forest product eco-labeling and certification: efficacy and market drivers
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FOREST PRODUCT ECO-LABELING AND CERTIFICATION:EFFICACY AND MARKET DRIVERS
IGEL Report
April 2012
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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 tohttp://environment.wharton.upenn.edu.
Report written and designed by Caroline DAngelo 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.
http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/ -
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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
GTFNWorld Wildlife Funds Global Forest and Trade Network
LEILembaga Ekolabel Indonesia (Indonesia Ecolabeling Institute)
LEED..Leadership in Energy and Environmental Design
REDD+.Reducing Emissions through Avoided Deforestation and Degradation
SFI..Sustainable Forestry Initiative
WRIWorld Resources Institute (WRI)
POTICOPalm Oil, Timber, Carbon Offset program of the WRI
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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 SoutheastAsia 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.
Indonesias 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 eco-
labeling and certification more successful.
INTRODUCTION AND IMPETUS FOR THE REPORT
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 planets 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 bethe 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-
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 pollutionmitigation.
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 thatthreatens 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 throughprice premiums or consumer
loyalty? Is consumer awareness of environmental
1such as corruption, a lack of governmental enforcement and regulation and gaps
in integrated management, and so forth.
2Certification 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
D
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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 allof 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 papers 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 moreheavily 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.
FOREST CERTIFICATION
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
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 Energyand 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 eco-
labels 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 Funds Global Forest and Trade Network
(GTFN), which works with corporations and within
2
Certification and eco-labeling are linked concepts: certified operations areallowed 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.
3Author 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.
4Interview with US Forest Stewardship Council, Etienne McManus-White, 2011
F
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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 others products,
like Cradle-to-Cradle and LEED which require relevanthighest scoring products to use only FSC certified wood.
Companies such as International Paper, Habsro, Wilsonart,
Home Depot, Lowes, 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 itstropical 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
Malaysias 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 theypurchase and provides consumers with a tool for making
sustainable choices (Goleman 2010). Further, by
5A 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).
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 widevariety 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
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.
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variety in standards and rigor of the certifications and eco-
labels. 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 andcompanies are increasingly favoring FSC over SFI, due to
FSCs 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 howexpensive 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 asmall 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 atropical origin increases the probability that a consumer will
not purchase it (Aguilar & Cai 2010).
CERTIFICATION IN DEVELOPING 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 certificationprogram 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 worlds 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 morehelp. Many of the worst logging offenders are those with the
6Even 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 &
Yasu 2009).
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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 significantchange 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 Guineas 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 late1990s 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.
MARKET DRIVERS: DEVELOPING COUNTRIES
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 incost 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
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-relatedcertification 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,
Chinas 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 (Contreras-
Hermosilla & 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 Chinas 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).
7Author survey of literature and eco-label databases, 2011
F
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EXAMPLES FROM SOUTHEAST ASIA
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 5percent 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 Chinas 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 well-
connected 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.
Indonesias 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
Indonesias
rapid forest loss.
Some estimates
say Indonesias
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, Indonesias rapid economic growth is
attracting more investors, and for good reason -- Indonesiahas 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
Indonesias 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 asubsidiary 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 Lembaga Ekolabel
Indonesia (LEI), or (in English) the
Indonesia Eco-labeling Institute, wasstarted 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
8Ironically, this expansion is partly due to tariffs imposed by the EU and US on
imports of paper from China.
9The fact that one of the WGAFs is in Jakarta served as an impetus for this report.
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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 Indonesias 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 Indonesias 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.
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 governments 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).
10Plantations 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.
11Interview with Beth Gingold, World Resources Institute, 2011.
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 certifications 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 forestcertification schemes do not need to recognize them either
(EnvDevMalaysia 2011). PEFC however, has a
memorandum of understanding with MTCS, and allows it to
use PEFCs logo on its
products.
The market dynamics
of Malaysias forest
sector may discourage
certification. High in-
country forest
certification costs, up
to US65 per hectare inMalaysia, 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
47%
51%
2%
Certified Forest Types
in Indonesia
Natural Forest Plantation Community Forests
Data Source: LEI 2011 and FAO 2009
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12/14
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
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.
12Interview with US Forest Stewardship Council, 2011
13Linking 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).
14PEFC 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.
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 (Winkler2011). 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 eco-
labels 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 community-
managed 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.
C
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