out five practical readiness steps for this exactly.

Stage 3: Embed in portfolio strategy

Insights from the frontline should feed back into credit policy, sector strategy, product design and disclosure, embedding the EUDR’s considerations within existing risk management processes, rather than treating them as a standalone workstream.

Where next?

These three stages provide a practical starting point, rather than a complete implementation roadmap. Governance, disclosure, collaborative engagement and internal capability all matter too, and in practice several of these will run in parallel rather than in a neat sequence. We’ll pick up these threads across the rest of the blog series. The aim here is to help banks move from recognising the EUDR as a regulatory development to treating it as a practical portfolio management issue, and to identify the most effective place to begin.

This is the first of three pieces. The second blog focuses on the frontline: how relationship managers can engage clients, using the five readiness steps. The third blog turns to portfolio strategy: exposure mapping, credit policy and the green finance products the EUDR opens up.