When Companies Fall Afoul of Environmental Regulations, What Happens Next?
In the Marketplace, the Path to Sustainability is Rarely a Linear One
By Dr. Natcha Tulyasuwan, Dr. Binod Chapagain and Panicha Chandragholica
Forest Stewardship Council (FSC) is a global system that certifies responsible forest management. In some cases, FSC has severed ties with, or “disassociated” from, paper and timber giants worldwide when their direct or affiliate operations have harmed forests and people. Cutting off such companies helps FSC maintain its credibility and reinforces its certification’s integrity, while signaling that offenders will face consequences for unethical—or illegal—company actions.
According to the most recent data, out of 1,718 Forest Management/ Chain of Custody (CoC) certificates and 42,271 CoC certificates issued, FSC disassociated itself from eight companies that it judged to be involved in deforestation, illegal logging, human rights abuses, and/or destroying high conservation value forests. (This data was collected on May 14, 2020.)
The process for a company to regain sustainability certification is deconstructed here to shed light on the path back to corporate responsibility and to help forestry clients that find themselves in violation of similar codes.
The power of markets
Disassociation from the Forest Stewardship Council occurs when timber companies’ direct or affiliate operations have harmed forests and people. Credit: Authors, based on an analysis of current cases on the FSC website as of March 31, 2020
Of eight companies that have been disassociated, six expressed interest in regaining certification (in FSC parlance, “re-association”). Many showed a significant level of commitment to improve their sustainability practices, and two have successfully done so.
The primary driver for re-association is market access to large, global buyers who prefer FSC-certified products. According to one survey conducted in the U.K., 72 percent of respondents were more likely to prefer FSC-certified products over others. FSC is the most widely adopted certification scheme among Fortune 500 companies.
How does re-association take place?
FSC is developing a standardized procedure that it expects to roll out soon. Meanwhile, we have reconstructed a timeline and estimated costs for re-association to help companies navigate the process. For two timber companies that successfully navigated re-association—DLH and Danzer—it took more than one year and two years, respectively. They were expected to cover costs related to:
- FSC “roadmap” development (costs related to FSC-complaint panel evaluation, need assessment baseline, and at least one stakeholder consultation)
- Implementation (compensatory measures like building schools, maternity units, restoration activities, and creation of community funds), and;
- Third-party completion audit.
But reassociation only means that FSC membership is restored. Companies face additional costs to complete the certification process again.
For companies not yet successfully re-associated, timelines vary. It has been over six years for the global pulp and paper manufacturer, APRIL, to reach baseline assessment, and four years for Vietnam Rubber Group until it entered “roadmap development” with FSC. Cost also varies depending on the scale and nature of violation to be corrected and compensated. Schweighofers Group, a timber and manufacturing corporation, was asked to pay 700,000€ ($754,000) as an initial contribution to a fund as one its conditions for reassociation.
Shizuka Yasui, who handles FSC’s dispute resolution, told us key success factors for companies seeking reassociation include “high-level commitments to be cooperative, transparent, and [demonstrate] strong engagement with the affected stakeholders.”
The market niche to provide sustainability consulting services to forestry companies may be narrow, but the environmental stake is high if timber and paper giants forego sustainability verification or opt for less rigorous ones. According to Environmental Paper Network, APP and APRIL timber companies, together with their subsidiaries, emitted nearly as much annual greenhouse gas emissions as Norway and Slovenia combined due to pulp plantations on peat soil in Indonesia.
The re-association timeline can vary from company to company and only serves to restore membership with the Forest Stewardship Council. Recertification comes at an additional cost. Credit: Authors, based on an analysis of current cases on the FSC website as of March 31, 2020
Note: FSC neither sanctions nor commissions this study. For a copy of the case studies, please write [email protected]
As Deputy Chief of Party, Dr. Tulyasuwan leads delivery of technical assistance, analyses and research related to sustainable sourcing and investment in Southeast Asia. She also manages strategic partnerships with investor and business platforms. Her experience includes working on sustainable landscape business models, greenhouse gas inventory, and capacity-building for the agriculture and forestry sector in Asia to lower emission. Her publications have covered payment for ecosystem services, reduced emissions from deforestation and degradation (REDD+), national greenhouse gas inventory, mangrove carbon assessment, and land tenure in Asia.
As Monitoring and Evaluation Manager, Dr. Chapagain leads the activity’s performance monitoring, evaluation and learning system, overseeing all data collection, analysis and reporting. He has worked for 15 years with international NGOs on issues including social forestry and natural resource management. His experience covers social research, database management and analysis, training and facilitation, indicators development and impact measurement. He has published in academic and research journals on regulatory barriers to social forestry in Vietnam, Cambodia and Lao PDR; the contribution of community forestry to peacebuilding in Nepal, and; citizen monitoring in forestry.
Panicha Chandragholica (Sai) was a program and research associate for USAID Green Invest Asia. Her education and experience focused on social and environmental development and sustainability, including stakeholder engagement, data management, and research on environmental governance, citizen rights, energy efficiency, and climate change. She served as an Asia regional coordinator for the global network The Access Initiatives, a global civil society network advocating for citizens’ rights to access natural resources. Sai was program assistant for USAID Low Emissions Asian Development program (LEAD).