1. Re and source mean reciprocal, to use something from the Earth and then to be the source of its renewal. Today’s dictionaries define “resource” as any property that can be converted into money. Yet if we go back to the original sense of the word “re-source”, we will find that the biological sustainability of our forests lies embodied in a word that we blithely use but do not fully understand. - Chris Maser, 2001

2. Emerging Trends in Forest Certification The Role of Chain of Custody Systems P ARTNERS McGill School of Environment Sustainable Forestry Certification Watch Group Members Dr. Arun Agrawal (Faculty Advisor) Reid Allaway Rosanne D’Orazio Alexandra English Melanie Grefard Mark Haber Ray Holberber Lisa Roscoe

3. Presentation Outline Reid: Introduction Research questions and methods Question 1: results Mel: Questions 2 and 3: results Ali: Question 4: results Mark: Conclusions and Recommendations

4. About our Partner Sustainable Forestry Certification Watch Non-profit NGO based in Montreal Provides research and analysis services to the growing forest certification community Publishes Forest Certification Watch™ newsletter Arranges annual conference to promote development in the certification sector Mar. 25-29,2002 in Vancouver Many Thanks to SFCW’s Stewart Fast for his assistance with this project www.certificationwatch.org

5. Goals of Forest Certification An approach to forestry practices designed to: Improve forest management practices Minimize environmental impacts Capture market incentives Incorporate long term perspective Recognize exemplary practices Involve multiple stakeholders Improve consumer confidence

6. The supply chain of forest products Chain of Custody Certification Delivers the message: This product has been made with timber from well-managed forests - and we can prove it!

7. Research Questions 1. How do the various certification systems differ in their approach to supply chain verification? 2. What are the motivations for acquiring FSC Chain of Custody certification? 3. How are North American FSC Chain of Custody certified companies affected by their certification? 4. What are the dynamics within the FSC supply chain and how do they affect different players in the chain of custody?

8. Methods Literature Review Telephone Interviews 48 interviews total represents 9% of all Canadian companies 8% of all US companies 56% response rate both COC and COC/FM certificate holders Data Analysis Literature review and analysis Survey data compiled and examined to reveal trends using charts and cross-tabulations

9. Research Question 1: How do the various certification systems differ in their approach to supply chain verification? Hypotheses Main differences are Verification method Credibility Origins FSC chain of custody system Is most rigorous and comprehensive Holds the greatest potential for future developments

10. Origins of Certification Systems Industry Initiatives CSA, SFI Environmental NGO Initiatives FSC Non forestry- specific standards ISO 14000

11. Credibility and Verification Systems-based vs. Performance-based 1 st, 2 nd or 3 rd party verification Frequency of audits

12. Supply Chain Verification Chain of custody monitoring Systems-based (volume monitoring) Performance based (physical monitoring) Certification of some or all product handlers FSC = all links in chain SFI, CSA = some or most but not all ISO = not applicable

13. “Commitment to sustainable forestry must be real. A media campaign to change attitudes will not work. They [the public] will find out” -Ragnar Friberg, chief forester, Stora Forest and Timber, Sweden Public confidence Credibility is as Important to the Industry as to Consumers Real commitment to sustainable forestry or simple self preservation? Credibility is the Key

14. Why Focus on the Forest Stewardship Council (FSC)? International adoption Rigorous standards and verification Considered credible by all players Only system to integrate social concerns Unique chain of custody

15. Research Question 2: What are the motivations for acquiring FSC COC certification? Hypothesis: Main motivations included gaining market access, appeasing NGO pressures and satisfying consumer demand.

16. Motivations 75% : market access 35% : environmental concern 15% : public pressure 0 % : premiums

17. Research Question 3: How are North American COC certified companies affected by their certification? Hypothesis: The majority of companies have not yet recuperated costs.

18. Costs of Certification Most companies have invested $1001-$100,000 Costs Attributed to price of certification yearly auditing internal adjustments

19. Internal Adjustments 69% : record keeping 40% : product handling 16% : none

20. Costs Recuperated? 76% of companies have not yet recuperated the costs of their certification. Why not?

21. Why are costs not recuperated? 77 % of companies have less than 20 % certified sales. 80 % of companies receive no premiums.

22. Premiums ? Only 2 companies receive premiums greater than 15%.

23. Question 4: What are the dynamics within the FSC supply chain and how do they affect different players in the chain of custody? Three hypotheses : Organization size is not a limiting factor in acquiring FSC COC certification Supply of certified wood products in the supply chain is inadequate COC processes are mainly driven by buyer organizations that are responding to consumer demand

24. Company Location

25. Hypothesis 1 : Organization size is not a limiting factor in acquiring FSC COC certification. Findings : only 60% of companies responded 3 companies have sales under 1 million $ 76% of companies between 1 and 100 million $ Discussion: certification is not a function of size no apparent disadvantage once certified supported by recent surveys 1 1 Humphries et al. (1998),Carter and Merry (1995)

26. Hypothesis 2: Supply of certified wood in supply chain is inadequate. 60% of COC respondents have an inadequate supply Yet 60% of COC/FM respondents say they have sufficient supply to meet buyer (COC) demand. How can that be?

27. Adequate or Inadequate Supply? General agreement in the literature on a supply deficit 1 How to explain COC/FM response to having enough supply? COC/FM companies are mostly supplying for themselves, or their local community Supported by Humphries et al. which found that 77% of respondents sell locally. What does this mean? Lack of communication between forest management companies and buyers. 1 Humphries et al. (1998), Carter and Merry (1995)

28. Buyer/Supplier Relations In fact, certification does not appear to involve changing buyer/supplier relations. 72% of respondents have the same suppliers and 81% the same buyers as before certification

29. Hypothesis 3: COC processes are mainly driven by buyer organizations responding to consumer demand Findings: Demand > Supply #1 motivation to certify = market access Discussion: Companies are becoming certified in response to buyer demand In order to retain market access Cannot say whether or not this is directly a result of consumer demand

30. Summary of Chain Dynamics Companies are getting certified in order to retain buyers Buyers encourage their existing suppliers to become certified, who encourage their suppliers to become certified, who… So why aren’t forestry companies responding to this demand? no premiums while largest costs not aware of demand lag time to certify forestry operations

31. The Future of Forest Certification FSC COC is still in its infancy Certification is becoming increasingly popular 75% of our sample received their certification since the year 2000

32. Renewal of Certification 82% of the interviewees plan to renew their certification

33. Certification and the Market Of the organizations that plan to renew their certification: 74% do not receive a premium on certified wood products 51% consider the supply of certified wood products to be inadequate 67% have not yet recuperated their costs from certification 74% have certified sales that make up 20% or less of their total sales volume

34. Solving the Puzzle of Certification Why are 82% of organizations renewing their certification despite limited market incentives?

35. Reported Benefits COC certification provides a number of benefits which are important to the future of forest certification

36. Why Renew? Maintain market share and satisfy important buyers Future importance of certification may outweigh its current impacts Presence of non-market benefits Environmental concern

37. General Conclusion Currently, FSC COC certification does not seem to be generating the expected market incentives however, the general attitude among certificate holders remains positive The voluntary nature of FSC COC certification has inherent strengths and weaknesses FSC COC is an important, but underutilized, tool The long term impact of certification on the forestry industry is not yet known, but it is an important first step towards sustainability

38. Recommendations The establishment of an FSC supply information network Future research topics Investigate ways to expand rigorous certification into pulp and paper sector Addressing the discrepancy in supply between FM and COC certificate holders Investigate the impact of box stores, such as Home Depot, on Chain of Custody dynamics

39. Acknowledgements Stewart Fast & Sustainable Forest Certification Watch Professor: Arun Agrawal Teaching Assistant: Brian Sarwer-Foner All our colleagues in 401 Thank you

40. Forest Certification can only Succeed If consumers are conscious of the impacts of their purchase decisions Please choose wisely