Deforestation‐Free Cocoa: Implications for Organizational Adaptation and Compliance Costs

ABSTRACT Mandatory due diligence is an emerging policy instrument for addressing global environmental challenges, yet how such regulations reshape firm‐level organizational structures and generate compliance costs remains poorly understood. Drawing on organizational theory, this study examines how companies in the German cocoa and chocolate sector adapt to the EU Regulation on Deforestation‐free Products (EUDR) and estimates the associated compliance costs. Based on 18 semistructured interviews with representatives of affected companies, service providers, and associations, we find that EUDR implementation constitutes a modular organizational transformation affecting governance structures, IT systems, and supply chain relationships simultaneously. Indicative total compliance costs for a reference company with approximately 500 employees amount to approximately €320,000 per year during the transition phase and €540,000 annually thereafter. The latter amount consists predominantly of price premiums for compliant cocoa, estimated at about €415,000 per year. These findings extend organizational theory by characterizing the cross‐boundary pressures inherent in extraterritorial mandatory due diligence and refine compliance‐cost frameworks by foregrounding the indirect organizational costs that such regulation generates during implementation.