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Forest Product Eco-Labeling and Certification: Efficacy and Market Drivers

Forest Product Eco-Labeling and Certification: Efficacy and Market Drivers

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An IGEL Report made possible through a Wharton Global Initiatives Research Grant.
An IGEL Report made possible through a Wharton Global Initiatives Research Grant.

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FOREST PRODUCT ECO-LABELING AND CERTIFICATION: EFFICACY AND MARKET DRIVERS

IGEL Report April 2012

This research was conducted with assistance from a Wharton Global Initiatives Research Programs Grant.

With leadership from the business school, IGEL brings a unique business orientation and top intellectual/research capacity to bear on some of the most important long-term environmental challenges facing the future of humanity today. Using Wharton and Penn's entrepreneurial natures, IGEL is working to beomce the preeminent academic institution dedicated to the rigorous study of business and global sustainability. We work with our corporate sponsors, our faculty, academic networks and our students to solve the most pressing environmental issues facing businesses and the world. For more information on IGEL and to see more of our research, please head to http://environment.wharton.upenn.edu.

Report written and designed by Caroline D’Angelo with additional research and writing provided by Dakota Dobyns and Doug Miller. IGEL wishes to thank those who were interviewed for this report, especially Beth Gingold, David Kiser, Etienne McManus-White and Dave Stangis.

CONTENTS
Contents ...................................................................................................................................................................................................................................... 2 Acronyms .................................................................................................................................................................................................................................... 2 Executive Summary ..................................................................................................................................................................................................................... 0 Introduction and Impetus for the Report .................................................................................................................................................................................... 0 Forest certification ...................................................................................................................................................................................................................... 1 Certification in developing countries .......................................................................................................................................................................................... 3 Market Drivers: developing countries .................................................................................................................................................................................... 4 Examples from Southeast Asia .................................................................................................................................................................................................... 5 Indonesia ........................................................................................................................................................................................................................... 5 Malaysia ............................................................................................................................................................................................................................ 6 Conclusions and recommendations ............................................................................................................................................................................................ 7 Works cited ................................................................................................................................................................................................................................. 8

ACRONYMS
NGO………………..Non-governmental organization FSC………………….Forest Stewardship Council GEN………………..Global Ecolabelling Network GTFN………………World Wildlife Fund’s Global Forest and Trade Network LEI……………………Lem-baga Eko-la-bel Indone-sia (Indonesia Ecolabeling Institute) LEED………………..Leadership in Energy and Environmental Design REDD+…………….Reducing Emissions through Avoided Deforestation and Degradation SFI…………………..Sustainable Forestry Initiative WRI…………………World Resources Institute (WRI) POTICO……………Palm Oil, Timber, Carbon Offset program of the WRI

EXECUTIVE SUMMARY This paper examines the current state of eco-labeling and certification market drivers in developed and developing countries for forest products from developing countries, using Southeast Asia as a focus of study. It synthesizes the literature on market drivers for certification in Southeast Asia using information from a review of the available literature on forestry eco-labels and certification, analyses of two eco-label databases maintained by EcoLabel.org and BASF, and interviews with companies and eco-labeling initiatives. Starting with an overview of the current state of forest certification, the paper evaluates issues in eco-labeling from the consumer demand side from both the developed and developing countries. The paper then uses case studies from Malaysia and Indonesia to illustrate the complexity in forest certification success, and evaluate the current market. Indonesia’s dramatic deforestation rates from peatland burning, palm oil plantations, illegal harvesting and development, have secured it a position within the list of top global carbon emitters. The paper then concludes with recommendations for how certification can expand on both the consumer and the producer side to make forest ecolabeling and certification more successful.

generating activities they provide to humans, millions of people will be displaced. Illegal logging, rampant in many countries, is a loss of needed government tax revenue, forest-dwelling peoples’ autonomy and a threat to legitimate forestry businesses. This is a loss on a devastating scale, one that is expensive both in species and habitat loss, but also potential medicines, and climate change and pollution mitigation. The environmental impacts of deforestation consist of but are not limited to soil erosion and degradation, diminished water quality, loss of natural habitat, biodiversity loss, and destruction of carbon sinks. The detrimental impacts on local economies and communities associated with poor natural resource – including forest – management and how such impacts historically have undermined numerous societies is demonstrated by Jared Diamond in his work Collapse (Diamond 2006). It is necessary to address the impacts of global supply chains that drive deforestation and therefore contribute to the environmental change that threatens environments, economies, and societies in variation locations across the planet. One mechanism for addressing supply chain comes from the United Nations’ Reducing Emissions from Deforestation and Degradation (REDD+) program, which uses funding from carbon credits to ensure forests are unharmed or managed sustainably. This program may drastically change the forest economics in Indonesia and provide new business opportunities in managing, selling and establishing carbon credit land for carbon markets (Busch et. al 2012). Credible ecolabeling and certification programs aim to increase sustainable management of resources. These management, audit and oversight systems often attempt to stymy environmental harm wreaked from market failures and management and governance problems.1 Over the last 20 years, ecolabeling and certification programs have rapidly expanded, with a presence in nearly every sector and type of product. With the expansion, there is debate: do ecolabeling and certification actually lead to more sustainable supply chains? Are the costs of ecolabeling and certification recouped through price premiums or consumer loyalty? Is consumer awareness of environmental

INTRODUCTION AND IMP ETUS FOR THE REPORT

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eforestation is problematic in environmental, economic, and social terms. It is a resource management problem on a global scale with global repercussions. Forests are the planet’s biodiversity reserves. One hectare of tropical forest may contain up to 750 species of tree and millions of other species of insects, fungi, bacteria, reptiles and mammals. Within this biodiversity are possibilities for new medicines, new products and new scientific understanding. Forests are also reserves for carbon, consuming and storing this greenhouse gas in their soils, bark and leaves. Preserving and regenerating forests may be the cheapest method for mitigating climate change, which is one impetus for the United Nations REDD+ program. They also provide income, food and shelter for millions around the world. Forests provide parts of the supply chain for a wide diversity of industries such as palm oil, wood, coffee, and more. Due to supply chain demands, population growth, development, corruption and inadequate planning, they are rapidly disappearing. Without forests and the income-

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such as corruption, a lack of governmental enforcement and regulation and gaps in integrated management, and so forth.
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Certification and eco-labeling are linked concepts: certified operations are allowed to use an eco-label and access particular markets (like Leadership in Energy and Environmental Design - LEED). According to ISO 14021 labeling

sustainability issues growing? There is certainly a long way to go - certified forestry products may only account for as little as four percent of the international forestry trade (The Nature Conservancy 2011). Academic studies, non-governmental organization reports and corporate case studies have argued on both sides of all of these questions. Despite the debate, the fact remains that many companies, development agencies and NGOs view ecolabeling and certification as methods to reach new consumers and price points, fix market failures that favor cheap and unsustainable resource harvesting and/or manage their supply chains. This paper’s analysis of eco-labeling and certification contributes to a larger body of work that seeks effective market- and governance-based methods to stem global deforestation and work towards sustainable resource management. The issue of deforestation also presents a challenge due to discounting: the present is weighed more heavily than the future. As such, the perceived costs of changing forest management practices now are greater than doing so at some future time. There is thus little incentive for immediate action to improve forest management practices. Eco-labels and certifications for forest products are an intriguing area of research since they may help provide an incentive for environmentally sound practices. Today, Southeast Asia has the highest relative rate of deforestation in the world (Sodhi et. al 2004). By using two examples from this region, Indonesia and Malaysia, this paper offers insights for more sustainable forest management that could be applied elsewhere. IGEL is interested in studying these issues to provide insight and tools to assist businesses in becoming more sustainable, profitable and efficient. Ultimately, given the right incentives and the abolishment of perverse incentives, reforestation and avoiding deforestation and degradation are business opportunities.

peoples: it also accounts for up to 20 percent of greenhouse gas emissions (IPCC 2007). Currently about 10 percent of global forests are certified (Suryani et. al 2011; FAO 2010). Only a small amount of these certified forests are in tropical countries, however, for reasons explored later in this paper. There are approximately 60 forest certification programs2 worldwide, of which some are international, some national and some are sector- or company-based (The Nature Conservancy 2011). The most well-known international forest programs are the Forest Stewardship Council (FSC) and Program for the Endorsement of Forest Certifications (PEFC). Indonesia and Malaysia have their own in-country forest certification schemes, which have created relationships with FSC and PEFC relatively. Additionally, there are more than a hundred eco-labeling schemes3 globally that label downstream forest products. These product eco-labels either build on forest certifications or incorporate sustainable forestry ideals into their information, such as Cradle-to-Cradle, Leadership in Energy and Environmental Design (LEED), and the Hong Kong Flooring Scheme, to name a few. This diversity of downstream forest eco-labels reflects the diversity of the portfolio. The forest product portfolio includes items with multiple price points and uses that target different markets, which means that a certification scheme in forest products has to be far reaching. The variety causes issues with sufficient branding and market building, oversight and consumers’ willingness to pay. Growth in use of forest certification and forest product ecolabels have expanded as consumers and companies demand more transparency and accountability about products4. Other market drivers include policy directives, such as the 2009 US Executive Order 13514, which requires that federal agencies purchase environmentally-preferable products. NGOs provide yet another driver through attempting to build a robust market for certified products through education, lobbying and marketing. One such example is the World Wildlife Fund’s Global Forest and Trade Network (GTFN), which works with corporations and within

FOREST CERTIFICATION

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orest certification emerged in 1992 at the United Nations Conference on Environment and Development in an attempt to slow crippling deforestation rates in tropical countries. The goal was to provide a consumer-driven mechanism to alleviate the market failure that favors cheap, often-illegally harvested, unsustainable wood. Deforestation not only has a toll on the environment, watersheds and forest-dwelling

Certification and eco-labeling are linked concepts: certified operations are allowed to use an eco-label and access particular markets (like Leadership in Energy and Environmental Design - LEED). According to ISO 14021 labeling guidelines, eco-labels should be independently verified and have measurable goals. Only eco-labels with this standard are within the scope of this paper. There are also hundreds of essentially meaningless eco-labels without standards on the market.
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Author survey using Eco-label.org, BASF, and literature. The author would like to thank Eco-label.org and BASF for allowing IGEL access to their databases.
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Interview with US Forest Stewardship Council, Etienne McManus-White, 2011

developing countries to provide access to markets for certified forest products. Additional outreach through websites and curricula is being done by forestry and paper companies, certifying bodies, NGOs with certification systems like GreenBlue, and others. NGOs and certifying bodies are also endeavoring to bolster each other’s products, like Cradle-to-Cradle and LEED which require relevant highest scoring products to use only FSC certified wood. Companies such as International Paper, Habsro, Wilsonart, Home Depot, Lowe’s, Georgia-Pacific, and Kimberly-Clark are also driving the use of certified forestry products, seeing it as a way to improve image, respond to consumer demand and reduce supply chain risk from illegal wood or unfavorable NGO campaigns (Scientific Certification Systems 2011). There is still much to be done, however. Aguilar and Vlotsky (2008) found that certification was not a major factor in purchasing decisions for U.S. companies surveyed. Some corporations, like Home Depot, have removed most of its tropical wood from its supply chain, leaving them with only limited ability to create demand for sustainably managed tropical forest products (Home Depot 2010). Additionally, cerfitication programs must be managed well. Counterproductively, unqualified demand for certified products from tropical forests may actually further rainforest destruction. Forest Trends, a watchdog NGO, actually indicated that demand for certified wood from developed countries was furthering deforestation using Malaysia’s lax certification scheme (Ozinga 2004). Furthermore, a study by Cashore et. al (2005) shows that as companies become more aware of certification options, they take pursue more economical certification options rather than those that are environmentally-rigorous. Companies have responded to demand and perceived market benefits by increasing green product offerings5. Corporate interest in transparency has driven more investment in supply chain tracking and labeling. The best labeling schemes follow radical transparency, which involves tracking the various impacts of an item from creation to disposal and then providing information about these impacts to consumers in an understandable manner (Goleman 2010). Transparency transforms the perception shoppers hold about the ecological impact of products they purchase and provides consumers with a tool for making sustainable choices (Goleman 2010). Further, by

PLANTATIONS
Tree plantations are planted forests usually consisting of palm oil, pine or other fast-growing trees for wood, eucalyptus, banana and teak. Usually a stand of trees in a plantation are all the same age and owners cut out all underbrush (see picture), which means that plantation forests do not provide as much diversity in habitats or species as virgin or natural forests. Plantation forests are controversial within the certification space. In Southeast Asia in particular, virgin rainforest has been cleared to create plantation forests. FSC does not certify plantations created after 1994 for this reason.

encouraging consumers to make more sustainable choices, businesses adopting sustainable practices can establish a competitive advantage, since consumers will hold a more favorable view of a company that publishes information about its products (Miller 2011). However, the competitive advantage gained through sustainabiliy extends beyond consumer choices. A study by AT Kearney found that companies listed on the Dow Jones Sustainability Index or the Goldman Sachs SUSTAIN Focus list performed better during economic downturns (Mahler, et al. 2009). A 2011 MIT Sloan Management Review article agreed, showing that companies putting sustainability at the core of their business strategy not only perform better in strong markets than companies half-heartedly (or not) adopting sustainable practices, they are also more resilient during downturns (Haanaes 2011). Another recent study found that companies with well-established voluntary sustainability programs out-performed those companies with low-sustainability profiles (Knoepfl 2001; Lowitt 2011; Eccles, Ioannou and Serafeim 2011). Consumers have proved a fickle part of the equation for certified forest product market demand, however. The wide variety of certifications and eco-labels has propagated consumer confusion and distrust (Teisl et. al 2002; Aguilar & Vlosky 2007). In practice, many eco-label designs and phrases mean little in practice and to the consumer (e.g. what is natural? What is all-natural? What does ‘cage-free eggs’ actually mean when compared to what the consumer thinks it means?). The confusion is compounded by the wide

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A study by the consulting and research firm Terrachoice found that there are 73 percent more products with green claims on the US and Canadian market in 2010 than 2009 (Terrachoice 2010). The deforestation-relevant building/construction and office industries saw the amount of products with green claims grow by more than 100 percent each between 2009 and 2010 (Terrachoice 2010).

variety in standards and rigor of the certifications and ecolabels. FSC, for example, conducts longer and more extensive audits than SFI, bringing along community experts and biologists to examine the many facets of sustainable forestry management (Sawatsky & Rycroft 2011). Consumers are further confused by the media-portrayed ‘war’ between SFI and FSC. Meanwhile, FSC is promoted by LEED and companies are increasingly favoring FSC over SFI, due to FSC’s reputation as a more rigorous certification system (Gunther 2011). The competition and eco-label flooding of the market helps explain mixed study results on willingness to pay and price premiums for certified forest products in developed countries. The wide variety of products that are made with forest materials also contributes. One study found that more than one third of US consumers would pay a price premium for environmentally-friendly products, but others studies have found conflicting results according to geographic location, differences in how products are labeled and how expensive the product is (Rodgers and Bowden 2010; Aguilar & Cai 2010; Golden et. al 2010). For example, higher-priced luxury and high-quality products made of certified wood are more consistently garnering price premiums (Auld et. al 2008). On the other hand, Fauvergne and Lister (2010) found that the cost of certification is not recouped in price premiums. There is a limit to willingness to pay studies however. Comparing willingness to pay for greener products to actual purchasing behavior reveals a gap between stated and revealed preference, even for the ‘greenest’ customers (Fauvergne & Lister 2010). Companies and eco-labeling organizations are still devising best practices to reach a wary public. It was shown in an IGEL-sponsored study that an eco-label must be presented in an understandable way – by using color instead of a lot of text on a label, for example – so as to be make is easier for consumers to make more sustainable purchasing decisions (Miller 2011). Moreover, by providing environmental impact information about a product in the form of color, consumers will be given the kind of feedback on their choices that encourages them – though not force them – to make more sustainable choices (Miller 2011). Certification outfits need to implement safeguards for their brands to help build the market. Currently, due to supply chain complexity, only a small fraction of certified wood reaches the marketplace carrying a logo (Auld et. al 2008). This, in addition to the confusion and mitigating factors described above, helps to explain why the market has not yet realized a consistent price premium for certified forest products in Europe and the United States (Suryani et. al 2011; Aguilar & Cai 2010).

Further labeling practice consolidation and oversight is needed. While labeling practices have not been litigated much as of yet, future lawsuits may arise between competitors, consumers and companies and governments, as people seek to level the eco-labeling playing field. Labeling must respond to consumers’ varying awareness and biases. In the U.S. and the U.K., for example, a product that displays a tropical origin increases the probability that a consumer will not purchase it (Aguilar & Cai 2010).

CERTIFICATION IN DEV ELOPING COUNTRIES Certifications can have great social, environmental and financial benefit for producers in developing countries. An IMAFLORA study of FSC-certified plantations in Brazil found that certification increased salaries and workers’ health and security (Forest Stewardship Council 2009). Studies on the SmartWood program, an accredited FSC certification program run by the Rainforest Alliance, found that certification in developing countries enhanced efficiency and profitability while also protecting habitat and biodiversity (Golden et. Al 2010). In some cases, certification sheds light on just how ineffectual and unenforced some environmental laws are. In Indonesia, one company seeking certification had to work with the local government to create the required government documents which previously did not exist.(Espach 2006). Fauvergne and Lister (2010) found, however, that voluntary initiatives such as certification and eco-labels currently do little to slow deforestation. Critics allege that forest certification has largely only benefited developed countries, where it is least needed due to generally stricter environmental laws.6 As of 2005, only 1.5 percent of tropical forests were certified, while approximately one third of temperate forests were (Bennet 2008). As Figure 1 shows, most of the world’s certified forests are in North America and Western Europe. When good governance or management exists, certification is relatively low-cost, raising fears that the firms that actually undertake certification are those that were already practicing sustainable management. The real target of certification schemes, however, are those firms who need much more help. Many of the worst logging offenders are those with the

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Even within tropical countries, when forestry laws are comparable to certification standards, forest certification rates are higher. For this reason, some developing countries, like Bolivia, have had more success with forest certification than others, like Ecuador, which is less likely to enforce forest laws (Ebeling & Yasué 2009).

least interest in certification, as they are illegal operators that usually only log a forest once and move on (Putz and Nasi 2009). While there has been a 50 percent increase in the amount of certified forestland in tropical countries over the last five years, this amount is not sufficient to drive significant change in forest management (Thomas 2011). Some developing countries and coalitions have created their own deforestation-avoidance schemes, a move which might increase certification rates further. The ASEAN Social Forestry Network and Papua New Guinea’s Eco-Forestry Forum have both created their own initiatives to help stop deforestation, increase development opportunities with climate financing and alternative products and promote sustainable forest management. Certification rates and scope, however, varies around the world. South African plantation forests achieved an approximately 80 percent FSC certification rate in the late 1990s through foresters’ largely self-driven initiative (Ham 2004). By comparison, as of 2007, Sweden had certified 40 percent of forestlands, Chile about 10 percent, and Brazil 0.2 percent (Auld et. al 2008). The Malaysian and Indonesian certification rates are approximately 25 percent and slightly more than one percent, respectively.

certified forest products market must be developed to provide enough demand for sustainable forest products. Indeed, the cost, time and capacity required for certification are barriers around the world, but particularly in developing countries. There are approximately 14 forest-product-related certification and eco-labeling schemes7 and many working groups and centers in developing tropical countries. Perhaps the greatest new driver of deforestation is the rapid pace of development in the Asia-Pacific region. Though deforestation has slowed in response to the global recession, China’s passage of a housing stimulus bill created a robust market for tropical logs imports, which mostly came from Gabon, Papua New Guinea and the Solomon Islands (International Tropical Timber Organization 2010). Additionally, globalization and rapid development in China, Indonesia and Brazil has rapidly increased trade between developing countries, many of whom have little interest in sourcing sustainable wood in the short-term (Packer 2004). In fact, this development may only serve to drive illegal forest harvesting. Already, the global illegal wood market may be worth as much as $3 billion annually and comprise as much as 8 – 10 percent of the global forest products trade (ContrerasHermosilla & Fay 2005; Paper Life Cycle 2010). In some countries, the illegal logging rate is much higher: reports estimate between 40 and 88 percent of logging in Indonesia is illegal (Schmidt 2010). Perhaps not incidentally, at least two of the three major suppliers of China’s building boom are noted for illegal logging. Papua New Guinea has high rates of illegal logging and displacement of tropical forest peoples, while illegal deforestation may be as high as 70 percent in Gabon (Packer 2004; Canby et. al 2008). Many nations, and most importantly, China, lack or do not enforce laws and regulations like the Lacey Act in the US, which prohibits trade of endangered species, including trees. This is highly problematic because as much as 70 percent of all timber is sent through China for processing for the global market, and much of the timber is illicit (Asia News 2006). This governance problem could be counteracted by certification, however forest certification schemes remain largely unknown in China. A 2010 survey of Chinese wood products manufacturers showed very little familiarity with and interest in forest certifications (Chen et. al 2010).

MARKET DRIVERS: DEVE LOPING COUNTRIES

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oresters in developing countries largely view certification as a market access tool, which is one reason why exporting operations in tropical countries are more likely to pursue certification (Auld et. al 2008). As an example, the Patneshwari cooperative, one of only two FSC certified forests in India, hopes certification will help them access the international market (Kordesch 2011). Exporting operations are under pressure to certify from multinational corporations that pursue supply chain responsibility. The aforementioned high certification rates in South Africa stemmed from pressure from a majority importer of South African wood, B&Q, requiring all of its source wood to be FSC certified (Ham 2004). However, this export-bias places areas with a weak access to export markets at a disadvantage in cost recovery for certification. In East Africa, for example, interest exists in forest certification but lack of access to the export market creates barriers for the forest-owners (Owino 2003). The incentives for the internal markets are much lower. As much as 80 percent of tropical wood is consumed within its country of origin, where consumer willingness to pay is limited by ability to pay (Fischer, et al. 2005). This is a problem for developing countries, where a domestic

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Author survey of literature and eco-label databases, 2011

EXAMPLES FROM SOUTHE AST ASIA

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wo examples from Southeast Asia -- Malaysia and Indonesia -- provide insight into the complexity of the market drivers for forest certifications in developing countries. Southeast Asia has the highest relative rate of deforestation in the world while also containing immense biodiversity, up to 5 percent forest cover loss annually in some areas (Sodhi et. al 2004; Miettinnen et. al 2011). These cases were chosen because Southeast Asia, and its access to China’s expansive market, is extremely important in pursuing biodiversity protection and climate change mitigation goals. Malaysia and Indonesia thus provide interesting case studies because they both have their own certification programs and are wellconnected to the global market, yet they both have continued illegal forest cutting (as evidenced by Figure 1) and allegations of abuse of indigenous peoples by the governments and timber concessionaires. There was also literature available for willingness to pay and price premiums in Malaysia, which is beneficial since data on willingness to pay and price premium for certified forest products in developing countries is very rare in the literature. INDONESIA Indonesia may be the ideal place to study to understand the impacts (or lack thereof) of eco-labeling and certification. Indonesia’s environmental degradation helped to inspire the start of global forest certifications in the early 1990s. Rapid economic development, uncoordinated national and local governments, and widespread corruption have contributed to Indonesia’s rapid forest loss. Some estimates say Indonesia’s natural forests could be gone in 10 years (Asia News 2006). It now retains a position as a top global contributor to climate change from the carbon released through forest clearing and peat burning. Rampant illegal logging still continues – accounting for up to 88 percent of deforestation by some counts (Schmidt 2010). Government laws and regulations are ‘chaotic’ and often pit ecosystems against development (Telapak/Environmental Investigation Agency 2009). Additionally, NGOs are nervous

about the expansion8 in Indonesia of Asia Pulp and Paper (APP), a private company that is viewed by many to have conspicuous connections to the government and a dubious environmental record. At the same time, Indonesia’s rapid economic growth is attracting more investors, and for good reason -- Indonesia has a wealth of natural resources including minerals, oil and gas and of course, tropical forests. One indicator of its success in the global markets is that one of the 2012 Wharton Global Alumni Forums is being held in Jakarta.9 Indonesia’s economic development has come at a price, however, especially in virgin forests and the health and success of the people and animals that inhabit them. These management and governance problems are the ones that certification was created to counterbalance. Is it working? The market for certification in Indonesia appears to be growing, however. Scientific Certification Systems (SCS), the largest FSC certifying body in the US, recently opened a subsidiary office in Jakarta to handle FSC certifications and carbon sequestration projects (Kordesch 2011). The Borneo Initiative is also rapidly expanding its LEI-FSC certification program with a goal of certifying four million hectares by 2015 (Klaussen 2010). The initiative also has funding support for foresters interested in certification. Indonesia also has an in-country labeling and certification scheme which has worked to decrease illegal deforestation and degradation for decades. The Lem-baga Eko-la-bel Indone-sia (LEI), or (in English) the Indonesia Eco-labeling Institute, was started in 1998 and certifies forests owners and operators for sustainable management. The LEI label is registered with the Global Ecolabelling Network (GEN) and follows ISO 14021 labeling guidelines. While it currently only represents about two percent of certified forests in Indonesia, LEI pioneered certifying community forestry management. This grassroots method may help drive expansion of sustainable livelihoods in rural areas, strengthen coalitions against illegal logging and provide economic incentives to resist forest plantations. Meanwhile, Indonesian businesses have lobbied FSC to

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Ironically, this expansion is partly due to tariffs imposed by the EU and US on imports of paper from China.
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The fact that one of the WGAFs is in Jakarta served as an impetus for this report.

overturn its rule against certifying plantation forests10 displaced natural forest after 1994, citing the global need for plantation forests to meet demand (Indonesian Pulp and Paper Association 2004). As seen in figure 4, plantations make up more than half of Indonesia’s certified forests, a number that will certainly grow if FSC changes its rules. Recognizing the threat from plantations11, the World Resources Institute (WRI) has implemented project POTICO (Palm Oil, Timber, Carbon Offset) to divert palm oil plantations to Indonesia’s 20 million hectares of degraded land, instead of clearing virgin or regenerated forests. WRI sees community-based sustainable farming in natural forest concessions as a method to protect them.

Thus, we are introduced to the difficulty surrounding sustainable forestry – the questions remain of how to counteract lax enforcement of laws, whether voluntary initiatives are enough to counterbalance globalized trade factors and how to encourage stakeholder involvement in forest management decisions. MALAYSIA Malaysia lost 13.6 percent of its forest cover in the 1990s and only retains approximately 20 percent of its virgin forests (FAO 2001). Up to 80 percent of this forest loss was due to expansion of palm oil plantations (Butler 2009). Malaysia established the PEFC-endorsed voluntary Malaysian Timber Certification Scheme in 2001, which has certified 4.61 million hectares, as seen in figure 2. Accreditation by the government is required for certification though doubts persist as to the certification’s effectiveness in encouraging sustainable forest management. The FSC has also certified 300,000 hectares in Malaysia (World Wildlife Fund 2011). Meanwhile, Malaysia’ forestry laws purportedly support sustainable forestry management, but their effectiveness is limited because they are viewed as contradictory and controversial (Ozinga 2004). Conflicts between the government, timber companies and local communities abound. This conflict extends to the forest certification community as well. The FSC will not endorse the MTCS because MTCS does not recognize indigenous rights to land. MTCS argues that indigenous rights to forests are not recognized in the Malaysian constitution and so forest certification schemes do not need to recognize them either (EnvDevMalaysia 2011). PEFC however, has a memorandum of understanding with MTCS, and allows it to use PEFC’s logo on its products. The market dynamics of Malaysia’s forest sector may discourage certification. High incountry forest certification costs, up to US65 per hectare in Malaysia, serve as deterrents (Suryani et. al 2011). Suryani et. al (2011) argues that lack of price premiums and the expense of certification are reasons that three-quarters of Malaysian furniture manufacturers have not sought CoC certification. However, the story gets more complicated. One study of actual wood prices in Malaysia found that price premiums existed for certified roundwood destined both for

Certified Forest Types in Indonesia
Natural Forest Plantation Community Forests

2%

47% 51%

Data Source: LEI 2011 and FAO 2009

Norway has already offered one billion dollars to Indonesia if it could reduce its deforestation rates under REDD+. In response, in 2011 Indonesian President Susilo Bambang Yudhoyono issued a two-year moratorium on new logging concessions on 64 to 72 million hectares of land (Gingold and Stolle 2011). While the moratorium contains some unclear language and possible loopholes, it represents the current government’s commitment to more sustainable use of natural resources. Some local governments in Indonesia have embraced the idea of saving forests; the government of East Java is attempting to go paper-less by 2012, for example (Tejo 2011).

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Plantations of palm oil, rubber, timber and cocoa are growing where previously virgin forests existed as companies capitalize on booming demands for biofuels, timber, rubber and as always, chocolate.
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Interview with Beth Gingold, World Resources Institute, 2011.

export and import, though the export premium was significantly higher (Kollert & Lagan 2007). Malaysia is not self-sufficient in wood products. Surprisingly, it is actually a net-importer of roundwood, of which 39 percent may be illegally sourced (Greenpeace International 2005). The import-export interplay and rapid development of demand for wood products add additional barriers for certification. Nevertheless, that nearly 25 percent of forest area has been certified in the last 10 years may indicate that forest certifications will continue to expand. If the government tightens their audits and standards, and begins enforcing forestry laws governing forest management and trade in illegal wood, Malaysia may become a success story.

CONCLUSIONS AND RECO MMENDATIONS

Developing countries must legislate and enforce sustainable forestry practices. Further steps that will enhance certification effectiveness include international policy such as encouraging China to implement enforced trade laws barring illegal wood products from entering the country. Indeed, the most success may be found by using certification in tandem with significant tax and subsidy reform (Winkler 2011). Developing countries can join the REDD+ program, and link carbon financing to certification projects, thus providing co-operatives and small community farms to financing for certification costs and for lost revenue from reduced impact logging (Putz and Nasi 2009). New technologies will help with oversight of forests, including infra-red sensing from satellites and ‘finger’ printing of trees and products to determine where the wood came from (Campion 2011). Additionally, countries could attempt to adjust wood product prices to more accurately reflect the social and environmental costs of deforestation by taxing non-sustainable wood or subsidizing forest certification. Companies that are interested in certified products and ecolabels should evaluate schemes on their environmental and social rigor and brand strength. Committing to certification and labeling programs that use metrics and audits will reduce reputational risk from consumer backlash or future lawsuits. To reduce supply chain risk from illegal or unsustainable wood sources, companies can consider partnerships with NGOs, sourcing directly from communitymanaged forest enterprises and investing in transparency and tracking. Finally, this study found a gap in the literature for consumer and company demand for certified forest products in developing countries. This is an area for further research, as it is a key component for future efficacy of certification as a deforestation and degradation avoidance tool.

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ertification is expanding in tropical areas, but not at the rates desired or needed to stem deforestation. While certification is still relatively insignificant, new third-party certifiers are spurring growth in forest certifications in key countries. Perceived market benefits have caused a proliferation of eco-labels in developed countries. However, consumers are confused by forest certifications and eco-labels. Part of the problem is that the marketing strategy for eco-labels and certifications is fragmented, confusing, competitive and in many cases, non-existent12. The data indicate that in order to build market robustness for certified products, the following steps are needed: better marketing strategy and branding for certification and eco-labeling programs13, transparency, international policy support, and assistance for certification costs. Aggressive, dynamic, and branded marketing is necessary in both developed and developing countries to increase demand for certified forest products and match consumer preferences for labeling. Standardization and harmonization amongst certification schemes will be needed as well, without sacrificing environmental quality14.

12

Interview with US Forest Stewardship Council, 2011

13

Linking with well-recognized labels may be the way to help increase market share for relevant certified forest products; organic and fair-trade schemes have consistently produced price premiums and label recognition, but lack standards for sustainable forestry (Bennett 2008).
14

PEFC has recognized dozens of schemes around the world, including SFI and several national European ones, allowing forests and CoC certifications obtained from other certifying bodies to use the PEFC logo (Fischer, et al. 2005). Questions as to the rigor of these programs exist, however.

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