European consumers increasingly want to know that their timber and wood products and other Forest Risk Commodities (FRCs) – paper, beef, soy, palm oil and biofuels – are not contributing to deforestation which is a larger driver of climate change than all the transport sector emissions combined.
The Forest Footprint Disclosure (FFD) project was created to increase transparency on the sustainability performance of companies in these products’ global supply chains. The Global Canopy Programme only launched the initiative in 2009, but it is already endorsed by 36 institutional investors with assets over US$4 trillion.
In terms of timber, relevant FFD sustainability indicators might include forest management planning and clarity of ownership rights, but they can also cover management of sawmills as effective local regulators of suitable suppliers. This requires local players to invest in training and extra staff to provide building blocks for a credible chain of custody. Such moves at the first level of processing have been noted in the beef and leather supply chain already: last year a Brazilian public prosecutor threatened local slaughterhouses with legal action if they couldn’t prove their cattle came from legally cleared areas.
Timber regulations
There has also been much regulatory activity in key timber buying markets with the US Lacey Act amendments and the EU’s Forest Law Enforcement Governance and Trade initiative (FLEGT). Lacey offers a history of prosecutions in other natural products, such as furs and rare plants, and is thus something of a known quantity. The chain of potential prosecution extends to downstream buyers of the imported illegal product, which engages participants in the whole supply chain. Under FLEGT, the only point of prosecution appears to be at the border entry into the EU. This puts huge responsibility on a limited number of supplying countries that may not yet have the resources to deliver on these obligations. Downstream handlers, in a current version of the proposed regulation, appear much less directly exposed once EU import has been achieved, perhaps reducing the urgency of their engagement. On the upside, the implementation of FLEGT Voluntary Partnership Agreements between the EU and supplier countries helps improve forest management and provides funds for developing a traceable supply chain within that country, something a single company could not afford to do.
New coalition
FFD also welcomes the new Timber Retail Coalition, which includes Marks & Spencer and Kingfisher in the UK, and backs measures to curb illegally harvested timber and ensure EU regulations are effective.
But while tackling the illegal timber trade is critical to addressing deforestation, it should not be seen as the end goal. Legally logged forest may still not be managed sustainably. Concerns exist that if legality is treated as the only issue, efforts to ensure the primary objective of sustainability may lose momentum. It will need strong corporate leadership to continue to invest and deliver on this sustainability challenge above a regulatory hurdle. That is precisely what FFD will publicise so better practice can be recognised by investors.
We must also recognise the realities and complexity of the supply chain, since outside the EU and US, trade in wood-based products is carried out with few effective restrictions. However, exporting country governments will recognise that they could lose jobs in value-added wood processing industries if they fail to help companies make the changes needed to keep major customers.
Sustainability provides marketing edge
The scarcity of legally recognised product could be a strategic advantage to primary producers who make the effort to be compliant. Early on, when the obligations imposed by new regulations are still unclear, buyers will want to minimise the risk of getting it wrong and being an early test case.
Another positive opportunity is that market demand from public procurement bodies increasingly incorporates higher sustainability criteria. This allows continued access to valuable market niches for enlightened suppliers, and reduces competition from those that have made no effort to follow better practice. These effects are most visible in the UK and Germany, so in both countries major retailers have made the effort to obtain certification.
It seems likely that, with the encouragement in the FLEGT Action Plan, the use of public procurement policy to promote higher standards will continue. Building regulations can be an additional lever if they insist on sustainable timber sourcing. This demand-pull can be very helpful in building a sustainable supply chain that can also support enlightened corporate participants.
In the future, as sustainability indices increasingly become benchmarks for long-term performance by investment funds, a company included in such an index will continue to have access to a broad base of equity investors. However, sustainability index inclusion needs to be based on effective execution rather than a well-intentioned policy which never makes it into practice. Projects such as FFD will help level the playing field by educating shareholders about the companies who are trying to do the right thing and not just talk about it. If you want to get involved go to www.forestdisclosure.com.
