Forest sector in transformation Corporate Social Responsibility

Governmental regulation Forest Code of 1997, new Forest Code of 2006, fully implemented in January 2009 Lots of manipulative decisions made by the State Custom tariffs on round wood (last bar that was planned to be implemented in 2009—postponed because of the crisis) Significantly affected Finnish industry, subsidiaries closed in Russia, PPMs closed in Finland Tariffs low when Russia joined WTO

State forest management in transformation Constant restructuring, Soviet system totally destroyed Rosleskhoz under the Ministry of Agriculture, Leskhozes (lesnichestvo)-state forest management units—under the forest code of 1997 were controlling bodies, but could do forest management (replanting, thinning, pest control, etc. ). With Forest Code of 2006 (implemented in 2009)—Leskhozes diminished to Lesnichestvo– only controlling functions, all responsibilities for forest management were given to private logging companies Commercial units in leskhzes—work for companies

Company-community relationships in Soviet times State ownership of both land and forest resources Lespromchozes—state logging companies maintained all community infrastructure Temporary forest settlements build for 30 years with mixed population, become permanent Villages with local long term living population

Lingering effects of the Soviet past and informal relationships Lespromchozes were privatized in the 1990s, community infrastructure become burden to market actors- partly given back to the State Many companies still continue the informal support toward local communities— this creates multiple informal relationships (cleaning federal roads, maintain heating systems, veteran day, school buses, deliver drinking water and gasoline, fore wood)—provide support and ask in turn

Informal economics Bankruptcies as a survival and business strategy (multiple informal relationships with local state authorities) Multiple informal relationship in distribution of the lease (leasing agreements) Many enterprises survived through informal relationships with administration

Formation of holding companies- TNCs Privatization of Pulp and Paper Mills Strive for resources, would like to increase the amount of lease Purchase former lespromchozes Employ managers on bankruptcies, foster bankruptcies First stage: subsidiaries become daughter enterprises Second stage: reorganization toward economic efficiency (firing staff, more qualified labor, modernization of production)

TNCs operating in Russia Modernization, investments, close unprofitable subsidiaries Strive for standardization of their business Use forwarders and harvesters, Pursue with forest certification Contractors, which are not part of the local communities Mobile temporary settlements in the forest Cut support for community infrastructure Operate legally and monitor their supply chain Only “White” salary, pay all taxes, less bribes, Effort to Intensify forest management, lobby for the legislation that suit their business

Cases in North Western Russia FSC certification of PLO-Onegales, Arghangelsk region (group certification) Stora Enso-now only in Karelia, before in many places FSC certification of Segezha PPM, Republic of Karelia FSC Certification Mondi Business Paper—Komi Republic

TNC Europe NGOs FSC Internation al Buyers FSC certified territory TNC In Russian ASI CB FSC Russi a ENV SOC Transnational Place

TNC headquarters Innovative projects, experimenting, modeling Stora Enso: Pscov Model Forest, Tikhvin project Mondy Business Paper: Stakeholder Engagement Assessment Tool (SEAT) assessment, support to Model Forest Preluzie Investlesprom: Segezha Pine, Model Forest Segozerie

TNC-NGO partnerships Stora Enso: WWF, CISR (a little bit) Mondy Business Paper: WWF (a little bit), Silver Taiga Foundation Investlesprom: Transparent World, SPOK, CISR Partnerships with NGOs create another channel for institutionalization of new practices

Innovations coming from FSC Environmental, social, economic=instrument for sustainable development Production (harvesting practices) as an added value of the product Local democratic development: consultations with local communities and indigenous people Communities designate social value forests (HCVF 5-6), get involved in forest management Communities become stakeholders Workers safety

Transformation of CSR Soviet lespromchoz—all community infrastructure FSC driven CSR, however, TNCs are not acting as substitute for government as in Soviet times TNC– obligations included in leasing agreements, e-g. fire wood supply to social institutions, sawn materials, building roads, maintaining roads, educational programs (ecological centers, libraries), small grant programs

Major impacts In all cases: Moratorium on old growth (virgin forests)-HCVF-2 Salaries paid on time Companies bought safety equipment for workers Consultations with stakeholders, especially environmental NGOs In certain cases: Environmental planning, companies designated HCVF of all 6 categories (Stora Enso Segesha PPM, Priluzie) Key biotopes (Segezha PPM) Improved workers safety (Stora Enso) Gasoline leaks prevention Less garbage Consultations with local communities and indigenous people Support for community infrastructure (leasing agreement, small grants) Designation of social value forests (HCVF-5-6)[Stora-Enso, SegezhaPPM)

Why certification cases differ so much? A) company governance and vertical discipline (workers safety, implementation on the ground of company policies and commitments) [Stora-Enso] B) company ability to manage contradictions between the Russian legislation and the FSC (depends on the region, on informal relationships)[ the worst in Karelia] B) interpretation of the standards by the certification body, composition of the team of certifiers (Nepcon stronger in environmental issues, while SGS in social) C) NGOs involved (environmental or social) D) experts and their background

Conclusion TNC, NGOs and FSC became significant governing agents in rural forested areas TNC modernization and restructuring creates significant stress for local communities, separation of the company (subsidiary of the holding) from community FSC is softening the process of modernization and restructuring, fosters CSR toward local community, develops democratic governance