Financial Risk Exposure under the EU Deforestation Regulation A Case Study of a Company Operating Internationally

Abstract

This study investigates how the EU Deforestation Regulation (EUDR) influences financial risk exposure for companies operating internationally. Using a qualitative case study approach, the research explores a Scandinavian company’s preparedness and potential financial consequences across three compliance scenarios: full, incomplete, and non-compliance. Semi-structured interviews, scenario analysis, and risk mapping form the empirical foundation, complemented by financial key performance indicators such as cost of capital and net sales. The findings show that incomplete compliance is the most probable short-term outcome, entailing increased compliance costs and operational delays without mitigating reputational or financial risks effectively. Non-compliance leads to significant export losses and a marked increase in the company’s Weighted Average Cost of Capital (WACC), while full compliance, although costly, stabilizes both revenues and financing conditions. Risk mapping reveals that operational risks are the most critical, combining high likelihood with substantial financial impact. The study concludes that proactive compliance and enhanced traceability infrastructure are essential for sustaining market access and financial resilience under EUDR. The results contribute to emerging literature on ESG finance, regulatory risk, and scenario-based risk assessment in sustainability transitions.