74738 D i s c u s s i o n p a p e r s Certification, Verification and Governance in Forestry in Southeast Asia © 2012 e International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, NW Washington, DC 20433, U.S.A. Telephone: 202-473-1000 Internet: www.worldbank.org/eapenvironment/sea-asia E-mail: feedback@worldbank.org All rights reserved. December 2012 is volume is a product of the staff of the International Bank for Reconstruction and Development / e World Bank. e �ndings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of e World Bank or the governments they represent. e World Bank does not guarantee the accuracy of the data included in this work. e boundaries, colors, denominations, and other information shown on maps in this work do not imply any judgment on the part of e World Bank concerning the legal status of any territory or the endorsement or accep- tance of denoted boundaries. RIGHTS AND PERMISSIONS e material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applica- ble law. e International Bank for Reconstruction and Development / e World Bank encourages dissemination of its work and will normally promptly grant permission to reproduce portions of the work. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, e World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. iii ACKNOWLEDGMENTS T his report is the result of work prepared by the Douglas J. Graham (Vietnam Sustainable Development Environment, Social and Rural Development Unit Unit [EASVS]), Peter Jipp (Southeast Asia Sustainable at the East Asia and Paci�c Region (EASER) Development Unit [EASTS]), Stig Johansson (AES), of the World Bank. e work was initiated by Emile Jurgens (EASIS), Nalin Kishor (AES), Werner L. Giuseppe Topa, Lead Specialist, and subsequently man- Kornexl (EASIS), Renae Nicole Stenhouse (EASER), aged by Kwaw Andam, Economist, and Stefanie Sieber, key stakeholders from Indonesia, Malaysia, Vietnam, Environmental Economist, under the guidance of Magda ailand and Lao People’s Democratic Republic Lovei, Sector Manager, EASER. e study team con- (PDR) and participants from the International Tropical sisted of Giuseppe Topa, Kwaw Andam, Stefanie Sieber, Timber Organization workshop on “Timber Tracking Indufor Oy (Consultant) and Jim Carle (Consultant). e Technologies for Forest Governance� held in Kuala team is grateful for the helpful and constructive feedback Lumpur on May 15 to 17, 2012. Generous �nancial sup- provided by the peer reviewers Frances Seymour (Director port was provided by PROFOR. General, Centre for International Forestry Research [CIFOR]) and her team at CIFOR, Richard Donovan (Vice President, Rainforest Alliance), and William B. Magrath (Agriculture, Irrigation & Natural Resources DISCLAIMER Unit, South Asia Region [SASDA]), as well as the sup- port and encouragement received from Peter Dewees All omissions and inaccuracies in this document are the (Agriculture & Environmental Services Unit [AES]) responsibility of the authors. e data on certi�cation and and Tuukka Castren (AES) from the Program on Forests legality veri�cation are valid to February/March 2012. (PROFOR). Useful comments on the report were also e views expressed do not necessarily represent those of received from Timothy H. Brown (Indonesia Sustainable the institutions involved, nor do they necessarily represent Development Unit [EASIS]), Tuukka Castren (AES), official policies of Program on Forests or the World Bank. Suggested citation: Program on Forests (PROFOR). 2012. Certi�cation, Veri�cation and Governance in Forestry in Southeast Asia. Working Paper. Washington DC: PROFOR. Draft 7 December 2012 For a full list of publications please contact: Program on Forests (PROFOR) 1818 H Street, NW Washington, DC 20433, USA profor@worldbank.org http://www.profor.info/profor/knowledge PROFOR is a multi-donor partnership supported by: Learn more at http://www.profor.info v TA B L E O F C O N T E N T S Section Particulars Page No. Acknowledgments..............................................................................................................................................iii Abbreviations ................................................................................................................................................... xi Executive Summary .......................................................................................................................................xvii 1 Objective .......................................................................................................................................................... 1 2 Background ...................................................................................................................................................... 3 2.1 Concepts and De�nitions ..................................................................................................................... 3 2.1.1 Sustainable Forest Management ................................................................................................ 3 2.1.2 Criteria and Indicators for Sustainable Forest Management ..................................................... 3 2.1.3 Certi�cation .............................................................................................................................. 4 2.1.4 Veri�cation ................................................................................................................................ 6 2.1.5 Legality ..................................................................................................................................... 7 2.1.6 Law Enforcement ...................................................................................................................... 7 2.1.7 Good Forest Governance .......................................................................................................... 8 2.2 Linking Certi�cation, Veri�cation, Law Enforcement and Good Forest Governance ......................... 9 2.3 International Initiatives Supporting Legality and/or Sustainability ................................................... 10 2.3.1 International Treaties and Political Processes .......................................................................... 11 2.3.2 e EU’s Forest Law Enforcement, Governance and Trade (FLEGT) Initiative ................... 11 2.3.3 EU Timber Trade Regulation (EUTR) ..................................................................................... 13 2.3.4 Lacey Act .................................................................................................................................. 14 2.3.5 e Australian Illegal Logging Prohibition Bill ......................................................................... 15 2.3.6 REDD-plus ............................................................................................................................. 15 2.3.7 Green Public Procurement Policies ......................................................................................... 15 2.3.8 Sector-Speci�c Sustainability Requirements ........................................................................... 17 2.3.9 International Organizations and Tools Supporting Legality and Sustainability ...................... 19 3 Toward Sustainable Forest Management in Asean Countries ........................................................................ 21 3.1 e Influence of China ........................................................................................................................ 21 3.1.1 China as a Market for Forest Products from Southeast Asia ..................................................... 21 3.1.2 China Forest Products Export Markets ..................................................................................... 22 3.1.3 Impact of Legality and Sustainability Measures on China ........................................................ 22 3.2 Forestry at a Glance in Southeast Asia ................................................................................................ 23 3.2.1 Deforestation ............................................................................................................................. 23 3.2.2 Performance in Forest Management .......................................................................................... 25 3.2.3 Forest Governance ..................................................................................................................... 26 vi C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 3.3 Forest Certi�cation in Southeast Asian Countries in Context ............................................................ 27 3.4 Chain of Custody Certi�cation ........................................................................................................... 31 3.5 Status of Certi�cation and Veri�cation by Country ............................................................................ 32 3.5.1 Indonesia .................................................................................................................................. 32 3.5.2 Malaysia ................................................................................................................................... 39 3.5.3 Vietnam .................................................................................................................................... 45 3.5.4 ailand .................................................................................................................................... 49 3.5.5 Lao PDR .................................................................................................................................. 52 3.6 Forest Certi�cation Potential in Southeast Asian Case Study Countries ............................................ 55 3.7 Comparative Analysis of Certi�cation and Veri�cation in the Southeast Asia Region ................................................................................................................. 57 3.7.1 Legality Veri�cation Standards in Use ..................................................................................... 57 3.7.2 Assessment of Certi�cation and Veri�cation Standards ........................................................... 58 3.7.3 Assessment of Credible Certi�cation and Veri�cation Schemes .............................................. 60 3.7.4 Certi�cation and Veri�cation: Proof of Compliance with National Laws and Regulations ........................................................................................ 66 3.8 Lessons Learned .................................................................................................................................. 72 3.8.1 Base Attributes of Veri�cation and Certi�cation ..................................................................... 72 3.8.2 Bene�ts of Veri�cation and Certi�cation ................................................................................. 72 3.8.3 Constraints to Veri�cation and Certi�cation ........................................................................... 73 4 Certi�cation as Qualications for Financial Credit Institutions ...................................................................... 75 4.1 Introduction......................................................................................................................................... 75 4.2 Know Your Client ................................................................................................................................ 75 4.3 Types of Financial Flows to the Forestry Sector .................................................................................. 76 4.3.1 Bilateral and Multilateral Financing ......................................................................................... 77 4.3.2 Private Sector Financing........................................................................................................... 77 4.4 Global Principles, Standards and Guidelines in Forestry Sector Investment ........................................ 79 4.4.1 International Finance Corporation (IFC) Sustainability Framework ....................................... 79 4.4.2 e Equator Principles ............................................................................................................. 80 4.4.3 UN Principles for Responsible Investment (PRIs) ................................................................... 80 4.4.4 United Nations Environment Program (UNEP) Finance Initiative ......................................... 81 4.4.5 Asian Development Bank (ADB) Safeguards Policy Statement (SPS) .................................... 81 4.5 Selected International Commercial Banks in Southeast Asia ............................................................... 82 4.5.1 Hong Kong Shanghai Banking Corporation (HSBC) ............................................................. 82 4.5.2 Standard Chartered Bank (SCB) ............................................................................................. 83 4.5.3 Citibank.................................................................................................................................... 83 4.5.4 Bank of America (BoA) ........................................................................................................... 84 4.6 Local Financial Credit Institutions in Southeast Asia .......................................................................... 84 4.6.1 Indonesia .................................................................................................................................. 84 4.6.2 Malaysia ................................................................................................................................... 85 4.6.3 Vietnam .................................................................................................................................... 86 4.6.4 ailand .................................................................................................................................... 86 4.6.5 Lao PDR .................................................................................................................................. 87 4.7 Evaluation of Client Legality and Sustainability .................................................................................. 87 4.7.1 Client Legal Compliance (Legality)......................................................................................... 87 4.7.2 Client Sustainability ................................................................................................................. 89 4.8 Potential Role of Certi�cation Schemes in Know Your Client ............................................................. 90 4.8.1 Opportunities ........................................................................................................................... 91 4.8.2 Constraints ............................................................................................................................... 91 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A vii 4.9 Lessons Learned ................................................................................................................................... 92 4.9.1 International Checklist of Safeguards ...................................................................................... 92 4.9.2 Veri�cation and Certi�cation ................................................................................................... 92 5 Recommendations To Strengthen Certi�cation and Veri�cation Links with Forest Law Enforcement ............................................................................................................... 95 References .................................................................................................................................... 99 Literature Citations ............................................................................................................................ 99 Important Web Links ....................................................................................................................... 104 Annexes Framework for Good Forest Governance ......................................................................................... 108 Southeast Asian Case Study Country Status and Trends ................................................................. 111 Compatability of National Legality Standards and Voluntary Certi�cation Schemes ...................... 152 Banking Sector: Know Your Client Criteria and Gudelines ............................................................. 156 List of Figures Figure 2.1 Process Phases for the FLEGT Licensing System ................................................................................. 14 Figure 3.1 Proportion of Global Certi�ed Forest Areas by Regions, March 2012 ................................................... 28 Figure 3.2 Total Forest Area and Certi�ed Forest Area in Southeast Asian Case Study Countries, March 2012 ................................................................................................................... 29 Figure 3.3 Percentage Production Forests Certi�ed in Southeast Asian Case Study Countries .............................. 30 Figure 3.4 Percentage Forest Plantations Certi�ed in Southeast Asian Case Study Countries ............................... 30 Figure 3.5 Global Growth of CoC Certi�cation, 2005–2011 .................................................................................. 31 Figure 3.6 CoC Certi�cates in Southeast Asian Case Study Countries, March 2012 ............................................. 31 Figure 3.7 Current and Potential Natural and Planted Forest Area in the Study Countries.................................... 56 Figure 3.8 Types of Veri�cation Systems in Forest Management ............................................................................ 68 Figure 3.9 Voluntary and Regulatory Approaches to Legality and Sustainability.................................................... 70 Figure A2.1 Forest Area and Deforestation Rate in Indonesia ................................................................................. 112 Figure A2.2 Forest Veri�cation Systems in Indonesia .............................................................................................. 114 Figure A2.3 Forest Area and Deforestation Rate in Malaysia .................................................................................. 122 Figure A2.4 Forest Area and Reforestation Rates in Vietnam .................................................................................. 134 Figure A2.5 Forest Area and Deforestation Rate in ailand ................................................................................... 141 Figure A2.6 Forest Area and Deforestation Rate in Lao PDR ................................................................................. 147 List of Tables Table 2.1 ISEAL Draft Credibility Principles ......................................................................................................... 5 Table 2.2 Consistency in De�nition of Legality in Europe ...................................................................................... 8 Table 2.3 Building Blocks and Principal Components of Good Forest Governance .............................................. 10 Table 2.4 International Treaties and Political Processes Supporting Legality and/or Sustainability ...................... 12 Table 2.5 Asian Green Building Rating Systems ................................................................................................... 17 Table 2.6 International Organizations and Tools Supporting Legality and Sustainability ..................................... 18 Table 3.1 Major Wood Products Exporters to China (2005) ................................................................................. 22 Table 3.2 Estimates of Illegal Logging in Major East Asia Producing Countries.................................................. 24 Table 3.3 Forest Management Trends in Southeast Asian Case Study Countries: Annual Change Data, 2000 to 2010 ............................................................................................... 25 Table 3.4 Trends in Governance Indicators in Southeast Asian case study countries 1998–2008 ......................... 26 viii C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Table 3.5 FSC and PEFC Certi�ed Forest Areas in Southeast Asian Case Study Countries and Global Regions, March 2012 ......................................................................................................... 28 Table 3.6 Forest Managers Complying with FSC Controlled Wood Standards in Southeast Asian Case Study Countries, March 2012 ................................................................................................ 30 Table 3.7 FSC, PEFC and Combined CoC Certi�cates Globally, FSC and PEFC Data, February 2012 ................................................................................................................................. 32 Table 3.8 Certi�ed Forests in Indonesia, March 2012 ............................................................................................ 35 Table 3.9 Forest Managers Complying with FSC Controlled Wood Standards in Indonesia, March 2012..................................................................................................................................... 35 Table 3.10 FSC and PEFC CoC Summary for Indonesia, March 2012 .................................................................. 36 Table 3.11 Forest and CoC Certi�cation Standards Implemented in Indonesia, March 2012 ................................ 37 Table 3.12 Forest and CoC certi�cation in Malaysia, February 2012....................................................................... 42 Table 3.13 Forest Managers Complying with FSC Controlled Wood Standards in Malaysia, March 2012..................................................................................................................................... 43 Table 3.14 Forest Certi�cation Standards Implemented in Malaysia, March 2012 ................................................. 44 Table 3.15 Voluntary Legality Veri�cation Systems Implemented in Malaysia, March 2012 .................................. 44 Table 3.16: Forest and CoC Certi�cation in Vietnam, February 2012 ......................................................................... 47 Table 3.17 Forest Managers Complying with FSC Controlled Wood Standards in Vietnam, March 2012 ............ 48 Table 3.18 Forest and CoC Certi�cation Standards Implemented in Vietnam, March 2012 .................................. 48 Table 3.19 Forest and CoC Certi�cation in ailand, February 2012 ...................................................................... 50 Table 3.20 Forest Certi�cation Standards Implemented in ailand, February 2012 .............................................. 51 Table 3.21 Forest and CoC Certi�cation in Lao PDR, March 2012 ....................................................................... 53 Table 3.22 Forest Managers Complying with FSC Controlled Wood Standards in Lao PDR, March 2012 .......... 53 Table 3.23 Forest and CoC Certi�cation Standards Implemented in Lao PDR, March 2012 ................................ 54 Table 3.24 Voluntary Legality Veri�cation Systems in Southeast Asia .................................................................... 58 Table 3.25 List of Forest Management Certi�cation Standards in Southeast Asia .................................................. 59 Table 3.26 List of CoC Certi�cation Standards in Southeast Asia .......................................................................... 60 Table 3.27 Complementing Requirements in CoC Standards ................................................................................. 61 Table 3.28 Criteria for “High-Risk� Sourcing in PEFC and FSC Schemes............................................................. 61 Table 3.29 Factors Affecting Low Uptake of Certi�cation in Southeast Asia.......................................................... 62 Table 3.30 Steps in National Wood Flooring Association, Responsible Procurement Program............................... 65 Table 3.31 Summary on the Compatibility of Legality Veri�cation and Certi�cation Standards with ASEAN Criteria for Legal Timber .................................................. 67 Table 4.1 Funding and Financing Institutions to the Forestry Sector .................................................................... 76 Table 4.2 Bilateral and Multilateral Financing Flows to the Forestry Sector, 2000–2007 ...................................... 78 Table 4.3 ADB Loans, Technical Assistance and Grants in Case Study Countries, 2000–2012. .......................... 82 Table 4.4 Examples of ESG Commitments of Financial Institutions in Southeast Asia ....................................... 88 Table 4.5 Varying Degrees of ESG Due Diligence (Know Your Client) between Financial Institutions ............... 89 Table 4.6 Relevant International Treaties Referred to by International Financing Bodies ..................................... 89 Table 4.7 Sustainability C&I of LEI Standard 5000-1 (I) ..................................................................................... 90 Table 4.8 SmartWood Rainforest Alliance Interim Standard Principles to Assess Forest Management in Vietnam (II) .................................................................................................................................... 90 Table 4.9 Safeguards for Financing Institutions and Investors to Clarify with eir Clients ................................. 93 Table A1.1 Building Blocks and Principal Components of Good Forest Governance (good forest governance diagnostics, indicators and toolkit to be derived for each country) ............................................... 108 Table A2.1 Indonesia Forests and Forestry Data..................................................................................................... 111 Table A2.2 Certi�ed Forests in Indonesia ............................................................................................................... 117 Table A2.3 Forest Managers Complying with FSC Controlled Wood Standards in Indonesia.............................. 117 Table A2.4 FSC and PEFC CoC Summary for Indonesia ..................................................................................... 118 Table A2.5 Forest and CoC Certi�cation Standards Implemented in Indonesia .................................................... 118 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A ix Table A2.6 Malaysia Forests and Forestry Data ...................................................................................................... 121 Table A2.7 Forest and CoC Certi�cation in Malaysia ............................................................................................ 128 Table A2.8 Forest Managers Complying with FSC Controlled Wood Standards in Malaysia ............................... 129 Table A2.9 Forest Certi�cation Standards Implemented in Malaysia ..................................................................... 129 Table A2.10 Voluntary Legality Veri�cation systems implemented in Malaysia....................................................... 130 Table A2.11 Vietnam Forests and Forestry Data ...................................................................................................... 133 Table A2.12 Forest and CoC Certi�cation in Vietnam ............................................................................................ 136 Table A2.13 Forest Managers Complying with FSC Controlled Wood Standards in Vietnam ............................... 136 Table A2.14 Forest and CoC Certi�cation Standards Implemented in Vietnam ..................................................... 137 Table A2.15 ailand Forests and Forestry Data ...................................................................................................... 140 Table A2.16 Production and Apparent Consumption of Wood Products, 2004 ....................................................... 141 Table A2.17 Forest and CoC Certi�cation in ailand ............................................................................................ 142 Table A2.18 Forest Certi�cation Standards Implemented in ailand ..................................................................... 143 Table A2.19 Lao PDR Forests and Forestry Data .................................................................................................... 146 Table A2.20 Forest and CoC Certi�cation in Lao PDR .......................................................................................... 148 Table A2.21 Forest Managers Complying with FSC Controlled Wood Standards in Lao PDR ............................. 148 Table A2.22 Forest Certi�cation Standards Implemented in Lao PDR ................................................................... 149 Table A4.1 IFC Performance Standards on Social and Environmental Sustainability............................................ 156 Table A4.2 IFC/World Bank Group, EHS Guidelines (2007) ............................................................................... 157 Table A4.3 IFC Exclusion List ............................................................................................................................... 157 Table A4.4 IFC Client Additional Exclusion List .................................................................................................. 158 Table A4.5 e Equator Principles ......................................................................................................................... 158 Table A4.6 ADB Safeguard Policy Statements on Environment, Involuntary Resettlement and Indigenous Peoples ....................................................................................................................... 160 Table A4.7 Safeguard Requirements ....................................................................................................................... 161 Table A4.8 ADB Prohibited Investment Activities ................................................................................................. 161 Table A4.9 HSBC Forest Land and Forest Products Sector Policy (2008) ............................................................. 162 Table A4.10 Position Statement on Forestry and Palm Oil ...................................................................................... 164 Table A4.11 Citibank ESRM Sustainable Forestry Policy Sector Standards for Risk Management in Forestry ...... 165 Table A4.12 Bank of America Global Corporate Investment Bank Policy on Forest Practices ................................ 166 Table A4.13 Bank of America Policy on Paper Procurement .................................................................................... 167 Table A4.14 Kasikorn Bank: CSR Policy Guideline ................................................................................................. 167 List of Box Box 2.1 UK Government Timber Procurement Policy ........................................................................................ 16 Box A2.1 Summary of Forest Control in Malaysia ............................................................................................... 126 Box A2.2 Drivers for Voluntary Forest Certi�cation ............................................................................................ 127 xi A B B R E V I AT I O N S ADB Asian Development Bank AES Agriculture & Environmental Services Unit, World Bank AfDB African Development Bank Agribank Bank for Agriculture and Rural Development APB Agriculture Promotion Bank APEC Asia-Paci�c Economic Cooperation APFSOS Asia Paci�c Forestry Sector Outlook Study APHI Indonesian Forest Concession Holders Association ASEAN Association of Southeast Asian Nations ASEM Asia-Europe Meeting ASI Accreditation Services International GmbH B&Q Retail chain, United Kingdom BCEL Banque Pour Le Commerce Extérieur Lao BoA Bank of America BREEAM Building Research Establishment Environmental Assessment Method BRI Bank Rakyat Indonesia BRIK Indonesian Forest Industry Revitalization Agency BV Bureau Veritas Certi�cation CBD Convention on Biological Diversity C&I Criteria and Indicators of Sustainable Forest Management CEPI Confederation of European Paper Industries CFCC China Forest Certi�cation Council CIA Central Intelligence Agency CIFOR Centre for International Forestry Research CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora CoC Chain of custody COP Conference of the parties CPET Central Point of Expertise on Timber Procurement xii C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A CPF Collaborative Partnership on Forests CPIA Country Policy and Institutional Assessment of e World Bank CSA Canadian Standards Association CSR Corporate social responsibility CU Control Union Certi�cations DFID Department for International Development DLH Dalhoff Larsen & Horneman, Danish international timber and wood products trader DMC Department of Marine and Coastal Resources, Ministry of Natural Resources and Environment, ailand DNP National Park, Wildlife and Plant Conservation Department, Ministry of Natural Resources and Environment, ailand DNV Det Norske Veritas Certi�cation AB DOFI Department of Forest Inspection DR Dana Reboisasi/ Reforestation Fund, Indonesia EASER Environment, Social and Rural Development Unit, East Asia and Paci�c Region, World Bank EASIS Indonesia Sustainable Development Unit, World Bank EASTS Southeast Asia Sustainable Development Unit, World Bank EASVS Vietnam Sustainable Development Unit, World Bank EHS Environment, health and safety EIA Environmental Impact Assessment EPFI Equator Principles Financial Institution ESG Environmental, social and governance ESMS Environmental and social management system ESRM Environmental and social risk management ETFRN European Tropical Forest Research Network EU European Union EUTR EU Timber Trade Regulation FAO Food and Agriculture Organization of the United Nations FCPF Forest Carbon Partnership Facility FIO Forest Industry Organization, ailand FIP Forest investment program FLEG Forest Law enforcement and governance FLEGT Forest law enforcement, governance and trade FMU Forest management unit FOMACOP Forest Management and Conservation Program, Lao PDR FPIC Free prior and informed consultation or consent FPOs Forest products obligors FRA Global Forest Resources Assessment of FAO C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A xiii FSC Forest Stewardship Council G8 Group of Eight Largest Economies (Canada, France, Germany, Italy, Japan, Russia, United Kingdom, United States) GATT General Agreements on Tariffs and Trade GEF Global environment facility GFA GFA Consulting Group GmbH GFS Global Forestry Services Inc. GFR Global Forest Registry for risk evaluation GFTN Global Forest & Trade Network, a WWF lead partnership GII Global Integrity Index GIZ Used to be GTZ: Deutsche Gesellschaft für Internationale Zusammenarbeit GSP Good Supplier Program of DLH Ha hectare HCVF High conservation value forest HSBC Hong Kong Shanghai Banking Corporation IADB Inter-American Development Bank IFAD International Fund for Agricultural Development IBRA Indonesian Bank Restructuring Agency IC LGA InterCert GmbH IFC International �nance corporation IFCC Indonesion Forestry Certi�cation Cooperation IIED International Institute for Environment and Development ILO International Labour Organization IPK Forest Conversion Areas, Indonesia ISEAL ISEAL Alliance ISL Other Legal Permits, Indonesia ISO International Organization for Standardization ITTA International Tropical Timber Agreement ITTO International Tropical Timber Organization JGAIA Japan Gas Appliances Inspection Association KAN National Accreditation committee, Indonesia KF KPMG Forest Certi�cation Services Inc. KYC Know-your-client LEED Leadership in Energy and Environmental Design LEI Lembaga Ekolabel Indonesia LPI Lembaga Penilai Independen (Independent Valuation Institute, Department of Forestry, Indonesia) m3 Cubic meter MAF Ministry of Agriculture and Forestry, Lao PDR xiv C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A MARD Ministry of Agriculture and Rural Development, Vietnam MC&I Malaysia Criteria and Indicators MDF Medium-density �berboard MIV Modular Implementation and Veri�cation Scheme MPRM Minister for Planning and Resource Management, Malaysia MTCC Malaysian Timber Certi�cation Council MTCS Malaysian Timber Certi�cation Scheme MTIB Malaysian Timber Industry Board NFC National Forestry Council NGO Non-governmental organization NLBI Non–Legally Binding Instrument of the UNFF NTLAS National Timber Legality Assurance System NWFA National Wood Flooring Association NWFP Non-wood forest product ODA Official development assistance OECD Organization for Economic Co-operation and Development PACt Phased approach to forest certi�cation PEFC Program for Endorsement of Forest Certi�cation Schemes PFA Production forest area PFE Permanent forest estate PHL Compliance with SFM in Indonesia PRF Permanent forest reserves/permanent reserved Forests, Malaysia PRI Principles of responsible investment PROFOR Program on Forests, multi-donor partnership PSDH Provisi Sumber Daya Hutan Log Royalty, Indonesia RAMSAR Convention on Wetlands of International Importance RECOFTC Regional Community Forestry Training Center for Asia and the Paci�c REDD Reducing emissions from deforestation and forest degradation REDD-plus Mechanism to mitigate climate change by reducing greenhouse gas emissions from deforestation and forest degradation, conservation of forest carbon stocks, sustainable management of forests and enhancement of carbon stocks RFD Royal Forestry Department, Ministry of Natural Resources and Environment, ailand RIL Reduced impact logging RM Malaysian currency (ringgit) RPP Responsible procurement program SA Soil Association Woodmark SAPU Security and asset protection business unit SASDA Agriculture, Irrigation & Natural Resources Unit, South Asia Region, World Bank SCB Standard Chartered Bank C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A xv SCS Scienti�c Certi�cation System SET Stock Exchange of ailand SF&C Sustainable Forestry and Compliance Business Unit, State of Sarawak SFC Sarawak Forestry Corporation SFI Sustainable Forestry Initiative SFM Sustainable forest management SFMLA Sustainable Forest Management License Agreements, State of Sabah, Malaysia SGS Société Générale de Surveillance SKH Stichting Keuringsbureau Hout SLIMF Small Low Intensity Managed Forest Certi�cation SMF Sustainable management of forests SPS Safeguard policy statement SQS Swiss Association for Quality and Management Systems STIDC Sarawak Timber Industry Development Corporation SUFORD Sustainable Forestry and Rural Development Project, Lao PDR SVLK Indonesian Timber Legality Veri�cation System (Standar Veri�kasi Legalitas Kayu) TFT e Forest Trust (formerly the Tropical Forest Trust) TI Transparency International TLAS Timber legality assurance systems TLTV Timber legality and traceability veri�cation TNC e Nature Conservancy TPAC Timber Procurement Assessment Committee, Netherlands TRAFFIC Wildlife Trade Monitoring Network TSUD Tüv Süd TT BM TRADA Certi�cation Ltd TTAP Timber Trade Action Plan TTF Timber Trade Federation UN United Nations UNCCD United Nations Convention to Combat Deserti�cation UNDP United Nations Development Program UNEP United Nations Environment Program UNESCO United Nations Educational, Scienti�c and Cultural Organization UNFCCC United Nations Framework Convention on Climate Change UNFF United Nations Forum on Forests UNFCCC United Nations Framework Convention on Climate Change UN-REDD UNDP, FAO, UNEP Partnership to support REDD-plus UK United Kingdom USA United States of America xvi C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A USDA United States Department of Agriculture US$ United States Dollar VietinBank e Vietnam Bank for Industry and Trade VLC Veri�cation of legal compliance VLO Veri�cation of legal origin VPA Voluntary partnership agreement WFP World Food Programme WRI World Resources Institute WTO World Trade Organization WWF World Wide Fund for Nature xvii EXECUTIVE SUMMARY Illegal Logging and exported to markets around the world. ere is opti- mism that rapid expansion of forest and CoC certi�ca- Unsustainable Forest tion in China (and India) will become drivers for more certi�cation in Southeast Asia. Management in Southeast Asia e forests of Southeast Asia face high levels of defor- estation and forest degradation, which are driven by a variety of forces both inside and outside of the for- estry sector. Evidence demonstrates that key drivers Strong Global Calls for include the aggressive expansion of palm oil, rising demand for agricultural products and biofuels, residen- Sustainability and Legality tial developments, infrastructure expansion and mining of Forests developments. Pressures on land resources are further exacerbated by climate change and uncontrolled natu- Increasingly strong calls are made globally for sustain- ral causes. In addition, the exploitation of HCVFs and ability and legality in forests, forest industries and related the degradation of forest ecosystems threaten not only trade. e United Nations (UN) Conventions and trea- biodiversity conservation and other ecosystem ser- ties (United Nations Framework Convention on Climate vices, but also livelihoods of local communities and Change [UNFCCC], United Nations Convention indigenous peoples. to Combat Deserti�cation [UNCCD], Convention on Biological Diversity [CBD], World Heritage, Unsustainable and illegal forest management practices Convention on International Trade in Endangered persist at unacceptable levels in the region, with illegal Species of Wild Fauna and Flora [CITES] and forest products being traded internationally. Southeast Convention on Wetlands of International Importance Asia accounted for 5% of global forest cover but 17% of [RAMSAR]), international processes (United Nations global forest loss in 2000 to 2010. A large share of this Forum on Forests [UNFF], International Tropical forest cover loss is driven by illegal logging, with esti- Timber Agreement [ITTA] and Montreal Process) mates varying from 22% to 35% in Malaysia to 40% to and political summit recommendations (Group of 88% in Indonesia. China, the largest importer of forest Eight Largest Economies [G8], Asia-Paci�c Economic products in Asia, is rapidly expanding forest and Chain Cooperation [APEC] and Association of Southeast of Custody (CoC) certi�cation (Forest Stewardship Asian Nations [ASEAN]) provide a strong political Council [FSC], Program for Endorsement of Forest message. ose funding the forestry sector, including Certi�cation [PEFC] and China Forest Certi�cation multilateral and bilateral donors, development banks Council [CFCC]), but remains a major importer of and international commercial banks, have principles, illegal forest products. A signi�cant proportion of policies, safeguards, guidelines and procedures to which these forest products are processed in-country and then their clients increasingly must conform. Additionally, xviii C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A non-governmental organizations (NGOs), forest and logging and the associated forest product trade in the forest industries investors, wholesalers, retailers, buyers Southeast Asian case study countries thus far. Food and governments, particularly in industrialized coun- and Agriculture Organization of the United Nations tries of Europe, North America, Oceania and Japan, are (FAO) and International Tropical Timber Organization increasingly demanding proof of legality and sustain- (ITTO) recently reported that the high demand for ability through veri�cation and sustainability. land and forest products, low institutional capacity, weak governance and deeply entrenched social causes of Given the growing need to prove the legality and sustain- deforestation and forest degradation remain challenges. ability of forest management, wood processing and related Nonetheless, the ASEAN initiatives for veri�cation trade, this study explores the current and future effective- and certi�cation provide the technical and institu- ness of certi�cation and veri�cation schemes in Southeast tional framework to guide, assess, attest to, monitor and Asia in addressing these concerns. In particular, it ana- report on progress toward sustainability. is guidance lyzes how the linkages between credible certi�cation and and support both for the ASEAN and other interna- veri�cation schemes and the enforcement of forest laws tional treaties and political process is gaining impor- can be strengthened. e main focus is on �ve case study tance given the strong global calls for sustainability and countries, which are major producers and wood-processing legality of forests. hubs in the region: Indonesia, Lao People’s Democratic Republic (PDR), Malaysia, ailand, and Vietnam. Weak Governance ASEAN Initiatives for e reported root causes of illegal logging are incon- Veri�cation and Certi�cation sistent and unclear government policies that have an impact on food security and poverty, which are further ASEAN has initiated political, policy and technical exacerbated by corruption, cronyism, weak law enforce- processes and guidance to address legality and sustain- ment and a lack of transparency and stakeholder par- ability issues. ASEAN Groups have been established on ticipation. Additionally, the disclosure by enterprises Forest Policy and Timber Certi�cation and a Strategic of their environmental, social and governance screen- Plan of Action for Cooperation in Forestry (2011–2015) ing policies and practices has been weak. Legality prepared. Key Tools include the ASEAN Criteria and veri�cation and certi�cation provide legality and sus- Indicators for Sustainable Forest Management (SFM) tainability standards and best practices, but application in Tropical Countries (2000); ASEAN Monitoring, in Southeast Asia to date has been minimal. Assessment and Reporting (2007); and the ASEAN Regional Guideline for a Phased Approach to Forest e legal and regulatory frameworks governing the Certi�cation (2009), commonly known as PACt. forest sector have proven complex, unclear and subject to e PACt pillars include a Forest Policy Framework; dispute. erefore, it is often a challenge to agree upon ASEAN Criteria and Indicators for Legality of Timber legality veri�cation standards. is can be made more (2009); ASEAN Guideline for Chain of Custody complex because the legal and regulatory frameworks for Legal Timber (2010); and ASEAN Guideline for need to span not only forest management and forest Chain of Custody for Sustainable Timber (2010) to industries wood processing but also export licensing and assist countries to derive their National Timber Legality trade requirements. Assurance System by 2015. Progress toward SFM and improved forest governance Despite these priority actions, the ASEAN initiatives has been slow and insufficient in the case study coun- have been reported as having limited impact on illegal tries, as reported by FAO and ITTO. Much greater C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A xix political commitment, institutional capacity build- March 2013, prohibits the import of illegal forest prod- ing and strengthened law enforcement are needed to ucts and requires importers to exercise due diligence. improve forest governance and make a signi�cant and e Australian Illegal Logging Prohibition Bill will also irreversible impact in reducing illegal logging, corrup- restrict the importation and sale of illegally logged tim- tion, encroachment and violations of tenure and owner- ber within Australia. e recent proliferation of new ship rights. Reforms in forest governance will need to green public procurement policies and green building move away from the piecemeal approach toward more requirements in Europe, North America, Oceania and integrated approaches. Without good forest governance Japan also request evidence of legality and sustainability, and promotion of legality and sustainability in the wider though their requirements vary widely. e Ministry of forest sector, achievement of the objectives of SFM, Commerce and State Forest Administration in China the European Union (EU) Forest Law Enforcement, has issued guidelines on activities of Chinese companies Governance & Trade (FLEGT) Action Plan and logging overseas that require adherence to national laws related programs will be jeopardized. in producer countries. All importing countries should be held to the standards they promote. International Regulatory Synergies between FLEGT Processes as Drivers for Good Action Plan and Voluntary Forest Governance Veri�cation and Certi�cation rough forest law enforcement and governance (FLEG) and FLEGT, with funding from the European Evidence supports that FLEGT VPAs and volun- Commission, the World Bank and partners are sup- tary certi�cation processes differ in standards, scope, porting initiatives for good forest governance at the approach and procedures, but they are potentially global, regional and national levels. e FLEGT pro- mutually supportive. VPAs can bene�t from veri�cation gram of the European Union has initiated leverage over and certi�cation traceability mechanisms and auditing countries exporting forest products to the European processes at the forest management unit level. Voluntary Union to increasingly comply with legality and forest schemes can be a testing ground for (i) case-based and governance criteria through national Timber Legality practical solutions for understanding application of Assurance Schemes (TLAS) and Voluntary Partnership national laws and regulations, (ii) multi-stakeholder Agreements (VPAs). us far, Indonesia signed a VPA processes that can feed into VPA processes and (iii) with the European Union in May 2011 and Malaysia and the use of tracking and tracing procedures that can Vietnam are currently negotiating with the European feed into traceability systems under VPAs. Voluntary Union. Lao PDR and ailand are in the information approaches also can pioneer best practices approaches in and pre-negotiation phase. countries that are not ready for nation-wide regulatory approaches. In these circumstances, countries can pre- e US Congress passed an amendment to the Lacey pare for new export market challenges and opportuni- Act in May 2008 that will require importers in the ties (e.g., EUTR and US Lacey Act ). United States to exercise “due care� and demonstrate that plant products are not from officially protected In turn, it is reported that voluntary certi�cation may areas or contrary to authorizations, including laws bene�t from VPAs, particularly in greater clarity on governing export and trans-shipment and the non- legality de�nitions, standards, indicators and veri�ca- payment of royalties and fees. Similarly, the EU Timber tion procedures, multi-stakeholder processes in the sec- Trade Regulation (EUTR), which will come in effect in tor and enhanced transparency and public disclosure. xx C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Evidence demonstrates that improved governance and promote certi�cation of these areas. It is estimated that law enforcement should reduce the risk for stakeholder the potential to increase certi�cation in natural and conflicts and help streamline the process toward achiev- plantation forests in the case study countries is large, ing sustainability certi�cation. In these ways, good particularly in Indonesia and Malaysia. forest governance may be viewed as a prerequisite for certi�cation. e two approaches are mutually rein- Trends show that continued pressures from the environ- forcing. Voluntary certi�cation deepens management mentally sensitive markets will oblige “producer� coun- commitments to social, environmental and economic tries to provide evidence of legality and sustainability if sustainability at the enterprise level, and VPAs are they wish to retain their export markets. Legality veri- intended to strengthen legality requirements and good �cation, third party certi�cation and stepwise programs governance in the forest sector as a whole. offered by independent third party assessors can poten- tially provide evidence of legality and sustainability to Although veri�cation and certi�cation schemes and meet the requirements of these discerning markets. standards differ, evidence indicates that the principles, criteria, policies and standards are becoming increas- ingly harmonized. Certi�cation is increasingly includ- ing both legality and sustainability criteria, or at least certi�cation and veri�cation are functioning in a more mutually supportive way. e scope of legality and law Role of Financial Institutions enforcement has been contentious, increasingly being extended beyond the immediate forest laws and regula- Financial credit institutions seeking to evaluate the tions to include policies, laws, regulations, plans, tools legality and sustainability risk of their forestry clients and practices of SFM and sustainable land-use (i.e., use veri�cation and certi�cation as useful tools to reduce ecosystem and landscape approaches), sustainable liveli- environmental, social and governance risk. In fact, global hoods, food security and poverty alleviation, and strat- �nancial credit institutions have demonstrated use of egies for the mitigation of, and adaptation to, climate Environmental, Social and Governance (ESG) screening change, among others. tools (and exclusion lists) to identify, quantify and address risks associated with �nancing forest sector activities in Southeast Asia. ese tools are used for the purpose of foreseeing and mitigating banks’ risk for �nancing ille- gal and unsustainable forestry operations. Many interna- tional commercial banks have policies that require forest Need for Critical Mass certi�cation schemes, some with a stated preference for FSC certi�cation. In this way these �nancing institu- Data show that voluntary certi�cation is at early stages tions reduce legal, social, environmental and �nancial of   acceptance and application in the Southeast Asian risks and ensure that their client’s projects commit to case study countries, where there is signi�cant poten- legal and sustainable practices. Most international com- tial to expand use of this tool. Only 11% of the pro- mercial bank staff are not specialists in SFM; thus, third duction forest area is certi�ed (8% of total forest area) party certi�cation ful�lls a critical role in monitoring and less than 6% of forest plantations. However, these legality and sustainability of forests and forest products averages mask signi�cant differences across countries. trade. Evidence shows that local banks in Southeast Asia Malaysia has certi�ed 40% of its production forest area have focused on traditional �nancial risk, with little ref- and, together with Indonesia, is leading the certi�cation erence to social or environmental criteria or a prerequisite efforts in the sub-region. In contrast, Laos, Vietnam of certi�cation. As a signi�cant funding source for the and ailand are lagging behind signi�cantly. However, forestry sector in Southeast Asia, this is a key target area the countries in the region are aiming to increase tim- to encourage greater legality and sustainability awareness ber production from forest plantations and consequently in their “know your client� guidelines. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A xxi Recommendations recommendations to target organizations to achieve this are summarized below. Given the limited uptake of cer- e complementarities among law enforcement, certi�- ti�cation in Southeast Asia so far and the large poten- cation and legality veri�cation schemes can be realized tial to increase certi�cation in each study country, these only if promoted aggressively and attempts are made to policy recommendations broadly apply to all of them. better de�ne and systematically harmonize the legality and sustainability standards, followed by better enforce- ment and monitoring systems. e key areas for engage- ment cover a broad range of issues involving public as well as private stakeholders, including: Development Banks and (i) Harmonization and integration of standards: Harmo- Other Donors nize legality veri�cation and certi�cation standards, Ⅲ Continue to provide technical support to timber- building upon synergies in procedures, methods producing and timber-processing countries to har- and standards to systematically include the legal monize, demonstrate and implement forest and requirements de�ned in national legality assurance CoC certi�cation and/or legal veri�cation in step- standards and international legality standards for wise approaches to legality and sustainability. the certi�able activities in the supply chain (includ- Ⅲ Encourage countries to recognize and strengthen ing EUTR and FLEGT requirements). voluntary certi�cation as evidence on legal compli- (ii) Capacity building in producing countries: Increase ance and encourage markets to recognize and accept capacity and resources in producing countries to such evidence for legal compliance and SFM. develop credible internal monitoring systems, as Ⅲ Provide long-term assistance in development and well as effective and independent certi�cation and comparison of experiences of national timber veri�cation bodies. legality standards and veri�cation systems in coop- (iii) Incentives to the private sector: Encourage certi�ca- eration with other VPA signatory countries, civil tion by providing incentives for stepwise approaches society and the private sector familiar with imple- coupled with �nancial and non-�nancial incen- mentation of voluntary certi�cation in forestry and tives (e.g., �scal incentives, reputational gains for timber industry. certi�ed companies, linking business and SFM Ⅲ Increase capacity and resources in producing coun- managers, government regulations on green build- tries to develop monitoring systems to improve ing codes and green public procurement). internal control in private and public forestry (iv) Incentives to smallholders: Encourage group certi�ca- organizations and integrate third party certi�cates tion by providing streamlined procedures and lower as optional evidence on compliance. certi�cation costs to small-scale producer, groups Ⅲ Increase technical assistance and improve coopera- or communities, providing access to markets and tion with certi�cation and regional governmental smallholder training programs and offering �nan- bodies for building capacity of certi�cation bodies cial support to cover part of the certi�cation cost. in-country. (v) Access to credit: Encourage and motivate local banks Ⅲ Facilitate and enhance cooperation among wood- toward stronger legality and sustainability criteria producing countries, ASEAN importing countries that can lead to an ordinance with legal implications and China, as well as key consumer countries to for banks that do not apply stronger legality and harmonize legality veri�cation and certi�cation sustainability criteria in their �nancing decisions. requirements. Each stakeholder group needs to ensure that the comple- Ⅲ Continue to support good forest governance in col- mentarities between voluntary certi�cation and legality laboration with the FLEGT Action Plan and other veri�cation schemes as well as good forest governance national and international regulatory initiatives and and law enforcement are built upon. e detailed policy encourage strengthening of cross-sector linkages. xxii C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Government Institutions Certi�cation Bodies Ⅲ Provide incentives to enterprises to encourage step- Ⅲ Continue efforts to increase the area under certi�- wise approaches to put in place veri�cation schemes cation or legal veri�cation in stepwise approaches. that demonstrate legal conformance while devel- Ⅲ Provide early orientation and guidance on proce- oping national certi�cation criteria and standards, dures to potential clients and follow up their cer- ultimately reaching the required performance level ti�cation requests in a swift and efficient manner. of SFM (which should be higher than the legal Ⅲ Offer group certi�cation with streamlined procedures requirements). and lower certi�cation costs to small-scale producers Provide targeted �scal incentives to encourage and groups of producers, while offering �nancial sup- SFM in public and private forests, ranging from port to cover part of the certi�cation cost. simpli�ed auditing procedures to reductions in Ⅲ With government institutions and other key timber royalty rates for certi�ed companies with stakeholders, harmonize legality veri�cation and preferential treatment for small-scale producers. certi�cation standards, building upon synergies Ⅲ Introduce and enhance government regulations on in procedures, methods and standards to system- green building codes and green public procurement. atically include the legal requirements de�ned in Ⅲ With Certi�cation Bodies and other key stake- national legality assurance standards for the certi- holders, lead processes to harmonize legality veri�- �able activities in the supply chain. cation and certi�cation standards to systematically Ⅲ Review how legality is de�ned in each certi�ca- include legal requirements de�ned in national le- tion standard compared to the legality standards gality assurance standards for the certi�able activi- for FLEGT-VPAs and to meet EUTR, Lacey ties in the supply chain. Act, Australian Illegal Logging Prohibition Bill and Ⅲ Integrate, as appropriate, reliable, impartial and effi- other international regulatory requirements. cient audit and veri�cation procedures implemented Ⅲ Improve cooperation with technical assistance in voluntary certi�cation into the legality veri�cation. providers and regional governmental bodies to Ⅲ Recognize certi�cation as an impartial, reliable, con- build capacity of certi�cation bodies in-country. trolled and transparent tool contributing toward (but not guaranteeing) legal compliance and sustainability of all forest operations. Ⅲ Review how legality is de�ned in each certi�ca- tion standard compared to the legality standards Enterprises in the of FLEGT-VPAs and to meet EUTR, Lacey Act, Forestry Sector Australian Illegal Logging Prohibition Bill and other international regulatory requirements. Ⅲ Review the business case for certi�cation and veri- Ⅲ Improve cooperation with technical assistance �cation for legality and sustainability and share providers and certi�cation bodies to build capacity through forestry and forest industries networks. of certi�cation bodies in-country. Ⅲ Demonstrate leadership in corporate responsibil- Ⅲ Improve cooperation with ASEAN importing ity by responding to market preference by adopting countries and China, as well as key consumer existing processes for legal veri�cation and certi- countries to harmonize legality veri�cation and �cation (forest and CoC) as proof of legality and certi�cation requirements. sustainability. Ⅲ Encourage and motivate local banks toward stron- Ⅲ Participate actively and support efforts by gov- ger legality and sustainability criteria that can lead ernments and regional governmental bodies to to an ordinance with legal implications for those improve transparency and to strengthen laws and banks that do not apply stronger legality and sus- procedures to control illegal logging and associated tainability criteria in their �nancing decisions. trade in illegal forest products. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A xxiii Ⅲ Industry associations demonstrate their commit- certi�ed forest products and the potential markets ment to �ght illegal logging and associated trade and price premiums that can be achieved. in illegal forest products by adopting codes of con- duct and encouraging their members to subscribe to such codes. Local Banks in Southeast Asia Ⅲ Adopt international principles, standards, safe- International Commercial guards and procedures for greater transparency on client evaluation procedures, risk assessment prac- Banks in Southeast Asia tices and more sustainable business modes. Ⅲ Cooperate and make joint efforts when improving Ⅲ Integrate legality and sustainability criteria in client evaluation procedures and risk assessment banks’ �nancing evaluation and risk assessment. practices to reduce associated costs and bureaucracy. Ⅲ Evaluate projects and clients for legality, sus- tainability and other risks against agreed upon standards as applied in their unique local contexts and risks. Ⅲ Introduce progressive �nance facilities structured Non-Governmental to support SFM, certi�cation and sensible risk Organizations (NGOs) management strategy. Ⅲ Enhance networking with key stakeholder groups Ⅲ Disseminate knowledge of grass-root level chal- to use their knowledge of the Southeast Asian lenges in the forest sector to decision makers, forests and forestry context and establish external �nanciers and forest companies. partnerships to provide capacity building and third Ⅲ Share knowledge on legal and sustainable prac- party independent and credible services. tices and bene�ts as benchmarks and on the penal- Ⅲ Improve market intelligence and communication ties and consequences of unsustainable and illegal between producer and buyers on the availability of business practices. 1 SECTION 1 OBJECTIVE T he overall objective of the study is to explore the In particular, the study assesses the status and per- current effectiveness of certi�cation and veri�ca- ceived credibility of certi�cation and veri�cation tion schemes in Southeast Asia to strengthen the schemes in Southeast Asia and illustrates the extent legality and sustainability of future forest manage- to which they offer proof of compliance with national ment, wood processing and related trade. It analyzes how laws and regulations. The analysis also explores the po- the linkages among credible certi�cation and veri�ca- tential impact certi�cation could have on facilitating tion schemes and the enforcement of forest laws can be law enforcement and influencing market practices and strengthened in Southeast Asia. The analysis will in par- sector governance. Finally, it illustrates the potential ticular focus on �ve case study countries, which are im- role certi�cation could play in determining a company’s portant producer or wood processing hubs in the region: quali�cations with �nancial institutions and, hence, Indonesia, Lao PDR, Malaysia, Thailand and Vietnam. its access to �nance. 3 SECTION 2 BACKGROUND T his section introduces key concepts and de�nitions e SFM concept encompasses natural and planted for sustainable forest management and tools for forests in all geographic regions and climatic zones, and achieving it, including certi�cation, veri�cation, all forest functions, managed for conservation, production legality, law enforcement and good forest gover- or multiple purposes, at the local, national and global lev- nance. e linkages among the concepts are highlighted els. SFM and sustainable management of forests (SMF) in a simple theoretical framework. Additionally, inter- were used synonymously (UN–General Assembly, 2007). national and national initiatives supporting legality and sustainability in forest governance (e.g., the EU FLEGT In 2007, the United Nations Framework Convention on Action Plan, Lacey Act, green public procurement and Climate Change (UNFCCC), Bali Action Plan used the green building initiatives and others) are introduced. sustainable management of forests in a narrower context, relating to the productive functions of forests, but not including conservation functions and the enhancement of carbon stocks through afforestation, reforestation and forest restoration (UNFCCC, 2008). e Collaborative 2.1 Concepts and De�nitions Partnership on Forests (CPF)1 is supporting harmonization of terminology across United Nations (UN) conventions to 2.1.1 Sustainable Forest Management help facilitate communications and synergies among them. e “Forest Principles� that initially captured the inter- For the purposes of this report, the de�nition of SFM national understanding of sustainable forest management used in the NLBI on all types of forests, geographic (SFM) in 1992 (UN–General Assembly, 1992) have regions and functions is used. been rede�ned to a more widely agreed upon language used by intergovernmental bodies in the non–legally binding instrument (NLBI) on all types of forests of 2.1.2 Criteria and Indicators of SFM the  United Nations Forum on Forests (UNFF) that Criteria and indicators (C&I) of SFM provide a frame- states that: work to conceptualize, evaluate and implement sustain- able forest management. “SFM is a dynamic and evolving concept, which aims to maintain and enhance the economic, social and environ- 1. Collaborative Partnership on Forests – CIFOR, CBD, FAO mental values of all types of forests, for the bene�t of present (Chair), GEF, ITTO, IUCN, IUFRO, UNCCD, UNDP, UNEP, and future generations (UN–General Assembly, 2007). UNFCCC, UNFF, World Agroforestry Centre, e World Bank: http://www.cpfweb.org/en/ 4 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A No single forest management standard is accepted Criteria de�ne and characterize the essential seven thematic worldwide, and in the past each system has taken a elements, as well as a set of conditions or processes, by which SFM may be assessed. ese include extent of forest resources; somewhat different approach in de�ning standards for biological diversity; forest health and vitality; productive func- SFM. Over the years, many of the issues that previously tions of forest resources; protective functions of forest resources; divided certi�cation systems have become much less socioeconomic functions; and the legal, policy and institutional distinct. e largest certi�cation systems now, generally, framework. have the same structural programmatic requirements.4 Indicators, periodically measured, reveal the direction and scale of change with respect to each criterion. (Centre for e global association for sustainability standards – International Forestry Research [CIFOR], 1999). the ISEAL Alliance – has developed Draft Credibility Principles for sustainability standards systems, which aim to achieve positive social, environmental and eco- nomic impacts. ese include the draft Performance Criteria and indicators (C&I) of SFM can be used at the Related Principles to ensure that the standard and sup- national or management unit level to report and assess porting systems work effectively, as well as the Uptake progress toward achieving SFM. Nine international and Related Principles to build stakeholders trust and use regional C&I processes are operational across various the standards system (listed in Table 2.1 below). forest zones (boreal, temperate and tropical), including more than 150 countries. Forest and CoC Certi�cation systems were designed to tackle deforestation by creating market demand for 2.1.3 Certi�cation timber from sustainably managed forests. According to the FAO, a major condition for the adoption of SFM Certi�cation is a voluntary, market-based tool that is a demand for products that are produced sustain- supports SFM or responsible forest management ably and consumer willingness to pay for the higher worldwide, veri�ed by an independent third party in costs entailed. Certi�cation represents a different focus compliance with established principles, criteria, policies from the regulatory approaches to market incentives and standards prepared in multi-stakeholder processes to promote SFM. By promoting the positive attributes that are transparent, democratic and inclusive. of forest products from sustainably managed forests, certi�cation focuses on the demand side of environmen- Forest management certi�cation is granted when indepen- tal conservation (FAO, 2009a). dent inspection certi�es that forest management meets internationally agreed upon principles, criteria and Certi�cation as a market-driven tool has tended to standards of SFM or responsible forest management. focus on wood, �ber and fuel products; however, for- ests also provide valuable ecosystem services (soil and Chain of custody (CoC) certi�cation is granted when water protection, conservation of biodiversity, carbon independent inspection tracks certi�ed wood and paper storage and sequestration, etc.) that, thus far, have products through the production process from the forest been treated mainly as non-market bene�ts to society. to the �nal product and to the consumer, including all e Forest Stewardship Council (FSC) is working successive stages of processing, transformation, manu- on this issue through the ForCES project, with the facturing and distribution. e certi�ed label ensures Global Environment Facility (GEF), UN Environment that the forest products used are from responsibly har- Program (UNEP) and Centre for International Forestry vested and veri�ed sources2 or forests under SFM.3 Research (CIFOR).5 Additionally NWFPs, which are 2. Forest Stewardship Council: http://www.fsc.org/certi�cation. 4. Wikipedia on sustainable forest management: http:// html en.wikipedia.org/wiki/Sustainable_forest_management 3. Pinchot Institute for Conservation: http://www.pinchot.org/ 5. ForCES Project: http://www.fsc.org/forces-pilot.129.htm or about_pic/mission http://www.fsc.org/ecosystem-services.124.htm C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 5 TABLE 2.1 ISEAL Draft Credibility Principles Performance-Related Principles Effectiveness Standards systems measure and demonstrate progress toward their objectives and integrate learning to increase their impacts. Relevance Standards address the critical sustainability hotspots in the lifecycle of the product or service, only include requirements that contribute to their objectives, and are adapted where necessary to be locally applicable. Rigor Requirements in a standard reflect best scienti�c understanding and relevant international norms and are of a performance level that results in measurable improvements toward the objectives of the system. Accuracy Assessments of compliance provide an accurate picture of whether an entity meets the requirements in a standard. Impartiality Assessments of compliance are objective and the auditor and assurance personnel are not inappropriately influenced in their decisions. Coordination Standards systems build on or refer to existing standards where relevant and collaborate with other standards systems to improve consistency and efficiency in operating practices. Operational efficiency Standards systems have sound business and �nancial models and efficient governance systems that support their operations, while applying the most effective model to achieve their objectives. Uptake-Related Principles Engagement Standards systems engage a balanced and representative group of stakeholders in standards development, and engage relevant stakeholders in assurance and monitoring and evaluation. Transparency Standards systems make information easily available about the content of the standard, how a standards system operates, who is certi�ed and how, impact information and various ways that stakeholders can engage. Truthfulness Claims and communications about the bene�ts that derive from the purchase or use of a product or service are accurate and enable an informed and comparable choice. Accountability Standards systems provide stakeholders with mechanisms for recourse where they feel their position or point of view has not been adequately taken into account. Accessibility Standards systems minimize costs and overly burdensome requirements to be accessible to stakeholders, the enterprises seeking assurance and the end users of the system. Capacity Standards systems facilitate training and access to resources for enterprises seeking assurance and support the development of local or regional assurance. Source: ISEAL Alliance draft Credibility Principles, 2012: http://www.isealalliance.org/online-community/resources/draft-iseal-credibility- principles-v02-and-comment-submission-form-september-2012 used for subsistence and trade to support the livelihoods thus lost access to market opportunities that required of hundreds of millions of indigenous communities and certi�cation and denied price premiums for certi�ed smallholders are generally not certi�ed. A signi�cant products. In recent years, group certi�cation has been proportion of the harvesting and trade in NWFPs is introduced to bring these owners or managers of for- informal, so it has been difficult to secure sound data to ests together under a group manager, who provides evaluate the opportunities, constraints and impacts of information and manages the certi�cation process to NWFP certi�cation. take advantage of the economies of scale without los- ing control of their own forest and its management. In the past, certi�cation was mainly available to large In response to the realities and needs of small and and well-resourced enterprises. However, a signi�cant low intensity managed forests the FSC introduced the proportion of natural and planted forests are owned Small and Low Intensity Managed Forests (SLIMFs) or managed by communities, small to medium enter- Program.6 prises and smallholders. Until recently, certi�cation penalized these groups because they did not have the 6. SLIMFS Programme: http://www.fsc.org/options-for- understanding of certi�cation, the resources, capac- certi�cation.167.htm or http://www.fsc.org/policy-for-labeling- ity or technical know-how to access certi�cation and community-and-slimf-products.316.htm 6 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 2.1.4 Veri�cation Veri�cation involves audits of forest management units and processing facilities, including �eld inspections and Veri�cation is granted by an independent, third party assurer reviews of management systems and documents. ey when compliance exists with laws, regulations, standards may be: and procedures for forest management, wood harvesting at the forest, wood processing and CoC throughout the sup- Ⅲ Voluntary legality veri�cation programs developed ply chain and downstream entities, ensuring traceability of by certi�cation bodies (e.g., Bureau Veritas [BV], legal timber at all points in the supply chain. It is available Scienti�c Certi�cation Systems [SCS], Société to wood producers, processors and buyers and considered Générale de Surveillance (SGS), SmartWood by some as a �rst step toward full certi�cation.7 Veri�cation Rainforest Alliance and Double Helix Tracking of the legality of internationally traded wood products is Technologies (DoubleHelix) generally do not have an important dimension of the Forest Law Enforcement, a common approach. Governance and Trade movement (FLEGT). Ⅲ Mandatory legality verif ication programs devel- oped by governments are of three types: (i) those Voluntary legality veri�cation schemes are divided into that will meet the Voluntary Partnership Agree- two categories: ments (VPA) under the EU FLEGT Action Plan, (ii) national or sub-national government Veri�cation of Legal Origin (VLO) applies to for- regulation and documentation and (iii) control estry operations on the forest site; it veri�es that services delegated by government to private sec- the timber comes from a known and licensed tor �rms. source and that the entity, which has carried out Ⅲ NGO initiatives with a focus on legality include the harvest, had a documented legal right to do so.8 the Tropical Forest Foundation, which has a legal- Suppliers of VLO wood must follow and maintain ity component within the reduced impact logging documented CoC systems in meeting the admin- (RLI) standard and Timber Trade Action Plan le- istrative requirements of permitting, planning, gality (TTAP) checklist that provides technical as- taxes or fees and harvesting of de�ned areas. sistance to suppliers to achieve legality veri�cation Veri�cation of Legal Compliance (VLC) veri�es that of their supply chain (Proforest, 2010). wood harvesting complies with a broader range of applicable and relevant laws and regulations related Key dimensions of veri�cation systems include (Brown not only to forestry but also a broader range of laws et al, 2008): on environmental protection, wildlife, water and soil conservation, harvesting codes and practices, worker health and safety and fairness to communities. Ⅲ Ownership and the ability to control the objec- A VLC thus expands on the basic component of a tives, process and outcomes (reciprocity between VLO by verifying that timber harvesting and other signatories, adoption of a systems approach, focus relevant management activities in the forest, where it on the distribution and balance of powers) was harvested, have complied with all applicable and Ⅲ Legality standards, including clear, unambigu- relevant laws and regulations9 (Proforest, 2011a). ous sets of rules to determine compliance (clar- ity of assessment standards, clear de�nition of 7. Rainforest Alliance, Timber Legality Veri�cation: problem areas, creation of incentives to comply http://www.rainforest-alliance.org/forestry/veri�cation/legal and report) 8. Requirements of VLO include (i) evidence of legal right to Ⅲ Independence, with detachment in the system, harvest wood from an FMU, (ii) evidence the use right is given by legal holder of tenure right, (iii) compliance with all requirements set compatible with national sovereignty (migration for management planning and plan approval and (iv) payment of all to non-parties, independent third party oversight) statutory fees, royalties, taxes and other charges paid to authorities. Ⅲ Inclusion of all stages in the CoC and special 9. Requirements of a VLC include those of a VLO and, in addition, efforts to secure the most vulnerable stages compliance with harvesting, environmental and social and labour regulations. It also outlines the manager’s responsibility to prevent Ⅲ Broad participation in enhancing the effectiveness unauthorized activities within the management unit. of veri�cation processes C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 7 Ⅲ Development impacts that positively influence is to be a component of a legality assurance system to economic outcomes for small-scale operators and underpin a trade agreement, it must be endorsed by the forest-dependent people10 (incorporation of pro- country’s government.11 poor approaches into the design of veri�cation systems) Regional and bilateral processes under FLEG promote mandatory standard-setting processes. ese had a nar- rower remit than the C&I for SFM, but by focusing on 2.1.5 Legality existing laws and regulations the standards were applied to a wider range of activities than most criteria and Veri�cation of legality demands a set of unambiguous indicators for SFM processes, spanning not only forest standards for determining compliance. However, no management but also forest industries processing, for- universally agreed upon de�nition of legality exists est products trade and export licensing. e European that sets out which aspects of law are to be included. Union’s FLEGT program mandated the negotiation In  fact, in the forestry sector, legality standards vary of license agreements (VPAs) for imports of legality depending on whether they are intended to serve of forest products into the European Union (European national or sub-national interests, bilateral trade agree- Union, 2005). Due in part to the constraints on agreeing ments, government procurement contracts or voluntary upon unilateral mandatory standard setting according certi�cation initiatives. In most countries, the legal and to the World Trade Organization General Agreements regulatory frameworks governing the forest sector are on Tariffs and Trade (WTO GATT), the EU FLEGT highly complex and efforts at legal standard setting have policy envisaged that each producer country develop its had varying success. Most legal frameworks do not pro- own de�nition of legality and legally produced wood vide a clear basis against which to measure compliance with the aim of an unambiguous, objectively veri�able and can be costly to demonstrate. and operationally workable standard. Existing legal frameworks, particularly in developing e de�nition of legality under the FLEGT VPA, countries, may be weak, unclear, incomplete, contra- EU Timber Trade Regulation and United Kingdom, dictory and the subject of legal dispute, thus giving Denmark, Belgium and the Netherlands Public the perception (rather than the reality) of legitimacy. Procurement Policies are broadly consistent, as detailed For example, some countries may have weak provisions in Table 2.2. for the protection of local communities and customary or indigenous peoples’ rights, land tenure or the lack of e focus on legality should not, however, distract provisions to sustain goods and ecosystem services from attention from the goal of sustainability or responsible forests. In the process of de�ning legality standards, forest management, but aim toward legal compliance legal and institutional reform may �rst be needed to and sustainability. ensure that the government de�nes and ful�lls its own obligations (Wells, 2006). 2.1.6 Law Enforcement Determination of which laws and regulations to exclude or include under a standard can be highly contentious Law enforcement is one of the essential functions of in terms of whose rights may be subordinated in the governments. Criminal justice systems vary on the basis process or who ends up bearing the transaction costs of many historical, philosophical, political and economic of compliance. e process for deciding which laws are factors. Forest law enforcement systems are even more included in a de�nition of legality is the responsibility of varied and based, in part, on issues related to the nature the country in which the laws apply, and, if a de�nition and value of the forest resource. Forest and natural 10. Verifor, Principles in Forest Veri�cation: http://www.odi.org.uk/ 11. FLEGT Brie�ng Note No 2: http://www.euflegt.e�.int/�les/ sites/odi.org.uk/�les/odi-assets/publications-opinion-�les/3472.pdf attachments/euflegt/e�_brie�ng_note_02_eng_221010.pdf 8 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 2.2 Consistency in De�nition of Legality in Europe FLEGT VPA12 EU Timber Regulation13 Country Procurement Policies14 Granting of, and compliance with, Rights to harvest timber within legally The standard requires that the forest owner/ rights to harvest timber within legally gazetted boundaries manager holds legal use rights to the forest. gazetted boundaries Compliance with requirements Timber harvesting, including The standard requires compliance from both regarding forest management, environmental and forest legislation, the forest management organization and including compliance with relevant including forest management and any contractors with local and national legal environmental labor and community biodiversity conservation, where directly requirements, including those relevant to: welfare legislation related to timber harvesting Ⅲ Forest management Ⅲ Environment Ⅲ Labor and welfare Ⅲ Health and safety Ⅲ Other parties’ tenure and use rights Compliance with requirements Payments for harvest rights and timber, The standard requires payment of all relevant concerning taxes, import and export including duties related to timber royalties and taxes. duties, royalties and fees directly harvesting related to timber harvest rights, where such rights exist Respect for tenure on use rights Third parties’ legal rights concerning Compliance with ‘Other parties’ tenure and use to land and resources that may be use and tenure that is affected by timber rights (addressed earlier) affected by timber harvest rights, harvesting where such rights exist Compliance with requirements for Trace and customs legislation, in so far as The standard requires compliance with the trade and export procedures the forest sector is concerned requirements of CITES in signatory countries Source: Proforest (2011a. 12. FLEGT Brie�ng Note No 2. What is legal timber? 13. Regulation (EU) No 995/2010 of the European Parliament and of the Council, 20 October, 2010. 14. Procurement policies of the Netherlands, United Kingdom, Belgium and Denmark. resource law enforcement tends to differ from general conventional aspects of natural resource manage- law enforcement, because of the merger of the territorial ment and development arise in forest law enforcement and operational management functions of forestry (World Bank, 2006a). agencies, with those of law enforcement. Planning and execution of forest products sales, for example, involves Few developing country forestry agencies possess capa- the forestry agency with compliance monitoring and bilities in criminology, law enforcement, forensics, and enforcement of forest products sales contracts, enforce- law necessary to meet today’s needs. e FLEG and ment of harvesting practice requirements and rate of cut FLEGT mechanisms are strengthening the capacities constraints. Compliance monitoring and enforcement and capabilities of governments and the functions of constitutes one phase of a continuum that continues forest inspection authorities in the prevention, detection on to criminal investigation and prosecution (World and suppression of forest crime. Bank, 2006a). Forest law enforcement is not the exclusive domain 2.1.7 Good Forest Governance of forestry agencies and requires coordination and cooperation with other mainstream criminal law No common understanding of what constitutes good enforcement organs of national and/or local govern- forest governance exists, and different people focus ment authority. All the issues of intersector coop- on limited perspectives and facets of it. Focusing eration and coordination that arise in other, more change on a few aspects, without appreciating C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 9 the interconnections is likely to compromise its analysis, are critical elements in deriving a compre- effectiveness at best and be counter-productive at hensive framework for good forest governance (World worst. Certi�cation, veri�cation and law enforcement Bank, 2009). are important tools and sub-components of good for- est governance. However, each alone is insufficient to reduce illegal logging, corruption, encroachment and violations of tenure and ownership rights (World 2.2 Linking Certi�cation, Bank, 2009). Veri�cation, Law Enforcement It is important to recognize that unsustainable man- agement of forests, including illegal logging, are sig- and Good Forest Governance ni�cant, but not the main drivers of deforestation, Importing countries are increasingly demanding con- which come from outside the forestry sector (refer to formance with both legality and sustainability standards 3.2.1). Forest managers, forest and forest industries pressuring certi�cation and veri�cation to function in investors, forest authorities, forest products traders a more mutually supportive way. Based upon the C&I and consumers all can play their part toward achiev- for SFM, the principles, criteria, policies and standards ing legality and sustainability in forest management for certi�cation are becoming increasingly harmo- and forest products trade, in those political, technical nized among different certi�cation schemes. However, and geographic areas for which they have an influence. differences remain between FSC, Program for However, good forest governance needs to address the Endorsement of Forest Certi�cation Schemes (PEFC), scope, challenges and opportunities that link SFM and national certi�cation systems in the region, par- with sustainable natural resources management, land ticularly in treatment of indigenous peoples’ rights, for- use and livelihoods. est conversion, community rights, HCVFs and quality National forest programs, forest policies, laws and reg- of audits. Purchasing policies of some countries and ulations and SFM tools and practices (including cer- companies increasingly accept certi�cation as proof of ti�cation, and veri�cation) are not well known and legality and sustainability compliance. However, legal- do not have signi�cant influence beyond the forestry ity veri�cation (VLOs, VLCs and mandatory veri�ca- sector. e forestry sector is often marginalized, and tion) that ascertain compliance with forest harvesting, the multiple functions and values of forests often invis- transport and trade legality standards, remain the main ible. It will thus be crucial to integrate national forest tools for legality. programs, policies, tools and practices into the wider climate change, population growth, natural resource To achieve both legality and sustainability the funda- management, national development and alleviation of mental building blocks for good forest governance are: poverty and hunger strategies, policies and plans. is will help balance SFM, food security and sustainable Ⅲ Transparency, accountability and public participation livelihoods in developing countries, but demands a Ⅲ Stability of forest institutions and conflict man- wider and more challenging platform for good forest agement governance. Ⅲ Quality of forest administration Ⅲ Coherence of forest legislation and rule of law Gaps in knowledge and in readiness to plan and Ⅲ Economic efficiency, equity and incentives make reforms have hindered the achievement of this wider scope of good forest governance. Politicians An indicative framework of building blocks, compo- can lack the political will or are reluctant to make nents and sub-components of good forest governance the hard decisions required to initiate and sustain actions to achieve good forest outcomes is summarized reforms. Better understanding of the political econ- in Table 2.3. e full framework, including indicative omy of reform processes, underpinned by stakeholder sub-components is detailed in Annex 1. Veri�cation, 10 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 2.3 Building Blocks and Principal Components of Good Forest Governance Building Blocks Principal components Transparency, accountability and public Ⅲ Transparency in the forest sector participation Ⅲ Decentralization, devolution and public participation in forest management Ⅲ Accountability of forest officials to stakeholders Ⅲ Accountability within forest agencies Stability of forest institutions and conflict Ⅲ General stability of forest institutions management Ⅲ Management of conflict over forest resources Quality of forest administration Ⅲ Willingness to address forest sector issues Ⅲ Capacity and effectiveness of forest agencies Ⅲ Corruption control within the forest sector Ⅲ Forest monitoring and evaluation (M&E) Coherence of forest legislation and rule of law Ⅲ Quality of domestic forest legislation LEGALITY Ⅲ Quality of civil law implementation Ⅲ Quality of criminal forest law enforcement Ⅲ Quality of forest adjudication Ⅲ Property rights recognized, honored and enforced Economic efficiency, equity and incentives Ⅲ Maintenance of ecosystem integrity: sustainable forest use SUSTAINABILITY Ⅲ Incentives for sustainable use and penalties for violations Ⅲ Forest products pricing Ⅲ Commercial forest products trade and forest businesses Ⅲ Equitable allocation of forest bene�ts Ⅲ Market institutions Ⅲ Forest revenues and expenditures Source: World Bank (2009). certi�cation and law enforcement are critical elements measurement, enable tracking of changes and trends within the wider building blocks and components of in reforms. good forest governance (World Bank, 2009). Forest certi�cation and legality veri�cation have links to all building blocks. However, legality veri�cation is 2.3 International Initiatives a critical tool for deriving legality standards and moni- toring compliance within the building block on the Supporting Legality and/or coherence of forest legislation and rule of law. Forest Sustainability certi�cation is a critical tool to derive the SFM stan- dards and monitoring progress toward wider ecosystem In the past, certi�cation and veri�cation were con- integrity and SFM components within the building sidered too forestry oriented. Forest managers, inves- block on economic efficiency, equity and incentives, tors and forest authorities used to engage with NGOs, but also has criteria relating to governance and legal- community-based organizations, forest users, academ- ity. However, all building blocks need to be function- ics, scientists and other stakeholder groups to formulate ing in a mutually supportive way to achieve good forest principles, policies, criteria and standards for legality governance. and sustainability of forest and forestry management. Independent, third party assessors monitored compli- e framework of building blocks, components and ance of management with forest and forest industries sub-components of good forest governance can be standards. used by experts to derive country-speci�c indicators that reflect the local contexts, benchmark the state Today, key advocates for greater integration and comple- of governance, highlight the strengths and weak- mentarity of forest certi�cation, legality veri�cation and nesses, identify priority reform areas and, by periodic good forest governance include international treaties and C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 11 processes, international environmental and social NGOs, forest degradation remain challenges. Nonetheless, the multilateral and bilateral donors, �nancial institutions and Montreal, ITTO and Dry Zone Asia C&I processes, market retailers and forest products traders, particularly certi�cation processes and best practices guidelines pro- from industrialized countries of Europe, North America, vide the technical and institutional framework to guide, Japan and Oceania. ese players also have been calling assess, attest to, monitor and report on progress toward for greater integration of forest and forestry policies and sustainability. is guidance and support for both the strategic planning in more multidisciplinary and intersec- ASEAN and other international treaties and politi- tor approaches. Furthermore, they expect their principles, cal processes are gaining importance given the strong policies, criteria and standards to be adapted and adopted global calls for sustainability and legality of forests. by Southern hemisphere actors in developing countries and countries in economic transition. 2.3.2 The EU’s Forest Law Enforcement, Governance and Trade (FLEGT) Initiative 2.3.1 International Treaties and Political Processes e European Union has been active to tackle the le- gality and sustainability of wood-based products most e most relevant legality and sustainability actions by prominently through the voluntary FLEGT licens- international treaties and political processes, including ing scheme. e EU Action Plan for FLEGT sets out the Convention on International Trade in Endangered a process and package of measures based on the view Species of Wild Fauna and Flora (CITES), G8, Asia- that illegal logging is both a producer and a consumer Paci�c Economic Cooperation (APEC), Association of concern, which is both supply and demand driven. As Southeast Asian Nations (ASEAN), Montreal Process a consequence, solutions are applied through the sup- and International Tropical Timber Organization ply chain of wood-based products, which include (i) (ITTO), that provide the political and technical frame- support for timber-producing countries in their gover- work for legality and sustainability in Southeast Asia nance reforms and capacity building, (ii) efforts to de- are summarized in Table 2.4. velop multilateral collaboration to eliminate the trade in illegally harvested timber, (iii) public procurement pol- From the highest political levels in the largest economies icy reform and (iv) voluntary measures and initiatives. globally, represented by the G8 leaders (primarily buy- In particular, FLEGT is based upon: ers/importers), to the industrialized, transition and de- veloping countries of the Asia Paci�c region, represented Ⅲ Bilateral Voluntary Partnership Agreements (VPAs): by APEC leaders (mix of producers/exporters and buy- A legally binding agreement between the Euro- ers/importers), and to Southeast Asia, represented by pean Union and individual partner producer coun- ASEAN leaders (primarily producers/exporters) have tries, which support trade in legal forest products been moving more in unison in prioritizing actions by produced according to standards of legality de�ned producers/exporters and buyers/importers to reduce ille- through a multi-stakeholder dialogue and subject gal logging and associated forest products trade. Priority to independent audit actions, among others, target increased veri�cation of Ⅲ National Timber Legality Assurance System (NT- legality and forest certi�cation to monitor sustainability. LAS): A system to control and independently au- dit production forests and supply chains of timber Despite these priority actions, the ASEAN initiatives bound for the European market and other international treaties and processes have so Ⅲ Public Procurement Policies: EU Member State gov- far had limited impact on illegal logging and the asso- ernment policies setting out requirements for offi- ciated forest product trade in the Southeast Asian case cials and agencies with purchasing power. Member study countries. e high demand for land and forest States are encouraged to develop criteria for all rele- products, low institutional capacity, weak governance vant forest products, which ensure that that they are and deeply entrenched social causes of deforestation and independently veri�ed as legal and/or sustainable. 12 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 2.4 International Treaties and Political Processes Supporting Legality and/or Sustainability Process/Organization Initiative Treaties and Political Processes CITES 1975 International agreement to monitor and regulate international trade in endangered wild Signatories include Indonesia, animals and plants. Action in timber trade and illegal logging to: Malaysia, Vietnam, Thailand and Ⅲ Monitor trade reporting Lao PDR Ⅲ Maintain trade database Ⅲ Require sustainable harvesting Ⅲ Require adherence to national laws for protecting fauna and flora Ⅲ Require enactment and enforcement of national laws to implement CITES Ⅲ Facilitate international cooperation in monitoring and regulating trade SE Asian tree species ramin (Gonystylus spp.) and agarwood (Aquilaria malaccensis) are listed by CITES. The G8 Forestry Action Program In 1998, illegal logging identi�ed as priority action area, reinforced by the United Kingdom Members are Canada, France, (2005) and Japan (2008) to catalyze actions by both timber-producing and buyer countries.15 Germany, Italy, Japan, Russia and the United States and United Kingdom APEC 2011, APEC Leaders and First Meeting of Ministers for Forestry,16 agreed upon measures to 21 member countries, including combat illegal logging and associated trade (APEC, 2011). Indonesia, Malaysia, Vietnam and 2012, APEC Experts Group on Illegal Logging and Associated Trade agreed to: Thailand Ⅲ Strengthen dialogue and share successful policies and procedures Ⅲ Exchange experiences and analyses on laws, regulations, data and information on production, processing, exports, imports and consumption of forest products Ⅲ Facilitate law enforcement cooperation and information sharing consistent with domestic law and applicable international agreements Ⅲ Collaborate with international and regional forestry organizations on SFM and rehabilitation to complement their activities Ⅲ Targeted capacity building assistance Ⅲ Collaborate with industry and civil society to raise awareness and contribute to national and regional efforts Political/Technical Processes ASEAN. ASEAN initiatives supporting legality and sustainability in forestry: 10 member countries, including Ⅲ 1997, Vision 2020 for Food, Agriculture and Forestry promoted the sub-region as a leading Indonesia, Malaysia, Vietnam, forest products producer and model forest manager Thailand and Lao PDR Ⅲ 2000, ASEAN C&I for SFM in Natural Tropical Forests for describing, assessing and evaluating progress toward SFM (ASEAN, 2000) Ⅲ 2002, Pan-ASEAN Timber Certi�cation Working Group to strengthen enabling conditions for forest certi�cation Ⅲ 2004, Strategic Plan of Action (2005–2010),17 supported a common ASEAN forest certi�cation scheme, RIL, a forestry database, reduced trade in illegal wood products, regional cooperation on CITES and promotion of intra- and extra-ASEAN trade in forest products Ⅲ 2006, Experts Group on International Forest Policy Processes promoted use of international forest-related commitments and agreements in the sub-region18 Ⅲ 2007, monitoring, assessment and reporting format and forestry clearing house mechanism strengthened country reporting toward SFM Ⅲ 2008, Work Plan on FLEG (2009–2015) highlighted ASEAN C&I for Legality of Timber and supply of legal timber and timber products to markets Ⅲ 2009, Regional Guideline for PACt provided a step-by-step framework toward SFM. Tools included: Ⅲ Forest Policy Framework through National Forest Programs Ⅲ ASEAN Criteria and Indicators for Legality of Timber, adopted 2009 Ⅲ ASEAN Guideline for Chain of Custody for Legal Timber, adopted, 2010 Ⅲ ASEAN Guideline for Chain of Custody for Sustainable Timber, adopted 2010. Ⅲ 2011, ASEAN Commitment to REDD-plus19 Ⅲ 2012, Strategic Plan of Action in Forestry (2011–2015) included capacity building in certi�cation, legality, veri�cation and good forest governance and commitment to have all member countries prepare Timber Legality Assurance System by 2015 Ⅲ 2012, 15th ASEAN Senior Officials in Forestry Meeting in Vietnam called for more profound cooperation at all levels to promote SFM and development through sharing information, experiences and effective policies20 (continued) C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 13 TABLE 2.4 International Treaties and Political Processes Supporting Legality and/or Sustainability (continued) Process/Organization Initiative Technical Processes Montreal Process Working Group Follow-up to The Forest Principles (1992) the C&I agreed in 1995 in Santiago, Chile, provided on C&I for Conservation & SFM in a framework of 7 criteria and 67 indicators to monitor, assess and report on national progress Temperate and Boreal Forests toward SFM and good forest governance21 in temperate and boreal forests in countries outside 13 parties, including Australia, China, Europe. Japan, New Zealand and the Republic of Korea ITTO Initiative on C&I for SFM in C&I for SFM in natural tropical forests concept and terminology in 1992, revised in 1998 (with Natural Tropical Forests related policy guidelines) and 2005 to monitor and evaluate achievements toward SFM and to 60 members, including Indonesia and track effects of forest reforms. Malaysia Regional Initiative on C&I for SFM in C&I framework of 8 criteria and 49 indicators to monitor national progress toward SFM, Bhopal, Dry Zone Asia India, 1999. 9 members, including Thailand Source: Authors’ compilation. 15. G8 Action Program on Forests: Final Report: http://www.illegal-logging.info/item_single.php?it_id538&it5document 16. APEC First Meeting of Ministers Responsible for Forestry: http://www.apec.org/Meeting-Papers/Ministerial-Statements/Forestry/ 2011_forestry.aspx 17. ASEAN Strategic Plan of Action on Cooperation in Food, Agriculture and Forestry (2005–2010): http://www.asean.org/news/item/strategic- plan-of-action-on-asean-cooperation-in-food-agriculture-and-forestry 18. ASEAN Ad-hoc Experts Working Group on International Forest Policy Process (2004): http://www.aseanforest-chm.org/asean-ministers- on-agriculture-forestry/ 19. ASEAN commitment to REDD-plus: http://www.aseanforest-chm.org/asean-regional-knowledge-network-on-forests-and-climate- change-fcc/ 20. 15th ASEAN Senior Officials in Forestry, Vietnam, June 2012: http://www.eco-business.com/features/vietnam-urges-asean-nations-to- save-forests/ 21. Montreal Process. Criteria and Indicators for Conservation and Sustainable Management of Temperate and Boreal Forests: http://www. rinya.maff.go.jp/mpci/ Export licensing to the European Union will be based importer and exporter of forest products, is not currently on national standards for forest management, rooted in pursuing a VPA with EU FLEGT. the national laws and regulations of individual partner countries. ese include environmental protection, log- 2.3.3 EU Timber Trade Regulation (EUTR) ging rules, payment of fees, forest products trade and transport regulation and property rights of forest depen- In October 2010, an EU Timber Trade Regulation (EUTR) dent communities. A VPA includes a package of techni- detailed the obligations of importers to the European cal assistance and institutional and policy support. Union to counter the trade in illegally harvested forest products by prohibiting import of illegal forest products Formal negotiations for VPAs opened in February 2008 and requiring importers to exercise due diligence and between the European Union and producer countries. keep records of suppliers and customers. e due diligence e FLEGT Action Plan process with each coun- requires the trader to: (i) access information describing the try involves four phases, as summarized in Figure 2.1. timber and timber products, the country of harvest, spe- Indonesia signed a VPA with the European Union in cies, quantity; details on the supplier and compliance with May 2011, the only country in Southeast Asia to do so national legislation; (ii) assess the risk for illegal timber to date. Malaysia and Vietnam are currently negotiating in the supply chain based on the information provided, and Lao PDR and ailand are in the information taking into account criteria set out in the regulation; and and pre-negotiation phase.22 China, the largest Asian (iii) demonstrate risk mitigation if assessment shows a risk for illegal timber by requiring additional information and 22. FLEGT: http://www.euflegt.e�.int/portal/home/flegt_intro/ veri�cation from the supplier (European Union, 2010). 14 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE 2.1 Process Phases for the FLEGT Licensing System FLEGT VPA 1 2 3 4 years Phase 1: Information exchange and pre-negotiations between EU and producer country Phase 2: Formal negotiations Phase 3: System development Phase 4: FLEGT licensing Source: http://www.euflegt.e�.int/portal/home/vpas/the_process/ Application of the EUTR will commence on 3 March, acquire or purchase in domestic or international 2013 and detailed implementing rules for the due commerce, traded in violation of the laws of the diligence will be adopted by 3 June, 2012. It is legally United States, a US state, or relevant foreign law binding for all 27 EU Member States, which are respon- Ⅲ Requires importers to declare country of origin of sible for laying down effective, proportionate and dis- harvest and species name of plants contained in suasive penalties and designating a competent authority their products responsible for enforcement. Ⅲ Establishes penalties for violation of the Lacey Act Certi�cation and third party veri�cation schemes may be e Lacey Act applies legality criteria as de�ned by the used to satisfy elements of the due diligence requirements sovereign nation’s own laws, regulations and standards to show steps taken to demonstrate legality and sustain- that protect against the theft of plants; taking plants from ability; however, until the implementing rules for due dil- officially protected areas (e.g., parks or reserves), other igence are detailed, the extent to which these tools can be “officially designated areas� or contrary to authorizations; used is not yet clear. Certi�cation schemes are negotiat- non-payment of harvest, transport or commerce royal- ing with the EU authorities to con�rm their certi�cation ties, taxes or fees; or contrary to laws governing export ful�ls the requirements of the EUTR, so that certi�cate or trans-shipment (e.g., log expert ban). holders do not have to undertake additional due diligence activities for their certi�ed forest products when the Amendments to the Lacey Act have not been supported EUTR comes into force in 2013.23 by a clear framework of regulation that sets guidelines for importers, exporters and traders. However, it is suggested 2.3.4 Lacey Act that operators exhibit due care and implement due dili- gence systems to minimize the risk for illegal wood enter- e US Congress passed a law in May 2008 to amend ing supply chains and declare key information to Customs the 100-year-old Lacey Act to ban commerce in ille- and Border Protection and the Department of Homeland gally sourced plants and their products, including forest Security. Importers are encouraged to use supply chain products (United States Department of Agriculture tracking procedures such as bar codes or tracing systems, [USDA], 2008). e amended Lacey Act: legality veri�cation, third party certi�cation or stepwise programs offered by independent third party assessors Ⅲ Prohibits trade in plant and plant products that and other innovative public-private partnership models. are illegal to import, export, transport, sell, receive, 23. EU-FSC Timber Regulation negotiations: http://www.fsc.org/ Due care can be established by putting in place sup- timber-regulation.46.htm ply chain management systems, including veri�cation of C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 15 legality and third party auditing. Even though veri�cation 2.3.6 REDD-plus cannot guarantee protection from prosecution, it can limit the risk for illegal timber entering the supply chain. Most REDD-plus is a new mechanism for encouraging de- certi�cation systems for forest products include legality of veloping countries to strengthen forest governance (in- harvest among their criteria, in addition to sustainability. stitutions, policies, laws, regulations and enforcement); us, certi�cation systems may provide information useful undertake timely and reliable forest measuring, repor- to manufacturers and importers in their efforts to exercise ting and veri�cation; and achieve SFM through �nan- due diligence regarding sources and species of timber. cial incentives to contribute to mitigation in the for- est sector by reducing greenhouse gas emissions from deforestation and forest degradation, conservation of 2.3.5 The Australian Illegal Logging Prohibition Bill forest carbon stocks, the sustainable management of forests and the enhancement of forest carbon stocks. On 29 November 2012, the Australian government passed the Illegal Logging Prohibition Bill to restrict the Approximately 20% of global greenhouse gas emissions importation and sale of illegally logged timber within are from deforestation and forest degradation; therefore, Australia. e Bill restricts the importation and sale of effective implementation of REDD-plus will substan- illegally logged timber in Australia through: tially contribute to reducing these emissions. To achieve reductions in emissions, developing countries are being Ⅲ Prohibiting import of timber products containing encouraged to address the drivers of deforestation and for- illegally logged timber est degradation. REDD-plus payments could help com- Ⅲ Prohibiting domestically grown raw logs that have pensate those who have been involved in the past with been illegally logged illegal logging or unsustainable forest management or Ⅲ Requiring importers of regulated timber products forest conversion. To be successful, payment distribution and processors of raw logs to ful�ll due diligence must be done equitably and include indigenous peoples Ⅲ Establishing comprehensive monitoring and inves- and local communities and avoid the collusion and cor- tigation powers to enforce requirements of the Bill ruption associated with forest products trade in the past. e REDD-plus and FLEGT initiatives are working e Bill provides for due diligence guidelines and in close collaboration, including in Indonesia, Malaysia, code of conduct to be developed in consultation with Vietnam, ailand and Lao PDR.25 Legality veri�cation stakeholders and proposed to come into effect two and forest certi�cation as proof of legality and sustainabil- years after the proposed legislation passes through ity can contribute to the good forest governance and forest Parliament. e Bill will establish offences and penalties management objectives of REDD-plus (and vice versa). for importing illegal timber products and a comprehen- sive monitoring and enforcement regimen that will give 2.3.7 Green Public Procurement Policies consumers and businesses greater certainty about the le- gality of the timber products they buy. Additionally, the Green public procurement policies for wood products are Bill will be supported by continued bilateral cooperation in the early phases, mostly in Europe, where public pro- with Asia-Paci�c countries and multilateral engage- curement makes up to 15% to 25% of all timber products ment on forestry through existing forums.24 purchased. Currently, approximately a dozen national governments in Europe, Oceania and to a lesser extent Certi�cation and third party veri�cation schemes have Asia and Latin America have operational green pro- the potential to satisfy elements of the due diligence curement policies, including speci�c criteria for forest requirements, but until the guidelines and code of con- products. Other countries are currently in the plan- duct are approved, the extent to which these tools can be ning phase, although none exist in Southeast Asia.26 In used is not yet clear. 25. REDD-plus portal: http://redd-plus.com/drupal/ 26. e concept of green public procurement has been entered in 24. Illegal Logging Prohibition Bill, 2011: http://www.daff.gov.au/ article 105 Presidential Degree 54/2010 in Indonesia, but how to forestry/international/illegal-logging apply and implement these concepts has been debated. 16 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A the United States, no federal procurement policy exists that speci�cally restricts or encourages the purchasing BOX 2.1 of wood products. City and state governments thus have UK Government Timber Procurement Policy e UK government’s timber procurement policy to reassess their own procurement policies to promote requires central government departments, their execu- environmentally sustainable practices, particularly in the tive agencies and non-departmental public bodies to environmentally leading states in the West and Northeast procure timber and wood-derived products originating of the United States. In most cases, this should bene�t exclusively from legal and sustainable or FLEGT li- overall wood product use, but it is creating a fragmented censed or equivalent sources.27 However, where a par- and complicated regulatory landscape. Furthermore, ticular type of product or timber species is required and no sustainable timber or FLEGT-licensed timber or emerging issues, such as “buy local� provisions or FSC- alternative is available, timber that can be veri�ed to preferred certi�cation requirements, have the potential meet the UK government requirements for legality will to affect international wood product imports. be accepted. Voluntary legality veri�cation systems can therefore play an important role in ensuring legality A proliferation of governmental purchasing poli- and ensuring compliance with the UK government’s cies has developed in the European Union that differ timber procurement policy, particularly where no sus- tainable source is available. e United Kingdom’s widely in their legality and sustainability requirements. policy requires compliance with legislation related to e  European Union recommends that governmental forest management, environment, labor and welfare purchasing policies at the country level should include and health and safety. As a consequence, VLO stan- environmental, social or economic criteria, as relevant. dards from SGS and SmartWood Rainforest Alliance For instance, the British government recently expanded or FSC controlled wood are not acceptable, whereas the scope of procurement requirements to include social voluntary legality veri�cation systems ensuring full le- gal compliance as delivered by the VLC de�nition will issues along with the existing environmental concerns, be accepted. as detailed in Box 2.1. Source: http://www.cpet.org.uk e Olympic Delivery Authority in the United Kingdom speci�ed FSC and PEFC certi�ed timber be used for the 27. UK government timber procurement policy: http://www construction of venues for the 2012 London Olympics. .cpet.org.uk/uk-government-timber-procurement-policy e Olympic Park was the �rst construction project to gain joint FSC and PEFC certi�cation. 28 Similarly, the Point of Expertise on Timber Procurement (CPET).30 French government speci�ed that wood purchases in e Netherlands, Germany and Belgium accept FSC government contracts be 100% “legal and sustainable.� and PEFC certi�cation schemes as complying with the France has recently committed to amending its existing requirements of public procurement policies for timber relatively flexible de�nition of “legal and sustainable� and timber products. timber and to de�ning “the modalities for recognition of forest management certi�cation schemes.� e Dutch, Due to the different government procurement policies, German, UK and Belgian governments also require timber producers face difficulties when they supply that all wood be veri�ed as “legal and sustainable.� e several markets. On some occasions, consumer-coun- two best known government mechanisms to ensure that try governments, responding to the wishes of their these objectives are achieved are the Netherlands, with domestic stakeholders, have demanded amendments their Timber Procurement Assessment Committee to international certi�cation standards and procedures (TPAC), 29 and the United Kingdom, with their Central before acknowledging sustainability credentials. is creates challenges for international certi�cation frame- works when it is necessary to comply with internal 28. Joint FSC and PEFC certi�cation of Olympic Park, London: http://www.fsc.org/newsroom.9.99.htm 29. Timber Procurement Assessment Committee (TPAC) of the 30. Central Point of Expertise on Timber Procurement (CPET): Netherlands: http://www.tpac.smk.nl/ http://www.cpet.org.uk/ C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 17 rules and timetables for review of standards and when a Green building initiatives have recently emerged in global consensus must be built for almost every change. the European Union, North America and Asia. e Despite these problems, the governing bodies of FSC European Union has established directives specifying and PEFC certi�cation have been able to ensure that energy standards to all new buildings and substantial their frameworks are accepted as conforming to the renovations. A comprehensive strategy toward lower- highest sustainability standards. As a result, achiev- ing the carbon footprint by 2015 is currently under de- ing certi�cation to FSC or PEFC standards is the most velopment, which should involve more aggressive green effective way to overcome the potential barriers to trade building targets. North America has more than 40 active presented by the diversity of national timber procure- green building programs. e Leadership in Energy and ment policies. Environmental Design (LEED, United States) system is the current leading industry standard. e demand for 2.3.8 Sector-Speci�c Sustainability Requirements green buildings also has grown signi�cantly in Asia, with Singapore, Taiwan, Japan, Hong Kong, the Philippines, Green Building the Republic of Korea and India among those with green e emergence of green building codes in both the com- building councils. Among the Southeast Asian countries mercial and residential sectors is favorable to the promo- introduction of green building policies has been limited. tion and use of wood products. e construction sector, which accounts for an estimated 50% of global carbon Many green building codes, including Green Globes emissions, has become a key focus of government policies (United States and Canada), Comprehensive Assessment to tackle climate change. Wood is much more favorable System for Built Environmental Efficiency (CASBEE, than concrete, steel, aluminum and plastic as a renewable Japan), Building Research Establishment Environmental product, indicated by the carbon cycle assessment. e Assessment Method (BREEAM, United Kingdom) and development of certi�ed wood markets in construction Green Building Councils of Australia, Spain and Italy is now driven partly by credits awarded by green build- recognize multiple forest certi�cation standards, includ- ing programs for the use of certi�ed wood. As in green ing FSC and PEFC endorsed schemes. LEED currently public procurement, an increasing trend has been seen has FSC preference; however, a PEFC pilot under way toward inclusiveness in green building initiatives so that could lead to acceptance of both PEFC and FSC in the a range of forest certi�cation systems are credited. near future. Table  2.5 summarizes the Asian countries TABLE 2.5 Asian Green Building Rating Systems Country Rating System Policy on Wood International LEED 50% wood-based materials and products used for building components must be certi�ed by FSC India Green Rating for Integrated Habitat No speci�c certi�cation requirement Assessment (GRIHA) Allows credits for FSC certi�ed wood. Currently 40,000 ha of forest LEED India group certi�cates in multiple sites and 229 CoC certi�cates in India Singapore Greenmark Not detailed Hong Kong Hong Kong Building Environmental Credit for 50% wood and composite wood products certi�ed by Assessment Method FSC or AFPA China The Star Scheme, Ministry of Housing, Urban Not detailed and Rural Development Taiwan The Green Building Program and Green Not detailed Remodelling Japan CASBEE Wood from SFM, but details not available Malaysia Green Building Index Over 50% of wood-based materials and products used to be certi�ed by FSC, MTCS/PEFC Source: Cheng and Le Clue (2010). TABLE 2.6 International Organizations and Tools Supporting Legality and Sustainability Organization Tool Function Central Point of Access for Framework to assess compatibility Provides advice to evaluate supply chains, including contractual Timber Procurement of forest certi�cation systems requirements31 Centre for International Toolbox of Principles, C&I and Field testing C&I and standards at forest management unit level, less so Forestry Research Standards for Forest Management for higher level initiatives on sustainability or forest governance (CIFOR, in Different Ecological Regions 2011). Chatham House Assessment of global response to Assessments of indicators for producer, processor and consumer countries illegal logging and associated trade to track global responses to illegal logging and associated trade.32 Chatham House and EU IllegalLogging.Info A country database and network to share information on key issues in FLEFT Facility the debate around illegal logging and associated trade and access to documents, events and links to other websites33. Global Integrity Global Integrity Index Monitored governance and corruption trends around the world from 2006 (discontinued 2006). 34,35 International Institute Diagnostic & Planning Tool: This was based upon certi�cation as a tool, together with policy and for Environment and The Pyramid of Key Elements for critical institutional issues within a wider context of various efforts toward Development Good Forest Governance SFM (International Institute for Environment and Development, 2002). NEPCon, FSC, Rainforest The Global Forest Registry Open access to risk evaluation information in 150 countries. Version 2 Alliance launched in 2010 to access information at sub-national level. 36 PricewaterhouseCoopers, Sustainable Forest Finance Toolkit Overview of sustainability issues along supply chains of forest World Business Council for products for �nancial institutions to assess and manage risks. 37 Sustainable Development Sustainable Forest Products Network on Sustainable Forest Website to provide access to members on Sustainable Forest Management, Sustainable Forest Management, Forest and Wood Products, Wood Energy, Forest Products Certi�cation and Fire Management38 Transparency International Corruption Perceptions Index Monitors level of corruption perceived to exist among public officials and politicians, by country. 39 World Bank Country Policy and Institutional Monitors criteria to assess the quality of policies and institutions Assessment related to economic growth, poverty reduction and aid effectiveness.40 World Bank Institute, Research Worldwide Governance Database Monitors governance indicators in a country, change across time and Department World Bank country comparisons.41 World Resources Institute, Governance of Forests Initiative Principles, processes, institutions and practices that protect forests Instituto do Homem e Meio Indicator Framework of Good and improve livelihoods of forest dependent communities.42 Ambiente da Amazonia and Forest Governance Instituto Centro d Via World Wide Fund for Global Forest and Trade Network Links companies, communities, NGOs and entrepreneurs globally to Nature lead partnership (GFTN) coordinate efforts to expand credible forest management certi�cation, veri�cation, technical assistance and marketing opportunities.43 Useful references include: National Legality Veri�cation Frameworks (WWF, GFTN, TRAFFIC)44; Exporting in a Shifting Legal Landscape (WWF, GFTN)45; Keep it Legal (WWF, GFTN)46; General Guidance for Legal and Responsible Sourcing (WWF, GFTN).47 World Wide Fund for Nature/ Forest Certi�cation Assessment Assesses certi�cation systems’ provisions for the control of CoC from World Bank Global Forest Guide forest origin to product.48 Alliance Source: Author’s compilation 31. CPET website: http://www.cpet.org.uk/ 32. Chatham House. Measuring the Response to Illegal Logging: Indicators of Progress: http://www.chathamhouse.org/research/eedp/current- projects/measuring-response-illegal-logging-indicators-progress 33. Illegal-Logging.Info: http://www.illegal-logging.info/ 34. Global Integrity, 2011. Why we killed the Global Integrity Index: http://www.globalintegrity.org/node/792 35. Global Integrity Report: http://www.globalintegrity.org/report 36. Global Forestry Registry: http://www.globalforestregistry.org/ 37. Sustainable Forest Finance Toolkit: http://www.pwc.co.uk/sustainability-climate-change/issues/forest-�nance-home.jhtml 38. Sustainable Forest Products: http://www.sustainableforestproducts.org/ 39. Transparency International, Corruption Perceptions Index, 2011: http://cpi.transparency.org/cpi2011/ 40. The World Bank. CPIA: http://data.worldbank.org/data-catalog/CPIA 41. The World Bank. World Wide Governance indicators database: http://info.worldbank.org/governance/wgi/sc_country.asp 42. World Resources Institute. Governance of Forests Initiative: http://www.wri.org/project/governance-of-forests-initiative 43. WWF. Global Forests and Trade Network: http://gftn.panda.org/ 44. WWF, GFTN, TRAFFIC, Legality Veri�cation Frameworks: http://sourcing.gftn.panda.org/index.php?idϭ86 45. WWF, GFTN: Exporting in a Shifting Legal Landscape: http://gftn.panda.org/resources/tools/?193890/Exporting-in-a-Shifting-Legal-Landscape 46. WWF, GFTN: Keep it Legal. Best Practices for Keeping Illegally Harvested Timber Out of Your Supply Chain: http://www.wwf.or.id/en/about_ wwf/whatwedo/forest_species/what_we_do/gftn_indonesia/resources/?4321/Keep-It-Legal-Best-Practices-for-Keeping-Illegally-Harvested- Timber-Out-of-Your-Supply-Chain&desktopϭ1 47. WWF, GFTN: General Guidance for Legal and Responsible Sourcing: http://sourcing.gftn.panda.org/ 48. Forest Certi�cation Assessment Guide: http://siteresources.worldbank.org/EXTFORESTS/Resources/FCAG_WB_English.pdf C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 19 that have developed or are developing their own green 2.3.9 International Organizations and Tools building rating systems. All  these countries are impor- Supporting Legality and Sustainability tant markets for the Southeast Asian case study countries. Many organizations and tools ful�ll functions in sup- Publishing, printing and packaging sectors port of CoC legality and sustainability. ese organiza- Environmental campaigns in the publishing sector tions and tools assist key stakeholders to make decisions of the United States have led to Canadian pulp pro- about governance, investment and procurement risks, to ducers without FSC certi�cation having challenges compare veri�cation and certi�cation systems and pro- in accessing these markets. FSC is thus gaining trac- mote the role of legality veri�cation and certi�cation in tion as the preferred approach to certi�cation; particu- making sound decisions in forest management and for- larly for consumer product producers. In the EU, the est products trade. new government purchasing policies mainly focus on certi�ed paper products rather than pulp. ere are cur- Table 2.6 summarizes international organizations and rently no serious and widespread purchasing policies for tools that support legality and sustainability in CoC ini- certi�ed pulp and paper products in Southeast Asia. tiatives and highlights the key functions. 21 SECTION 3 T O WA R D S U S TA I N A B L E F O R E S T MANAGEMENT IN SOUTHEAST ASIA T his section highlights the pivotal role of China and 2008. Despite the global economic crisis, the value the performance of ASEAN countries with respect is anticipated to increase to US$333 billion by 2012. to deforestation, SFM, good forest governance and e average growth rate of output has been 20% an- forest products trade. On a sub-regional and indi- nually since 2001. e government’s target is to vidual country basis, the impact of international market maintain growth at around 12% annually. Although pressures is assessed in demanding legality and sustain- China has a net gain in forest area, it remains a net ability and the responses by countries in use of veri�ca- importer of wood and the wood de�cit is expected to tion, timber legality assurance systems (TLAS), VPAs increase substantially over the next 20 years. China and certi�cation (forest and CoC) in combination with is the dominant importer of forest products. In 2008, law enforcement and good forest governance. China imported 44% of its tropical timber require- ments and 21% of all timber requirements (Cheng and In addition, the veri�cation and certi�cation schemes, Le Clue, 2010). certi�cation bodies and standards, scale and compatibil- ity of use are summarized. A brief assessment of the im- Between 1997 and 2005, the value of forest products pacts of major buyers and importing countries, NGOs, imports rose from US$6.4 billion to US$16.4 billion timber trading organizations and end users on veri�ca- and the volume trebled from 40 million m3 round- tion, certi�cation and law enforcement is undertaken. wood equivalent to 134 million m3, projected to more A comparative analysis is summarized for the different than double again to 300 million m3 by 2015. e rapid tools and standards and lessons are highlighted. increase in imports reflects (i) China’s increasing con- sumption, (ii) rising global demand for low-cost for- est products manufactured in China and (iii) China’s inability to meet rising demand through production 3.1 The Influence of China from its own forests because of the logging ban (1998) and lower than anticipated productivity from their rap- 3.1.1 China as a Market for Forest Products from idly expanding plantation forests. e domestic supply Southeast Asia of industrial wood from natural and planted forests has been less than projected; therefore, China cannot keep According to the ITTO, the total value of China’s up with the escalating demand. is gap is met by ille- national forest industry output value (including gal or unreported logging in China, estimated at 75 to NWFPs) was US$259 billion in 2009, up 21% from 100 million m3 annually, and imports (Forest Trends, 22 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.1 Major Wood Products Exporters to China (2005) Total Forest Products Logs Lumber Plywood Wood Pulp Paper Country % Country % Country % Country % Country % Country % Russia 48.8 Russia 68.2 Russia 17.7 Indonesia 65.0 Canada 26.7 Taiwan 16.0 Malaysia 8.3 Malaysia 6.3 USA 14.3 Malaysia 21.2 Indonesia 18.2 USA 12.5 Indonesia 5.7 Papua New Guinea 6.3 Thailand 12.8 Russia 3.1 Russia 12.9 Republic of Korea 11.6 Thailand 4.6 Myanmar 3.9 Indonesia 12.1 Japan 2.4 Chile 10.3 Japan 8.0 Papua New Guinea 4.2 Gabon 2.7 Malaysia 8.0 Taiwan 1.4 USA 9.5 Indonesia 6.9 Notes: Case study countries highlighted in green. Source: Forest Trends (2006). 2006). Southeast Asian countries are key exporters to 3.1.3 Impact of Legality and Sustainability China, as highlighted in Table 3.1. Measures on China As China grapples with reducing illegal and unsus- e global market for tropical timber is changing, with tainable harvesting by regulation (1998 logging ban) traditional export markets of Europe, Japan and North and enforcement, exploitation and illegality have been America declining but exports increasing to China displaced to developing countries with weaker regu- and India and intraregionally. Domestic markets also lations, including Southeast Asian countries, with are growing signi�cantly. Some of these markets have Indonesia being a notable example. Illegal logging has placed little emphasis on certi�cation or legality veri- deprived governments of tax revenues, depressed prices, �cation until recently (ITTO, 2011). However, in the frequently led to unsustainable harvesting, under- past �ve years, public procurement and green building mined the rule of law and sometimes generated funds policies, particularly in the United States, European to support and perpetuate armed conflicts. However, Union and Japan, have demanded evidence of legality although China’s demand for wood products is linked veri�cation and proof of sustainability through forest to an increase in unsustainable harvesting and illegal certi�cation. In March 2009, China launched their reg- logging, they are only one link in a global commodity ulation on Forestry Certi�cation Practices as part of its chain. Consumers and retailers around the globe, who initial steps to regulate the forestry sector. buy Chinese furniture and plywood from illegally har- vested wood products, are an integral part of the prob- In March 2012, FSC forest certi�cation in China was lem (Forest Trends, 2006; Lang and Chan, 2006). approximately 3 million hectares and China Forest Certi�cation Council (CFCC) 3.4 million hectares. 3.1.2 China Forest Products Export Markets e 6.4 million hectares of certi�ed forests equates to only 7% of the 85 million hectares of production for- Between 1997 and 2005, China’s forest products export est estate, the majority of which are natural forests. value rose from US$3.6 billion to US$17.2 billion. In Over 90% of these certi�ed forests are owned by state 2006, China exported 50 million m3 roundwood equiv- or regional forestry bureaus and affiliated forest man- alent forest products, forecast to double to 100 million agement units. is reflects the “top-down� approach m3 by 2015. China’s exports of wood furniture increased that many international NGOs led by the World Wide from 3.2 to 12.7 million m3 roundwood equivalent Fund for Nature (WWF) Global Forest & Trade between 1997 and 2005 and plywood exports increased Network (GFTN) are taking in promoting forest cer- 10-fold during the same period. e United States, Japan, ti�cation in China. Ambitious plans have been made Hong Kong and EU countries were China’s main export to expand forest certi�cation to 20 million hectares destinations, with exponential growth in United States in the next �ve years. e CFCC application to join and European Union markets (Forest Trends, 2006). the PEFC forest certi�cation system was approved in C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 23 September 2011.1 By doing so, they achieved an im- Globally the overwhelming direct causes of defores- portant milestone toward international recognition and tation are subsistence farming, 48%; commercial ag- made a demonstrated commitment to ful�ll an impor- riculture, 32% (dairy, oil palm, soy, etc.); illegal and tant prerequisite toward PEFC endorsement, a step unsustainable logging, 14%; and fuelwood removals, 5% that is expected in the near future. (UNFCCC, 2007). In Southeast Asia, large-scale inten- sive agriculture for agricultural plantation development Additionally, the Ministry of Commerce and State (e.g., oil palm) is responsible for 44% of deforestation; Forest Administration in China issued guidelines subsistence agriculture, 44%; illegal or unsustain- on activities of Chinese companies logging overseas able logging, 6%; and other causes, 6% (ClimateWorks that require adherence with national laws in producer Foundation, 2009). countries. Deforestation has been most intense in Indonesia In contrast to sluggish forest products markets and (Sumatra, Kalimantan and West Papua) and Malaysia exports as a result of the global economic crisis, the and less so in Vietnam and Lao PDR. Industrial rubber demand for forest and CoC certi�cation has been and oil palm plantation development have driven con- accelerating rapidly in China. FSC CoC certi�cates version of logged over forests in Indonesia and Southern increased from 821 in 2009 to 2200 in March 2012 ailand. However, transitions are evident in ailand, and PEFC CoC certi�cates from 31 to 155 in 2009 to where forests are regenerating on former agricultural 2011. However, because of the vast scale of imports, land, and in Vietnam, where large-scale afforestation domestic production and exports, China needs an and reforestation result in net forest cover gains, despite even greater commitment to veri�cation and certi�ca- on-going pressures on natural forests (FAO, 2011a, tion if they are to meet the legality and sustainability ITTO, 2011). demands of the United States, European Union, Japan and other markets.2 Livelihoods and Development Needs In Southeast Asia, population growth, infrastructure development, and expansion of industrial agriculture have been the primary drivers of deforestation and forest degradation. is process often has been catalyzed by 3.2 Forestry at a Glance in new roads and ports giving access to markets and facili- Southeast Asia tating the in-migration of loggers, farmers, agribusiness and developers that bring investment and trade oppor- tunities, but also increase pressures on forest resources 3.2.1 Deforestation (FAO, 2011a). Between 1990 and 2010, the forests of Southeast Asia Rapid population growth in Southeast Asia has resulted contracted by nearly 33 million hectares, an area larger in the conversion of forests for settlements and farm- than Vietnam. e measured rate of forest loss increased ing to meet increased demand for livestock and agri- after 2005, and degradation of natural forests, masked cultural crops in response to increased food, fodder and by broad de�nitions of “forest,� continued apace. Forest fuel consumption needs. e sub-regional population is cover is projected to fall from 49% to 46% during the projected to increase even further by 11% to 657 million 2010 to 2020 period, a loss of 16 million hectares between 2010 and 2020. is development will pose (FAO, 2011a). major threats to the provision of ecosystem services such as carbon sinks, soil and water protection, biodiversity conservation, provision of livelihoods and food security 1. CFCC joins PEFC, Sept, 2011: http://www.pulp-paperworld.com/ for local communities and to the long-term provision asian-news/item/1858-china-joins-pefc of wood, �ber, fuel, food and non-wood forest products 2. FSC, CFCC and PEFC databases. (FAO, 2011a). 24 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A In addition, government natural resources management environmental costs were overlooked. In many instances strategies, policies, laws, regulations and economic of forest management, harvesting and related trade in incentives have stimulated expansion of industrial-scale the region met neither legality nor sustainability criteria agricultural investment into tropical forests or forest (ITTO, 2006a; ITTO, 2011). lands because conversion from forests to agriculture seems more pro�table than managing forests on e true extent of illegal logging and trade in Southeast a sustainable basis. Other signi�cant causes of Asia is unknown because of the clandestine nature of deforestation in the region are urbanization and resi- illicit trade and difficulties in distinguishing between dential developments, mineral, oil and gas exploita- legally and illegally sourced resources. Table 3.2 details tion and infrastructure developments (i.e., highways, various estimates of illegal logging in the major wood- roads, ports, dams, electricity and communications). producing countries in East Asia. Additionally, climate change and associated extreme weather events are increasing the incidence, scale and e governments of China, Indonesia and Malaysia have impact of natural causes of deforestation (ITTO, 2011). revised their policies, laws and regulations to strengthen actions against illegal logging and promote SFM. Veri�cation and certi�cation are recent tools encour- Illegal Logging and Unsustainable Forest Management aged to address legality and sustainability. Indicators In Southeast Asia, forest concession planning has often show that illegal logging in Indonesia has fallen by 50% been based on insufficient forest inventory and socio- and the export of illegal logs and sawn timber decreased economic data to make robust calculations of sustain- by as much as 90% since 2005 (Chatham House, 2008). able harvest volumes and integrate social, cultural, environmental and economic dimensions of SFM. Some concessionaires have treated forest management plans as a means to secure concession agreements without com- TABLE 3.2 Estimates of Illegal Logging in Major East Asia mitment to their implementation. In other instances, Producing Countries allocation of harvesting rights by the government has Country Estimates of Source Illegal Logging not been conducive to medium- and long-term commit- Indonesia 50%–70% wood Global Forest, WRI, Forest ment to SFM practices by concessionaires. As a result, illegally logged Watch Indonesia, State of overharvesting and high grading, multiple re-entry log- Forest Indonesia, 2002 ging coupes and limited adoption of reduced-impact 70%–80% of Seneca Creek Associates logging practices have been common. production & Wood Resources International, 2004 60%–80% of wood Department for International Under these conditions it was not possible to achieve production Development (DFID), CIFOR, 2004 SFM or prevent illegal logging, with illegally logged 73%–88% of UNEP, 2007 timber mixed with legitimate logs, because of elastic timber logged concession boundaries. Furthermore, a lack of post- 76%–80% of Greenpeace China, 2008 harvest forest management (i.e., regeneration, restora- logging operations tion, supplementary planting, tending, and silviculture), 40%–55% of Chatham house, 2008 production little or no forest protection (e.g., from �re, insects, dis- Malaysia 35% of timber Seneca Creek Associates eases, encroachment and in-migration) and insufficient logged & Wood Resources engagement with, and understanding of, the social and International, 2004 cultural needs and aspirations of local communities or 22% of timber Chatham House 2007 the wider ecosystem or landscape context led to defor- consumed estation, forest degradation and environmental damage. China 75 million m3/year Vice Head, SFA is was exacerbated by weak royalty and tax collec- 100–116 m /year 3 CIFOR, 2006 tion, which undercut markets for products from sus- Source: Cheng and Le Clue (2010). tainably managed sources while mounting social and C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 25 TABLE 3.3 Forest Management Trends in Southeast Asian Case Study Countries: Annual Change Data, 2000 to 2010 Country Indonesia Lao PDR Malaysia Thailand Vietnam Unit Theme/Parameter % Absolute % Absolute % Absolute % Absolute % Absolute Extent Forest Resources Area forest −0.5 −498 −0.5 −78 −0.5 −114 0.0 −3 1.6 207 000 ha Area other wooded land −0.7 −162 −1.5 68 — — — — −4.7 −69 000 ha Growing forest atock −1.5 −189 −0.5 −5 −1.0 −46 0.0 0 0.9 8 M m3 Carbon atock (biomass)* −1.5 −217 −0.5 −6 −1.0 −35 0.0 0 0.7 7 MT Biological Diversity Area primary forest −0.4 −203 0.0 0 0.0 0 0.0 0 −8.1 −11 000 ha Area conserve biodiversity −0.1 −18 0.8 23 5.7 83 0.2 15 3.2 57 000 ha Total Forest Area −0.5 −485 −0.6 −91 −0.7 −128 −0.6 −91 0.6 61 000 ha (excl planted forests) Productive Functions Area productive forests −0.4 −195 0.6 22 −0.1 −18 2.7 62 3.4 187 000 ha Area planted forests † 2.9 79 33.3 15 −1.4 −26 0.1 1 6.8 75 000 ha Total Wood Removals −3.7 −737 −3.2 −12 −3.9 −1448 −16.9 −11 −1.6 −50 M m3 Protective Functions Area protective −0.3 −6.1 −1.3 −124 −0.8 −22 2.1 25 −0.7 −37 000 ha Area protective planted † — — 0.0 0 — — 3.5 29 7.6 40 000 ha Socioeconomic Area private ownership† −4.0 −472 0.0(1) 0(1) −2.7 −11 1.0 20 25.1 201 000 ha Source: FAO (2010a, 2010c). *Forest carbon in living biomass (above and below ground). † Trends 1990–2005 1 No private forests in Cambodia and Lao PDR, none in Myanmar before 2005, no data in 1990 in the Philippines. –, No data available; 0 or 0.0, no change. = Positive change (> 0.5%), = no major change (>−0.5%, <0.5%), = negative change (< −0.5%). Table 3.3 highlights the trends in forest management In the future, active forest management, forest protection in Southeast Asian countries over the decade 2000 and restoration activities are essential to increase health to 2010. and vitality of growing stock while improved harvest- ing techniques are required to achieve SFM. Forest cer- 3.2.2 Performance in Forest Management ti�cation and veri�cation can demonstrate the legality and sustainability of forest management in accordance As outlined in 3.2.1, the main drivers of deforestation with stated international, national or sub-national crite- in Southeast Asia are overwhelmingly commercial and ria and standards. Additionally, investment for capacity subsistence agriculture, so the potential for certi�cation, building and institutional strengthening is necessary to veri�cation and better law enforcement to reduce defor- ensure that this transition becomes a reality. Southeast estation is limited to legality and sustainability of forest Asian countries have committed to REDD-plus and concession management, forest industries and related FLEGT initiatives, which will assist in achieving SFM trade. e wider dimensions of good forest governance and greater recognition of the value of natural tropi- that link SFM with other land uses, livelihoods and cal forests in their provision of ecosystem services and economic development are also critical in minimizing sustainable production of forest products. However, deforestation and forest degradation, requiring wider high demand for land and forest products, low institu- land use governance and management initiatives. tional capacity, weak governance and entrenched social 26 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A causes of deforestation and degradation remain chal- or unsustainable forest products trade. As already intro- lenges (FAO, 2011a, ITTO, 2011). duced, good forest governance needs to do more to ad- dress the scope, challenges and opportunities that link SFM with wider sustainable natural resources manage- 3.2.3 Forest Governance ment, land use and livelihoods (including food security and poverty alleviation). Deforestation and forest degradation are driven by the economic, policy and institutional conditions prevailing Trade measures related to legality and sustainabil- in the sub-region, where political resolve, resources, law ity of wood and wood products imports in industrial- enforcement and other prerequisites are lacking. Several ized markets is already influencing the forest and forest factors constrain expansion of SFM in the sub-region industries and may revitalize forest law enforcement, (ITTO, 2006a; ITTO 2011): forest management and, to a certain degree, forest governance. e growing concerns over trade legality Ⅲ SFM for production of timber is less pro�table and sustainability in the European Union and United than other possible ways of using the land States will have a profound influence. In 2007, 10% of Ⅲ Insufficient resources (e.g., funds, staff, equipment, forest products and 72% of wooden furniture exports vehicles, and facilities) and technical support are from the sub-region went to the European Union and invested into SFM practice United States. Vietnam, Malaysia and Indonesia are the Ⅲ Long-term government resolve and credible ar- most signi�cant exporters to the European Union and rangements for tenure are inadequate United States. In the future, if legality and sustainabil- Ⅲ Despite political dialogue on illegal logging and ity of forest management and forest products cannot be trade, laws and law enforcement remain weak demonstrated, importers and buyers may cease sourcing Ⅲ Lack of timely and reliable data on status and tropical forest products from the sub-region. Although change in forest resources, uses and users the impacts of trade legality measures are not yet clear, efforts to improve law enforcement and governance will Possible Impact of Trade Measures on Forest Governance be critical in maintaining access to markets and main- and Management taining the value of, and conserving, natural tropical In Southeast Asia, increased attention has been paid to forests in the sub-region (FAO, 2011a, ITTO, 2011). forest law enforcement and governance but less prog- ress has been made on changing forest management on Recent Trends in Governance the ground. is has been because of conflicting policies Table 3.4 summarizes recent trends in governance in- and priorities, lack of development resources and the re- dicators for Southeast Asian countries during 1998 to luctance of vested interests to stem the flow of illegal 2008 based upon three criteria: (i) control of corruption: TABLE 3.4 Trends in Governance Indicators in Southeast Asian case study countries 1998–2008 Governance Score (−2.5 to +2.5) Country Control of Corruption Rule of Law Government Effectiveness 1998 2008 Trend 1998 2008 Trend 1998 2008 Trend Indonesia −1.1 −0.6 + −0.8 −0.7 + 0.8 0.3 + Malaysia 0.5 0.1 − 0.5 0.5 + 0.6 1.1 + Lao PDR −0.7 −1.2 − −0.9 −0.9 − −0.6 −0.8 − Vietnam −0.7 −0.8 − −0.5 −0.4 + −0.6 −0.3 + Thailand 0.0 −0.4 − 0.4 0.0 − 0.1 0.1 + Source: FAO (2010a, 2010c). < −0.5, −0.5–0.5, > 0.5. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 27 capturing perceptions of the extent to which public Ⅲ Reinvent forestry institutions to be facilitative and power is exercised for private gain, including petty and regulatory and more responsive and flexible to grand forms of corruption, as well as “capture� of the changing threats and opportunities state by elites and private interests; (ii) rule of law: cap- Ⅲ Adopt best practices guides to revitalize forest turing perceptions of the extent to which agents have management and protection operations con�dence in and abide by the rules of society and in Ⅲ Link forestry with sustainable natural resources particular quality of contract enforcement, property management, land-use and livelihoods rights, the police and the courts, as well as the likeli- hood of crime and violence; and (iii) government effec- tiveness: capturing perceptions of the quality of public services, the quality of the civil service and the degree 3.3 Forest Certi�cation in of independence from political pressures, the quality of Southeast Asian Countries in policy formulation and implementation, and the cred- ibility of the government’s commitment to such policies Context (FAO, 2010b; Kaufmann et al, 2009). In March 2012, approximately 360 million hectares of Control of corruption remains a signi�cant challenge certi�ed forests were endorsed by FSC or PEFC glob- in all Southeast Asian countries and declined even in ally and a further 10% certi�ed by both FSC and PEFC. Malaysia, which was originally considered to control Western Europe and North America accounted for corruption. Indonesia showed some improvement, but about 88% of certi�ed forests in the world. Asia, which started from a very low level. Rule of law improved had 15% of the world’s forests, accounted for less than but remains a challenge in Indonesia and Vietnam, 10 million hectares, or 2.5% of certi�ed forests world- remained moderate in Malaysia but worsened in Lao wide. e prevalence of corruption, weak rule of law and PDR and ailand. Government effectiveness improved conflicting policy and legal frameworks between federal signi�cantly in Indonesia, Malaysia and Vietnam and and state governments and a lack of con�dence in the marginally in ailand, but worsened in Lao PDR business case for certi�cation are some of the stated (FAO, 2010b). causes in Southeast Asian countries. Because forest governance frameworks did not always encourage the most reputable investors in forest concession manage- Forest Governance Priorities toward 2020 ment, forest industries or marketing and trade invest- Forest governance grapples with balancing the trade- ments, there was little incentive to pursue demonstra- offs between economic development and sustainable tion of legality and sustainability through veri�cation natural resources management (FAO, 2010c). Relevant and certi�cation schemes, respectively. Southeast Asia sub-regional forest governance priorities toward 2020 has been slow to embrace these tools, despite strong en- include: couragement from the highest political levels in APEC, ASEAN and national politicians and market pressures. Ⅲ Maintain forest ecosystem services, rural em- ployment and the long-term supply of forest Figure 3.1 highlights the global certi�ed forest areas by products regions.3 Ⅲ Improve forest law enforcement, public awareness and �nancing for protected area management In the Southeast Asian case study countries, the total Ⅲ Use FLEGT, REDD-plus and other multilateral forest area is 163.4 million hectares. FSC and PEFC and bilateral mechanisms to achieve legality and certi�ed forest areas reported in March 2012 are sum- sustainability marized in Table 3.5. e FSC certi�ed forest area was Ⅲ Adopt multi-stakeholder, participatory approaches and more transparent governance in formulating 3. FSC database http://info.fsc.org/ and PEFC information register policies, strategies and enforcement http://register.pefc.cz/ 28 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE 3.1 Proportion of Global Certi�ed Forest Areas by Regions, March 2012 million ha 250 200 150 100 50 0 North Europe Latin Oceania Asia Africa America America Sources: FAO (2010a), UNECE-FAO (2010). TABLE 3.5 FSC and PEFC Certi�ed Forest Areas in Southeast Asian Case Study Countries and Global Regions, March 2012 FSC Certi�ed Forest Area4 PEFC Certi�ed Forest Area5 Total Forest Area6 FSC-PEFC Certi�ed Area Country/Region No 1,000 ha % No 1,000 ha % 1,000 ha % Indonesia 14 937.8 94,432 1.0 Malaysia 7 501.8 8 4,588.87 1.9 20,456 24.9 Vietnam 5 41.4 13,797 0.3 Thailand 6 22.5 18,972 0.1 Lao PDR 2 82.9 15,751 0.5 Sub-total 34 1,586.4 1.0 8 4,588.8 1.9 163,408 3.8 Asia 140 4,987.0 3.3 8 4,588.8 1.9 592,512 1.6 L. America/Caribbean 222 9,552.3 6.3 na 3,173.7 1.3 890,783 1.4 Africa 46 7,362.6 4.9 na — — 674,419 1.1 Europe 454 65,415.8 43.7 na 80,004.8 32.6 1,005,001 14.7 North America 201 60,305.4 40.3 na 147,230.8 60.1 678,961 30.6 Oceania 33 2,226.9 1.5 na 10,069.6 4.1 191,384 6.4 Global Forest Area 1,096 149,850.0 100.0 na 245,067.0 100.0 4,033,060 9.8 Notes: na – no data available Source: Authors’ compilation from FSC/PEFC certi�cation websites, March 2012; Total forest area (FAO, 2010a). 4. FSC website, dated 14 February 2012: http://www.fsc.org/�leadmin/web-data/public/document_center/powerpoints_graphs/facts_ �gures/2012-02-15-FSC-FIG-Global_FSC_certi�cates-EN.pdf 5. PEFC website portal on forest certi�cation: http://www.pefc.org/certi�cation-services/forest 6. FAO, 2010. Global Forest Resources Assessment, 2010. FAO Forestry Paper 163, FAO, Rome, Italy. 7. PEFC-MTC data available on the Malaysian Timber Certi�cation Council website: http://www.mtcc.com.my/mttc_scheme_certs_ holders%20-%20MC&I(2002).asp C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 29 FIGURE 3.2 Total Forest Area and Certi�ed Forest Area in Southeast Asian Case Study Countries, March 2012 Million hectares 94.4 100.0 80.0 60.0 Total forest 40.0 CerƟ�ed forest 15.8 20.5 19.0 13.8 20.0 2.0 0.1 5.1 0.02 0.04 _ Indonesia Laos Malaysia Thailand Vietnam Source: FAO (2010a), Authors’ compilation from forest certi�cation websites PEFC, FSC, LEI, MTCS, March 2012. 1.6 million hectares, in order of magnitude, Indonesia, forest regions. However, more recently, national systems Malaysia, Lao PDR, Vietnam and ailand, which ac- have been endorsed in Gabon, Uruguay and Malaysia, counted for 1% of the FSC global certi�ed forest area. making the latter a forerunner in Southeast Asia. e equivalent Malaysian Timber Certi�cation Scheme Likewise, the largest areas of FSC-certi�ed forest were (MTCS)-PEFC certi�ed forest area was 4.6 million in North America, Sweden and the Russian Federation. hectares in Malaysia, which accounted for 1.9% of the FSC-endorsed standards existed in 13 countries in mid- PEFC global certi�ed forest area. e forest area certi- 2010, with interim standards developed by accredited �ed by FSC or PEFC combined is 6.2 million hectares, certi�cation bodies present in a further 66 countries. or less than 4% of total forest areas in the sub-region. FSC  thus penetrates most areas of the world, but gaps is equates to 1.6% of the combined FSC and PEFC remain in parts of tropical Africa and Southeast Asia. global certi�ed forest areas. As detailed in Figure 3.2, Malaysia has the largest cer- Adding the Lembaga Ekolabel Indonesia (LEI) for- ti�ed forest area in absolute (6 million hectares) and est certi�cation of 1.8 million hectares in Indonesia, relative terms (25% of total forest area or 40% of pro- the certi�ed forest area is 8.0 million hectares or less duction forest area). Although Indonesia has more than than 5% of the total forest area in the Southeast Asian half of the forest resources in the sub-region, only 2.0 case study countries. e aim of the Indonesia Forestry million hectares or 2.1% of their forest area is certi�ed. Certi�cation Cooperation (IFCC), established in e amount of certi�ed forest in Lao PDR, ailand October 2011, is to promote SFM by implementation of and Vietnam is negligible. a national scheme with the intention to seek PEFC rec- ognition. e scheme will include certi�cation of forest e global industrial roundwood supply from certi�ed management, forest products, forest product-processing forests in 2010 was estimated at 472 million m3, which industries and the CoC, among other issues. equated to 26.4% of the global industrial roundwood supply. Western Europe and North America accounted By September 2011, PEFC had endorsed 30 national for- for 95%, with Asia 3.4 million m3 or 0.7% (UNECE- est certi�cation programs,8 mostly in temperate and boreal FAO, 2010). Figure 3.3 and 3.4 outline the percentage of production forests and forest plantations certi�ed in 8. By July 2012, 31 national forest certi�cation programs endorsed the Southeast Asian case study countries, according to by PEFC. certi�cation scheme. 30 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE 3.3 Percentage Production Forests Certi�ed in FIGURE 3.4 Percentage Forest Plantations Certi�ed in Southeast Asian Case Study Countries Southeast Asian Case Study Countries 50% 50% 40% 40% 30% 30% 20% 36% 20% 10% 10% 16% 2% 4% 1% 1% 2% 1% 1% 0% 0% 2% 0% 2% 3% % FSC % PEFC % NaƟonal % NaƟonal % PEFC % FSC Source: Information from national sub-consultants and Authors’ Source: Information from national sub-consultants and Authors’ compilation from FSC, LEI, PEFC internet home-pages, March 2012. compilation from FSC, LEI, PEFC internet home-pages, March 2012. Table 3.6 summarizes compliance with FSC Controlled Southeast Asian Study Countries have a diverse range Wood Standards in the Southeast Asian case study of forest certi�cation and governance contexts that countries in March 2012. present harmonization challenges, generally weak for- est governance; forest types prone to degradation and Of the FSC Controlled Wood Standards in the South- deforestation; and nominal use of national and interna- east Asian case study countries, three account for tional certi�cation and veri�cation schemes and stan- 346,582 hectares (53%) for natural forests and three dards. Overall, forest certi�cation, with the exception account for 302,972 hectares (47%) for forest planta- of Malaysia, has not been embraced as a tool for legal- tions. ese were issued to the state 239,529 hectares ity and sustainability of natural forest management, nor, (37%) and to the private sector 410,025 (63%). with the exception of Indonesia, for forest plantations. TABLE 3.6 Forest Managers Complying with FSC Controlled Wood Standards in Southeast Asian Case Study Countries, March 2012 FSC Controlled Wood Country Certi�cation Body Area (ha) No Type of forest Ownership Indonesia Soil Association Woodmark 281,038 1 Plantation Private Sub-total Indonesia FSC Controlled Wood 281,038 1 Malaysia SmartWood Rainforest Alliance 107,053 1 Natural Private Scienti�c Certi�cation System 5,616 1 Plantation Private Sub-total Malaysia FSC Controlled Wood 112,669 2 Vietnam GFA Consulting Group GmbH 16,318 1 Plantation Private Sub-total Vietnam FSC Controlled Wood 16,318 1 Lao PDR SmartWood Rainforest Alliance 239,529 2 Natural State Sub-total Lao PDR FSC Controlled Wood 239,529 2 TOTAL 649,554 6 Source: Authors’ compilation from FSC and PEFC certi�cation databases, March 2012. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 31 Considerable differences exist both across and within Vietnam and Indonesia dominate wood products countries. More detailed analysis for each country is CoC certi�cation. Furniture companies represent provided within the country sections in 3.5 “Status of almost 40% of CoC certi�cates, and companies in- Certi�cation and Veri�cation by Country.� volved in the sawnwood business account for another 30%. A great majority of these furniture manufactur- ers are located in Vietnam, followed by Indonesia and Malaysia. Sawnwood companies with CoC certi�cate 3.4 Chain of Custody Certi�cation are predominantly located in Malaysia and Vietnam. In contrast, only 60 paper and fewer than 10 pulp com- Despite the recent economic downturn, FSC CoC cer- panies have CoC certi�cation in the Southeast Asian ti�cates increased from 11,847 in December 2008 to case study area – most of the paper and pulp compa- 22,466 (+90%) in February 2012. e United States, nies are located in Indonesia, ailand and Malaysia. United Kingdom, Germany, France, Canada and the Figure  3.6 summarizes the CoC certi�cates in the Netherlands continue to be the leading countries in Southeast Asian case study countries. CoC certi�cates issued. Growth in the United States has been particularly strong. In Asia, from December e Southeast Asian case study countries are mak- 2008 to March 2012, signi�cant FSC CoC certi�cation ing only limited use of the CoC certi�cation tool. In increases were recorded in China (821 to 2200, +167%), February 2012, discounting the small number of joint Hong Kong (189 to 445, +135%) and Japan (887 to FSC and PEFC CoC certi�cates, there were 680 FSC 1126, +27%). Figure 3.5 outlines the global growth in CoC certi�cates in the Southeast Asian case study CoC certi�cation for 2005 to 2011. countries, in order of magnitude, Vietnam, Indonesia, Malaysia, ailand and Lao PDR. ey accounted In the Southeast Asian case study countries, in order, for only 3% of FSC CoC certi�cates globally, and Malaysia (336), Vietnam (272) and Indonesia (209) all Asian countries combined accounted for 21.3%. are the leading countries in CoC certi�cations, with In December 2011, the sub-region had 197 PEFC minor use being made in ailand (38) and Lao PDR CoC certi�cates, in order of magnitude, Malaysia, (15). e wood products industry dominates CoC cer- Indonesia, ailand and Vietnam, accounting for 2.2% ti�cation, with paper and pulp a minor share (e.g., of PEFC CoC certi�cates globally. Table 3.7 summa- FSC CoC percentage of pulp and paper in Indonesia, rizes the FSC, PEFC and combined CoC certi�cates 18%, Malaysia, 26% and Vietnam, 8%). Malaysia, globally. FIGURE 3.5 Global Growth of CoC Certi�cation, 2005–2011 FIGURE 3.6 CoC Certi�cates in Southeast Asian Case Study Countries, March 2012 CoCs Nos CoC Nos 35,000 400 30,000 25,000 300 20,000 15,000 200 10,000 100 5,000 0 0 2005 2006 2007 2008 2009 2010 2011 Indonesia Malaysia Vietnam Thailand Lao PDR Source: UNECE-FAO, 2010 Forest Products Annual Market Review Source: Authors’ compilation from FSC and PEFC websites, February 2009–2010, Authors’ compilation from PEFC, FSC websites. to March 2012. 32 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.7 FSC, PEFC and Combined CoC Certi�cates Globally, FSC and PEFC Data, February 2012 Combined FSC & PEFC CoC FSC CoC Certi�cates9 PEFC CoC Certi�cates10 Country/Region Certi�cates No % No % No % Indonesia 195 14 209 Lao PDR 15 – 15 Malaysia 163 173 336 Thailand 38 7 45 Vietnam 269 3 272 Sub-total 680 3.0 197 2.2 877 2.8 Asia 4,789 21.3 604 6.9 5,393 17.3 L. America/Caribbean 1,128 5.0 98 1.1 1,226 3.9 Africa 135 0.6 5 0.0 140 0.4 Europe 11,287 50.3 7,333 83.4 18,620 59.6 North America 4,713 21.0 537 6.1 5,250 16.8 Oceania 414 1.9 220 2.5 634 2.0 CoC Certi�cates 22,466 100.0 8,797 100.0 31,263 100.0 Source: Authors’ compilation from FSC and PEFC CoC certi�cation, February 2012. 9. FSC website, February 2012: http://www.fsc.org/�leadmin/web-data/public/document_center/powerpoints_graphs/ facts_�gures/ 2012-02-15-FSC-FIG-Global_FSC_certi�cates-EN.pdf 10. PEFC website portal on forest certi�cation: http://www.pefc.org/certi�cation-services/forest 3.5 Status of Certi�cation and people’s participation and community rights for forest utilization, forest land tenure and forest uses and users. Veri�cation by Country e Bali Ministerial Declaration on Forest Law is section is supplemented by Annex 2: ASEAN Enforcement and Governance, 2001, highlighted forest Country Status and Trends, which provides more details crime and associated illegal trade as a priority of gov- for the Southeast Asian case study countries, includ- ernment and trading partners. In 2005, presidential ing forest management; forest products, marketing and instructions were issued to eradicate illegal logging trade; veri�cation; certi�cation; forest institutions, pol- and associated trade activities. Various announcements icy, legislation and law enforcement; forests and forestry and international and bilateral agreements have been toward 2020; and potential for certi�cation and veri�ca- made concerning illegal logging and trade, including a tion and NTLAS/VPAs. Memorandum of Understanding with Malaysia (FAO, 2010b). 3.5.1 Indonesia In 2010, a two-year moratorium on new concessions Framework of Policies, Laws, Regulations and Targets was announced to stop clearing primary forests and peat Indonesia’s forestry policy in the 1990s aimed to reduce lands as part of a US$1 billion Letter of Intent with forest conversion while promoting sustained yield man- Norway. Other REDD-plus initiatives with the Forest agement, land rehabilitation, plantation development, Carbon Partnership Facility (FCPF) and the Forest forest protection and conservation, and community Investment Program (FIP) of the World Bank and the participation. e Indonesian Forestry Act, 1999, replaced UN-REDD Program will support reduction in illegal the Basic Forestry Law of 1967 and introduced princi- logging and associated trade and unsustainable forest ples of good governance, such as transparency, justice, management. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 33 In May 2011, Indonesia signed a VPA with the Euro- proved by the Ministry of Forestry in July 2009 and pean Union. e VPA, along with the amendment of the related �eld guidelines in February 2010 (Hakim, the US Lacey Act in 2008, is stimulating greater aware- 2010). It applies to public and private operators and ness of, and commitment to, compliance with the covers round log production and processed tim- Indonesian Timber Legality Standard (SVLK) to keep ber products for domestic and export markets. e open forest products trade doors with the United States Ministry of Forestry supports �eld implementation and European Union. through an information raising and mandatory legal- ity veri�cation process. Mandatory veri�cation is a tool Veri�cation to monitor legal compliance and screen concession- e Ministry of Forestry has strengthened its control of aires for allocation of concession licenses (Ministry of forest use by recentralizing the licensing process, issuance Forestry, 2009b). e SVLK includes two options for of concession licenses and mandatory certi�cation of con- certi�cates, compliance with SFM (PHL) and veri�ca- cessionaires. e Provincial and District Forest Offices tion of timber legality. do �eld checks and supervise planning and implementa- tion of forest operations and timber transport. e Ministry of Forestry has appointed national third party veri�cation bodies to assess compliance with the e Indonesian Forest Industry Revitalization Agency forest management or legality requirements. A  total (BRIK), established in 2002, issues export licenses for of 10 veri�cation bodies do forest management au- timber. Although BRIK is an NGO, all timber export- dits, and �ve bodies carry out legality veri�cations. ers are required to join. e license is issued based on e veri�cation bodies must also have accreditation the information on timber source, volumes and trans- from the National Accreditation committee (KAN) portation documentation to monitor the legality of tim- (Hakim, 2010). If a concession receives a certi�cate ber by reconciling the harvested and processed volumes on SFM (PHL), this provides the evidence for legal over the supply chain. However, the credibility of BRIK compliance, as well. On the other hand, if a con- veri�cation was hampered by a lack of transparency and cessionaire fails to meet the PHL requirements, a third party veri�cation (Ogle Consulting, 2008). legality certi�cation is required. e objective is that all wood industries in the supply chain will have a e Ministry of Forestry provides �nancial support to legality certi�cate. improve capacity of concessionaires within the manda- tory veri�cation scheme. It may also allow concession or- e scale of the audit results on forest management cer- ganizations to “self-approve� annual forest management ti�cation reads “bad - fair - good - very good.� In the plans as part of general recognition of good management. �rst round, some concessions failed to meet the require- is gives forestry companies a signi�cant cost savings. ments, but currently most have reached the level “fair� (Brown & Bird, 2008; Ministry of Forestry, 2009a). For National Legal Veri�cation System or Standar Veri�kasi legality veri�cation, the outcome is either “compliance� Legalitas Kayu (SVLK) or “non-compliance.� e veri�cation is valid for three e European Union cooperation on FLEGT sup- years with annual surveillance audits (Hakim, 2010). ported the Ministry of Forestry in developing a timber e large majority of the concessions in natural forests traceability and timber legality assurance system and forest plantations have been rated as “fair� in their (SVLK). e central elements of SVLK are de�ned by performance (Ministry of Forestry, 2009a). For a tim- ministerial regulations.11 e SVLK regulation was ap- ber industry organization that has a legality certi�cate and uses certi�ed forest raw material, self-veri�cation is adequate evidence of legal compliance. Despite the 11. P.38/Menhut-II/2009 stipulating institutional and operational intention to have mandatory certi�cation as a precondi- framework for assessment of performance and veri�cation of timber tion for a concession license, only 25% of natural forest legality, and independent monitoring. P.6/IV-Set/2009 stipulating standards and guidelines for veri�cation of timber legality and concessions (6.5 million hectares) have passed the man- performance in sustainability production forest management. datory certi�cation (Ministry of Forestry, 2009a). 34 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Compliance with the European Union For each principle, criteria, indicators and veri�ers dem- e 2009 Indonesia-EU FLEGT VPA experts’ meet- onstrate compliance, together with veri�cation guide- ing concluded that the SVLK met the EU expectations lines describing the method and the appraisal norm to for FLEGT licensing on de�nition of legal timber, be used. ese are closely linked to the criteria and indi- control of the supply chain and control and indepen- cators for SFM, which apply to all log production from dent monitoring. Over the past few years multi-stake- concessions and cover production, social and ecologi- holder processes have strengthened CoC mechanisms, cal aspects. Conformity Assessment Bodies will audit improved complaint and dispute settlement mechanisms operators annually for compliance with provisions of and addressed group certi�cation schemes. ese will SVLK but also act as outsourced licensing authorities make SVLK more robust and facilitate implementa- for shipments. tion among smallholders and complex business entities. A task force has been established to prepare a SVLK Indonesia started implementing the Indonesia-EU strategy and support for the forestry industry for imple- VPA and will test pilot licensing of products to the mentation. e SVLK, the basis for the FLEGT VPA, European Union in 2012, with full implementation in has been praised by the European Union for transpar- time for entry to force of the EUTR in March 2013. ent multi-stakeholder development, robust monitoring SVLK is being recognized by Indonesia’s REDD- process and the inclusion of a continuous improvement plus program as potentially contributing as an effec- mechanism.12 e VPA approved in May 2011, was tive instrument toward good forest governance.13 e negotiated over seven years and is renewable for con- VPA is the �rst in Asia and will govern forest products secutive periods of �ve years. trade estimated to be worth US$1 billion/year. Once the VPA is operational, Indonesian authorities will e SVLK draws upon Indonesia’s laws and regulations permit the export only of timber licensed under SVLK on forestry, trade, environment, agriculture and land standards and EU customs authorities will prevent any ownership, as well as international treaties signed and unlicensed Indonesian forest products from entering rati�ed by Indonesia. Indonesia’s legality de�nition is the European Union. framed around key principles covering essential aspects of forest production and processing, depending on dif- Forest Management and Chain of Custody Certi�cation ferent forest contexts that include: e Indonesian Eco-Label Institute (LEI) devel- oped national voluntary forest certi�cation standards Ⅲ State natural and plantation forests where prin- for the management of natural forests, plantation ciples cover (i) the legal status, area and right to forests and community forests. So far, the scheme utilize the forest; (ii) compliance with the legal has not been endorsed by FSC or PEFC. However, requirements for harvesting; and (iii) compliance FSC is in discussions with LEI for it to be the with the environmental and social aspects related Standard Development Group to develop a FSC to harvesting National Standard for Indonesia in line with the new Ⅲ Privately owned forests, ownership of the tim- FSC Principles and Criteria and the International ber as it relates to the land area, the logs, and the Generic Indicators under development. e aim is for trading of logs, and this can be cross checked for National Standards to be completed for implementa- traceability tion in 2014. Ⅲ Principles that regulate logging from non-forest zones that may or may not lead to forest conversion Various NGOs and donor organizations have sup- Ⅲ General legality standard covering the supply chain ported voluntary certi�cation in Indonesia with the management of timber from the forest through purpose of promoting FSC certi�cation among the processing units to the point of export concession holders. In contrast to the concession 12. Tropical Forest Trust news, 11 Oct 2011: http://www.tft-forests.org/ 13. EU FLEGT News, July-August, 2011. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 35 TABLE 3.8 Certi�ed Forests in Indonesia, March 2012 Forest Certi�cation Scheme Area (ha) No Type of forest Ownership LEI 502,000 Natural forests Private 540,000 Planted forests Private 25,000 Community forests Community group LEI 1,067,000 FSC SmartWood Rainforest Alliance 560,864 4 Natural Private 1,038 3 Plantation Private Soil Association Woodmark 38,043 2 Plantation State 1,005 1 Plantation Private group SGS Qualifor 33,047 1 Plantation State 90,956 1 Natural Private Control Union Certi�cations (CU) 212,880 2 Natural Private FSC Sub-total 937,833 14 Total 2,004,833 (4%) 14؉ Source: Authors’ compilation; http://info.fsc.org/, March 2012. licenses covering 26.16 million hectares of natural for- community groups for 0.03 million hectares (1%). ests in 2008 (Ministry of Forestry, 2009a), the total FSC accounts for 937,833 hectares of certified for- certi�ed area of 938 thousand hectares is minimal. ests, of which 864,700 hectares are natural forests Forests certi�ed under the LEI or FSC schemes are and 73,133 hectares forest plantations. The pri- detailed in Table 3.8. vate sector accounts for 865,738 hectares (92%), the state for 71,090 hectares (7%) and private groups Indonesia has a low level of forest certification, for 1,005 hectares (1%).14 LEI accounts for 1.1 mil- with only 2.0 million hectares (4%) of designated lion hectares of forests certified of which 502,000 production forests certified, of which 1.4 million hectares are natural forests and 565,000 hectares hectares are natural forests and 0.6 million hect- forest plantations. The private sector accounts for ares forest plantations (18% of designated planted 1.4 million hectares (98%) and private groups for forests). Forest certificates are issued to the private 25,000  hectares (2%).15 sector for 1.9 million hectares (95%), the public sec- tor for 0.07 million hectares (4%) and private or e Controlled Wood standard helps forest manage- ment enterprises demonstrate compliance with legal harvesting but not implementation of all applica- ble national and international laws. FSC controlled TABLE 3.9 Forest Managers Complying with FSC wood can be supplied to CoC certi�ed operations Controlled Wood Standards in Indonesia, March 2012 for mixing with FSC certi�ed materials in produc- FSC Controlled Wood tion of FSC mixed-wood products. Compliance Certi�cation Area (ha) No Type of forest Ownership Body Soil Association 281,038 1 Plantation Private Woodmark 14. FSC: http://info.fsc.org Source: Authors’ compilation; http://info.fsc.org/, March 2012. 15. Lembaga Ekolabel Indonesia: http://www.lei.or.id 36 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A with Controlled Wood Standards allows forest All the major international certi�cation bodies having management enterprises to demonstrate best efforts accreditation to do third party certi�cation under the to avoid the trade in illegally harvested timber and FSC or other certi�cation frameworks well established implement responsible sourcing policies. At this in Indonesia. e voluntary forest and CoC certi�cation stage, the Controlled Wood Standards are 100% pri- standards implemented in the country are presented in vate owned and 100% on planted forests (FSC data- Table 3.11. base, accessed in March 2012). Trends and Influence e number of CoC certi�cates rose sharply in 2011; Indonesia’s industrial roundwood production levels in by March 2012 there were a total of209 CoC certi�- 1997, 2002 and 2007 were, respectively, 46 million cates of which FSC, 195 and PEFC 14. Additionally, m 3, 33 million m 3 and 36 million m3 (FAO, 2009b). two forest management units (FMUs) and four pulp An industrial roundwood de�cit exists for the sawn- and paper companies have passed the LEI CoC certi�- wood, plywood and veneer industries in Indonesia, cation. e LEI is implementing programs to increase which generates a strong demand for domestic as well certi�cation, especially in plantation forestry (FSC as imported forest products (increased seven-fold in 2011 and LEI 2011). Table 3.10 summarizes FSC the past three decades). Forest products imports by and PEFC CoC status for Indonesia. e signi�cant proportion of value in 2000 were: Brazil, 23%, the increase in CoC certi�cates is an indication that com- United States, 22%, Canada, 21%, ASEAN countries panies are responding to international market de- 6% and China and Japan, 3% each. In 2009, reduc- mands for uncontroversial sources of timber to protect tions occurred in imports from Brazil, 19%; United market access. States, 8%; and Canada, 8%; imports remained similar in China, at 4%, and Japan, at 2%; and imports from ASEAN countries doubled to 6% (mainly Malaysia and Singapore).16 e increase of imports from ASEAN countries may reflect their leniency on legal- TABLE 3.10 FSC and PEFC CoC Summary for Indonesia, March 2012 ity and sustainability. e reductions in imports from the United States, Canada and Brazil that require FSC PEFC Total Certi�cation Body demonstration of legality and sustainability of forest No No No % management and trade seem to go against the trend. BM TRADA Certi�cation Ltd 59 59 28 It is possible that the decisions to reduce may be based SGS Qualifor 45 10 55 26 upon other criteria. ere was little evidence for do- SmartWood Rainforest Alliance 54 54 26 mestic trade in forest products having to demonstrate LGA InterCert GMbH 22 1 23 11 legality or sustainability (FAO, 2009b). SCS 7 7 3 BV Certi�cation – Eurocertifor 2 2 4 2 In 2000, Indonesian forest products exports, in order Det Norske Veritas of value, were Japan, 18%; China, 18%; the European 3 3 2 Certi�cation AB Union, 9%; ASEAN countries, 8%; the Republic of KPMG Forest Certi�cation Korea, 6%; United States, 5%; and Australia, 2%. In 1 1 0.5 Services Inc. 2009, the distribution was similar, except exports to the CU Certi�cations 1 1 0.5 European Union had nearly halved to 5% and Japan and Swiss Association for Quality China reduced to 16% and 15%, respectively. Exports 1 1 0.5 and Management Systems to ASEAN countries remained similar, at 9%. e Stichting Keuringsbureau Hout 1 1 0.5 reduction of forest products trade with EU countries Total 195 14 209 100 and Japan may reflect their greater demand for proof of Source: Authors’ compilation http://info.fsc.org/ March 2012, http:// register.pefc.cz/ March 2012. 16. FAOStat Forest Products Statistics 2000 and 2009. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 37 TABLE 3.11 Forest and CoC Certi�cation Standards Implemented in Indonesia, March 2012 Standard Scheme Owner Forest Management FSC Forest Management SmartWood Rainforest Alliance Interim Standard for Assessing Forest SmartWood Rainforest Management in Indonesia (FM-32-Indonesia) (2008) Alliance SCS Draft Interim Standard for Natural Forest and Plantation Forest Scienti�c Certi�cation Management Certi�cation in Indonesia V1-0 (2009) Systems LEI LEI standard 5000-1 System for Sustainable Natural Production Forests LEI Management LEI standard 5000-2 Sustainable Plantation Forest Management system Chain of Custody FSC CoC FSC CoC standard for companies supplying and manufacturing FSC certi�ed FSC products (FSC STD 40-004) FSC standard for company evaluation of FSC controlled wood (FSC STD 40-005) FSC standard for forest management enterprises supplying non–FSC certi�ed controlled wood (FSC STD 300-10) Sourcing reclaimed material (FSC STD 40-007) Multisite CoC certi�cation (FSC STD 40-003 V1-0) PEFC CoC CoC of Forest Based Products (PEFC ST 2002:2010) from 26 November 2011 PEFC Council Source: Authors’ compilation, March 2012. legality and sustainability, because Indonesia does not Indonesia to adopt independent, third party certi�- have the critical mass to demonstrate this yet. e main- cation to protect access to the European and North tenance of market share by China and ASEAN coun- American markets under new forest products trade tries may reflect their flexibility with respect to proof of conditions. FLEGT and REDD-plus programs are legality and sustainability.17 also providing critical capacity building in forest gov- ernance. Stated priorities of the government are to Forest certi�cation has had a miniscule impact on man- curb illegal logging by capacity building and insti- agement of natural forests, because only 3% to 4% of tutional strengthening, amending national laws and natural production forests were certi�ed recently, but regulations, strengthening law enforcement and pros- there is potentially greater impact on the 18% of planted ecuting those behind major forest harvesting, pro- forests certi�ed to date. In general, impacts on forest cessing, transporting and trade crimes. Promotion products trade have been limited because a consider- of transparency, independence and accountability, able proportion of CoC certi�cation is held by traders, greater participation with key stakeholder groups, importers and retailers rather than producers or forest conflict resolution and compensation are also stated industries processors. e proportion of CoC certi�- priorities (FAO, 2010b). cation across the various forest products remains low. International commercial banks funding forestry proj- Potential for Certi�cation, Veri�cation and NTLAs/VPAs ects in Indonesia require forest and CoC certi�cation; e potential to expand voluntary certi�cation in however, national banks, many with government major- Indonesia depends on the one hand on the interest of ity shareholdings, do not at this stage. private or state-owned companies to apply for certi�- cates. On the other, it will depend on making certi�ca- Forest governance has improved in Indonesia, re- tion more accessible to small-scale producers, who face sponding to several signals from within and outside substantial �nancial and procedural barriers to entry. e theoretical upper limit is around 35.5 million hect- ares, which is the forest area managed by members of 17. FAOStat Forest Products Statistics 2000 and 2009. the Indonesian Forest Concession Holders Association 38 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A (APHI). e conservative share of certi�ed concessions standard provides evidence of either sustainable in natural forests is anticipated to increase steadily to management or legal compliance according to the 10%.18 is would increase the certi�ed forest area up scope applied in audits. e SVLK certi�cate is rec- to 3.6 million hectares from the current 2.0 million ognized in the European Union as evidence of legal hectares. compliance as well as by major national procurement policies in Europe or the United States. e open issue Expansion of certi�cation in forest plantations is more is whether the SVLK certi�cate is adequate for speci�c feasible, and the companies producing forest products client groups or �nancing institutions requiring both for environmentally sensitive markets can readily apply legal and sustainable timber production and certi�- for a certi�cate. A general precondition is that the plan- cates issued by internationally recognized accredited tation forests must not be established by conversion of certi�cation bodies. Currently only 25% of forest con- natural forest. e area of forest plantations (currently cessions have passed the SVLK legality or sustainabil- 7% of production forest or 3.7% of forest area) is small ity certi�cation done by national veri�cation bodies. in contrast to the forestry land, and only 18% of the is low �gure indicates that the priority will be on current forest plantation area is certi�ed. If current for- promoting SVLK legality veri�cation in the remaining est plantation owners applied for a certi�cate, the area 20 million hectares of active concession areas. would increase from the current 0.6 million hectares to 3.5 million hectares. An option the companies have in striving for compli- ance with legality and/or sustainability requirements New licenses for industrial forest plantations have in Indonesia is to enroll in a stepwise forest certi�ca- been issued for about 10 million hectares, but only tion process that is run most often by FSC- accredited one third of these have been planted to date (Ministry certi�cation bodies or organizations promoting FSC of Forestry, 2009a). Potential remains to expand for- certi�cation. Such an approach builds the resources est certi�cation in new plantings by an additional 3 and competencies to meet the SVLK legality require- to 4  million hectares in the future based on the as- ments and to achieve an internationally recognized sumption that the majority of the existing 3.5 million certi�cate for sustainable management. e market in- hectares of forest plantations and 10% of new forest centives for voluntary sustainability certi�cation, often plantations (not being converted from natural forests) exclusively FSC certi�cation, include better access to will be certi�ed. Currently, plantation wood is mainly markets and premiums for certi�ed timber. Recently used for pulp production in Indonesia, and only lim- some price premiums have been paid for logs and for ited, but gradually increasing, demand exists for certi- tropical plantation wood produced for pulp produc- �ed origin. If paper-producing companies and related tion. Additional incentives could be provided through international markets increase the demand for products �scal incentives, ranging from simpli�ed auditing of sustainable origin, companies will gain more interest procedures to reductions in timber royalty rates for in voluntary certi�cation. companies that have an FSC or LEI SFM certi�cate (Jarvis and Jacobson, 2006). Government requirements on mandatory certi�ca- tion, future EU FLEGT licensing procedures, the It will also be important to lower the barriers of entry Lacey Act in the United States and public procure- for smallholders to avoid the risk for further reduc- ment policies require a strong commitment from forest ing their access to forestland and barring them from concessionaires and forest industries organizations in access to environmentally sensitive markets. e Indonesia to provide evidence on legal compliance. main barrier of entry is cost, followed by onerous re- e conformity to the national SVLK certi�cation quirements for management plans and recordkeeping, overly complex or irrelevant procedures, limited in- stitutional capacity to assist small-scale landowners, 18. e calculated average for a concession area is 85,000 ha. competition from cheaper plantation wood, lack of a C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 39 guaranteed price premium to offset costs, and an im- Sarawak emphasizes production and revenue genera- position of “community� on diverse and disconnected tion, whereas social and environmental objectives are groups (e.g., Forest Trends, 2003, 2004, and 2005). absent (FAO, 2010b). Streamlined certi�cation standards and lower certi�- cation costs can help improve access to smallholders e Malaysia National Forest Act 1984 focused on or groups of farmers as offered, for example, by the ensuring sustainable forest resource management and SLIMF certi�cation (Forest Stewardship Council conservation. e Act provided for forest planning, [FSC], 2009). FSC has a dedicated smallholder sup- management and development and safeguarding and port program19 that is active in Indonesia, including protecting forest resources from encroachment and training for trainers with the Regional Community illegal harvesting. e 1993 amendments included Forestry Training Center for Asia and the Paci�c illegal logging as a joint liability of license holders and (RECOFTC). 20 contractors, increased penalties for illegal logging and empowerment of police and armed forces to undertake Another important caveat to bear in mind is that surveillance of forestry activities. Illegal logging on capacity of certi�cation bodies in Indonesia is still low. Peninsular Malaysia reduced, but challenges between Capacity has been increasing over recent years, but is loggers and indigenous peoples remain, particularly in likely to be insufficient to accommodate the potential the State of Sarawak. Malaysia is committed to elimi- expansion in certi�cation. In particular, capacity build- nating illegal logging and to combating trade in illegal ing efforts should focus on (i) reaching out to potential timber, but policy and institutional structures regulat- clients to inform them about procedures, (ii) improving ing wood-based industries have not been able to contain the processing of certi�cation requests and (iii) ensuring the problem (FAO, 2010b). effective and independent audits. Federal-level changes in institutional structure sepa- rated forest conservation and production functions. 3.5.2 Malaysia e Ministry of Primary Industries was responsible for forestry and timber issues, until 2004, when the Framework of Policies, Laws, Regulations and Targets Ministry of Natural Resources and Environment Forestry is under the jurisdiction of the state govern- and the Ministry of Plantation Industries and ments – Peninsular Malaysia and the States of Sabah Commodities were formed. In 2004, the State of and Sarawak. e cornerstone of the National Forest Sarawak Forestry Department devolved powers to the Policy (1978, revised 1992) was the establishment of Sarawak Forestry Corporation, a government com- Permanent Forest Estate as the basis for achieving pany, for management of forest resources and timber SFM. e 1992 revision reflected concern over sus- administration. e Sarawak Forestry Department tainability, biodiversity and the role of local commu- role is limited to policy development and regulation nities while reducing focus on production, recogniz- (FAO, 2010b). ing the multiple roles of forests and encouragement of private sector investment in plantation establishment. Veri�cation e States of Sabah and Sarawak have their own for- In Peninsular Malaysia and the State of Sabah, the gov- estry policies. e State of Sabah has placed greater ernment has a central role in the control of forestry and emphasis on production and trade, with less focus on timber processing. In the State of Sarawak, concession biodiversity and community participation. e State of license holders bear a greater responsibility for demon- strating legal compliance. However, evidence indicates that licensed companies operating in the licensed har- 19. FSC Smallholder support program in Indonesia: http://www .fsc.org/smallholder-support.152.htm vesting areas are responsible for a large part of the illegal 20. FSC training of trainers in Asia: http://www.fsc.org/train-the- logging, estimated at 14% to 25% of timber production trainers-asia.392.htm (Lawson and MacFaul, 2010). 40 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Considerable differences exist between the states in for- In the State of Sabah, voluntary certi�cation is linked est control and monitoring procedures. ese differences to law enforcement procedures; in Peninsular Malaysia have an impact on policies, licensing and enforcement and the State of Sarawak they provide additional evi- procedures (Lounasvuori et al, 2009; Wells, 2008b). dence for compliance that authorities may take into In general, the control procedures for permanent for- account. est estate (PFE) and permanent reserved forest (PRF) are more comprehensive than those designed for alien- In Malaysia, voluntary and mandatory audits comple- ated or state lands, where land conversion is allowed. ment each other in the state-level monitoring frame- e Federal Forestry Department audits the monitor- work. e Federal Forestry Department performs ing procedures of the State Forestry Departments in annual SFM audits of state FMUs using Malaysian Peninsular Malaysia, but in the State of Sarawak the Timber Certi�cation Council (MTCC) procedures, monitoring is outsourced to the state-owned company and these mandatory and voluntary audits are mutually Sarawak Forestry Corporation Sdn. Bhd (SFC), which reinforcing (Wells, 2008b). controls planning and monitoring procedures through different business units. More detailed descriptions of veri�cation in each of Peninsular Malaysia and the States of Sabah and Malaysia introduced the ISO 9001 standard quality Sarawak are outlined in Annex 2, relating to Malaysia. management system to state-level forest administra- tion. Initially, the country proposed that certi�ed Malaysian Timber Legality Assurance System quality management covering the administrative pro- Malaysia and the European Union commenced formal cedures of state forestry departments would provide negotiations in September 2006 on the development of a adequate assurance of viable forest management to VPA under the EU FLEGT Action Plan. Malaysia has international markets. is turned out to be a false developed a TLAS to provide assurance that all logs, assumption that led to the development of manda- sawn timber, veneer and plywood licensed for export tory and voluntary veri�cation systems and combina- to the European Union under the VPA are produced tions of both. Composite and multiagency structures legally as de�ned in the TLAS and that all timber prod- responsible for monitoring make Malaysia a complex ucts of unknown or illegal origin are excluded. case (Wells, 2008b). Veri�cation audit alternatives include: In October 2008, an independent technical evaluation of the TLAS to test legality of timber and timber products Ⅲ Mandatory SFM audits of legality on license hold- licensed for export to the European Union under the ers by state authorities VPA and identi�ed weaknesses in implementation pro- Ⅲ Mandatory SFM audits of law enforcement of state cedures and capacity-building needs for implementation authorities by the federal government (Peninsular (Lounasvuori et al, 2009). e evaluation concluded Malaysia and the State of Sabah) that the TLAS control and implementation procedures Ⅲ Audits by accredited certi�cation bodies against were generally of a good standard, but the social and ISO 9001 standards voluntarily adopted by federal environmental issues were inadequately addressed or and state forest authorities absent. Issues for further development included: Ⅲ Audits by accredited certi�cation bodies against SFM and CoC standards (Malaysian C&I21 or Ⅲ Native and customary rights addressed the right interim FSC) adopted by state forest authorities to collect forest produce but gave no guidance on and individual licensees issues of land occupation rights. Ⅲ Workers’ safety and health were referenced, but no clear indication how compliance was to be deter- 21. Malaysia Criteria and Indicators (MC&I) for natural and mined and no requirement that linked compliance plantations forests are endorsed by the PEFC. with export licensing was given. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 41 Ⅲ Environmental legislation was included and re- for timber with incomplete information on origin. quired companies to make environmental impact Malaysian regulations on imports do not take prompt assessments and take actions that mitigated envi- actions when changes in regulations of exporting coun- ronmental degradation, but the circumstances and tries (e.g., Indonesian ban on export logs), creates a sit- the practices to be followed were not clearly de�ned. uation in which demand may encourage unauthorized exports. In addition, NGOs considered that TLAS inadequately addressed the rights of indigenous peoples and land e TLAS as described in 2008 veri�es the existence tenure rights, especially when the forest licensing pro- of timber import licenses for logs and custom declara- cedures and forestry legislation fail to take indigenous tion forms for sawnwood, plywood and veneer. It does people issues into account. Reflecting the state-level not describe how the different authorities, MTIB/ legislation, TLAS set different requirements for differ- STIDC, customs and the state forestry departments ent states and it did not make a consistent link between inspect the imported logs and processed timber prod- the legislation implemented in the forestry and timber ucts (Lounasvuori et al., 2009) to gain reliable evidence industry and the export licenses, which decreases the on legality. value of an export license in providing proof of legality. Forest Management and CoC Certi�cation e TLAS has since undergone further revisions and e National Timber Certi�cation Council of Malaysia improvement through joint expert meetings, working (including government, scientists, academics, timber groups and public consultations, the latest of which took trade organizations and associations, environmental place in July 2012. NGOs and the standards organization) was established in 1998 to develop and operate the MTCS. e scheme Control of Timber Imports to Malaysia has standards and procedures for certi�cation of natu- In general, imported round logs need to have an import ral and plantation forests and for CoC veri�cation. e license issued by the Malaysian Timber Industry Board certi�cation scheme for natural forests was endorsed by (MTIB) and a customs declaration. In the State of the PEFC in May 2009, and the MTCC applied for Sarawak, the license is issued by the Sarawak Timber endorsement for their certi�cation standard for sustain- Industry Development Corporation (STIDC). e ori- able management of plantation forests. gin of timber needs to be recognized in “good faith,� but Malaysian embassies in the export countries that e PEFC endorsement process brought changes to issue the certi�cate of origin do not have sufficient the MTCS scheme, and the MTCC gave a transition information to adequately assess legal compliance. No period for those FMUs already certi�ed to adopt the certi�cate of origin is required for small-dimension scheme revisions. At that time some areas were certi�ed sawn timber and other processed products to demon- according to the internationally endorsed MTCS- strate that the imported product is legally sourced in the PEFC procedures and some areas certi�ed by the for- country of export (Lounasvuori et al, 2009). mer MTCS procedures. Malaysia has free trade zones; for example, in the State e MTCS-PEFC standard for natural forests is appli- of Sarawak bordering Kalimantan, Indonesia. Small- cable for PRF only. In contrast, the standard for plan- dimension timber may enter the country through these tation forests is also applicable for PRFs and also for areas with a transit removal pass, and information con- forests on “state land,� gazetted for land development cerning origin is not requested. e STIDC licensing where forest conversion for other uses can be allowed. body for timber imports in the State of Sarawak has restricted the imports of sawn timber to �ve designated Before July 2008, MTCC played the role of govern- points of entry, which improves the control possibili- ing body and certi�cate issuing body; the auditing was ties (Wells, 2008b). Free trade zones provide a pathway carried out by third party assessors. After July 2008, 42 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.12 Forest and CoC certi�cation in Malaysia, February 2012 Forest Management Certi�cates CoC Certi�cates Certi�cation Body Type of Forest Ownership Area (ha) No No % FSC SCS 400,169 3 3 natural State 29 9 46, 433 3 3 plantation Private SGS Qualifor 55,139 1 Natural State 104 31 SmartWood Rainforest Alliance 11 3 SACoC 7 2 SQS 5 1 DNV 5 1 IC-CoC 1 – TT-CoC 1 – Sub-total FSC 501,751 7 163 49 MTCS-PEFC SGS Qualifor 2,711,657 4 Natural State 112 33 SIRM QAS 1,877,164 4 Natural State 52 16 Moody International 7 2 JGAIA 1 – SCS 1 – Sub-total MTCS-PEFC 4,588,821 8 173 51 Total 5,090,572 (40%) 15 336 100 Source: Authors’ compilation from http://www.fsc-info.org and http://register.pefc.cz/search1.asp; February 2012. the role of the certi�cate issuing body was taken over Before PEFC endorsement, the MTCS certi�cation by the certi�cation body, which carried out the audit. process was strongly controlled by the MTCC; there- e condition for PEFC endorsement in 2009 was to fore, the audits did not meet independent, third party revise the authorities and tasks in auditing and issuance certi�cation requirements. e forest management of a certi�cate to meet international standards set for and CoC certi�cates in Malaysia are summarized in independent third party certi�cation. Since February Table 3.12. 2011, all certi�ed FMUs have gained compliance with the PEFC-endorsed MTCS scheme through indepen- Malaysia has forest certi�cation over 5.1 million hect- dent and internationally recognized audit procedures.22 ares (40% of designated production forests), of which over 5 million hectares are natural forests and only Current independent audit procedures need to de- 46,433 hectares are forest plantations (3% of designated liver impartial statements on compliance. rough planted forests). Forest certi�cation is issued over- incorporating both audit approaches in state-level whelmingly to the state, 5 million hectares (99%) over monitoring, the forest departments can reduce man- the private sector (1%). In summary: datory ad hoc audits without risking reliability of monitoring. Compliance to PEFC or FSC require- Ⅲ MTCS-PEFC certi�ed, 4.6 million hectares, ments provides assurance that certi�cation proce- 100% natural forest, issued 100% to the state dures are impartial and meet international standards. Ⅲ FSC certi�ed 501,751 hectares, including 455,308 hectares of natural forests and 46,433 hectares of forest plantations, issued 91% to the state and 9% 22. PEFC: http://www.pefc.org to the private sector C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 43 Currently the eight MTCS-PEFC certificates and TABLE 3.13 Forest Managers Complying with FSC three of the seven FSC certificates are issued to state Controlled Wood Standards in Malaysia, March 2012 forest enterprises in Peninsular Malaysia. The State FSC Controlled Wood of Sabah has one MTCS-PEFC certificate and one Certi�cation Area (ha) No Type of Ownership FSC certificate for natural forests and one FSC cer- Body forest tificate for plantations. Two FMUs in Peninsular SmartWood 107,053 1 Natural Private Malaysia, a total area of 0.12 million hectares, have Rainforest Alliance both MTCS-PEFC and FSC forest management SCS 5,616 1 Plantation Private certificates. Total FSC 112,669 2 Controlled FSC approved a Standards Development Group of Wood Forest Sustainability Malaysia 23 to develop the FSC Source: Authors’ compilation; http://info.fsc.org/, March 2012. National Forest Management Standards for Malaysia in 2011. e process aims to complete a standard in line with the FSC Principles and Criteria and the International Generic Indicators in 2013 for implemen- tation in 2014. e forest management and CoC standards used in forest certi�cation in Malaysia are listed in Table 3.14. e Malaysian timber industry exports timber products to a broad range of countries in Europe and Asia, and the Malaysian forestry companies have also applied for interest in CoC certi�cation has been high. Currently VLO and legal compliance against the standards 173 timber companies have the PEFC CoC certi�cate24 detailed in Table 3.15. and 163 have the corresponding FSC CoC certi�cate25 (FSC Certi�cate Database). e high number of CoC Trends and Influence certi�cates is an indication of the interest to maintain Malaysia’s production of industrial roundwood peaked market share in forest products and in procuring certi- in 1990 at 50 million m3; thereafter reducing in 2000 �ed raw materials. to 22 million m3 and in 2005 to 27 million m3 (FAO, 2010a). Because the installed capacity exceeded the In 2011, Malaysia exported 6,000 to 7,000 m 3 of raw material supply, imports have been important to certi�ed forest products per month, including sawn Malaysia. Trends in forest products include industrial timber, moldings, laminated �nger-jointed timber roundwood in 1990 at 294,000 m3, in 2000 at 758,000 and plywood to 22 countries, mainly to European m3 and in 2005 at 80,000 m3; sawnwood in 1990 countries that pay premiums (2%–4%) for the assur- at 28,000 m3, in 2000 at 488,000 m3 and in 2005 at ance. e interest in FSC controlled wood shows an 1.1  million m3; wood-based panels in 1990 at 60,000 elementary level of entry toward achieving legality m3, in 2000 at 189,000 m3 and in 2005 at 400,000 m3; of harvesting, an interim step toward forest certi- and paper and paperboard products in 1990 at 612,000 �cation. Natural forests account for 107,053 hect- tons, in 2000 at 1 million tons and in 2005 at 2.2 mil- ares (95%) and forest plantations 5616  hectares (5%) lion tons (FAO, 2009c). of Controlled Wood Standards. Private companies account for 100% of Controlled Wood Standards, as In 2000, imports, by proportion of value, were sourced detailed in Table 3.13. from ASEAN countries: Japan, 30%; the United States, 15%; the Republic of Korea, 4%; New Zealand, 3%; and the European Union and China, 2% each. In 2009, the 23. Forest Sustainability Malaysia: http://www.forestsustainability.org proportion from ASEAN countries, the Republic of 24. PEFC: http://www.pefc.org, December 2011. Korea and New Zealand remained similar at 29%, 4% 25. Global FSC Certi�cates: Type and Distribution, March 2012: and 2%, respectively. Increases included EU countries http://www.fsc-info.org to 14% and China to 8% but decreases to the United 44 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.14 Forest Certi�cation Standards Implemented in Malaysia, March 2012 Standard Scheme Owner Forest Management FSC FCP Interim Standard For Forest Management Certi�cation in Malaysia Under the FSC Version SCS 4-1 (2010) SGS Qualifor. Forest Management Generic Standard. State of Sabah, Malaysia (2010) SGS PEFC-MTCS Malaysian Criteria and Indicators for Forest Management Certi�cation (MC&I, 2002) MTCC PEFC-MTCS 26 MC&I for Forest Management Certi�cation (Forest Plantations) MTCC Chain of Custody FSC CoC Ⅲ CoC standard for companies supplying and manufacturing FSC certi�ed products (FSC STD FSC 40-004) Ⅲ Standard for company evaluation of FSC controlled wood (FSC STD 40-005) Ⅲ FSC standard for forest management enterprises supplying non–FSC certi�ed controlled wood (FSC STD 300-10) Ⅲ Sourcing reclaimed material (FSC STD 40-007) Ⅲ Multisite site CoC certi�cation (FSC STD 40-003 V1-0) PEFC CoC of Forest-Based Products (PEFC ST 2002:2010) from 26 November 2011 PEFC Council Source: Authors’ compilation from FSC, PEFC, MTCS databases, March 2012. 26. MTCC obtained PEFC endorsement for forest plantation standards in 2011. States to 6% and Japan to 5%.27 ese demonstrate reflect their flexibility with respect to proof of legality mixed messages regarding legality and sustainability. and sustainability. Heavy dependence of imports from ASEAN countries and increasingly China may reflect leniency on legal- e State of Sabah, Malaysia has set the target of 2014 ity and sustainability, but increases from the European to have forest certi�cation and CoC certi�cation for all Union reflect a stronger commitment to legality and long-term forest concession licenses as a response to sustainability. In 2000, Malaysia’s forest products exports, in or- TABLE 3.15 Voluntary Legality Veri�cation Systems der of value, were Japan, 36%, China, 20%, the Implemented in Malaysia, March 2012 European Union, 16%, ASEAN countries, 9%, the Scheme Standard Owner Republic of Korea, 8% and the United States, 6%. In Smart SmartWood Rainforest Alliance SmartWood Wood Standard for VLO in State of Sabah, Rainforest 2009, exports from Japan had reduced to 22%, China Malaysia: SmartWood Rainforest Alliance to 7%, the European Union to 7% and the United Alliance document code VER-06 (2010) States to 2%. e Republic of Korea remained simi- SmartWood Rainforest Alliance lar at 9%, but increased exports were to India 20% Standard for VLC in State of Sabah, Malaysia and to ASEAN countries 14%. Exports to ASEAN GFS Global Forestry Services Inc. Legal GFS countries remained similar, at 9%. e reduction of Veri�cation Services. Generic forest products trade with EU countries, Japan and requirements to de�ne legal compliance with national regulations the United States may reflect their greater demand for include requirements for legal proof of legality and sustainability, which Malaysia origin incl. the following elements cannot yet demonstrate for a critical mass. e in- (2009): Forest Concession Use Rights; Traceability & Identi�cation creased exports to India and ASEAN countries may of Material; Legal Requirements of Operation; Harvest Planning Source: Authors’ compilation, March 2012. 27. FAOStat Forest Products Statistics. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 45 public procurement policies and green building policies land and “state land.� Restrictions on certifying planta- of markets around the world. Forest certi�cation of state tions established on lands cleared from natural vegeta- enterprises has bene�ted from government funding. tion limit the expansion of certi�ed forest plantations. As a result, about half of Malaysian production forests However, the potential exists to have plantations on are under forest certi�cation, in most part, natural for- degraded lands or former agricultural lands that will be ests, managed by the state. However, only 3% of planted eligible for certi�cation. forests are certi�ed to date. In general strong commit- ment has been given to CoC certi�cation; however, a In terms of VLO, an area of 11.80 million hectares of high proportion remains held by traders, importers forest land remains that could potentially be veri�ed for and retailers rather than producers or forest industries legality of timber; these areas would include 2.30 mil- processors. International commercial banks funding lion hectares of state land forests that are earmarked for forestry projects in Malaysia require forest and CoC non-permanent forestry uses. certi�cation; however, national banks, many with gov- ernment majority shareholdings, do not. Malaysia is challenged by outstanding issues related to applying a legally binding agreement nation-wide Control of corruption and government effectiveness are (particularly in the State of Sarawak) and engaging in considered to have improved in Malaysia over the past stakeholder consultation in transparent processes.28 e 10 years; however, the rule of law has remained much EU requirements for review of the TLAS, the approval the same. Certi�cation is only one of the pillars catalyz- of the new EUTR and Indonesia signing a VPA with the ing these improvements in forest governance. e EU European Union has created concerns in Malaysia that FLEGT process for TLAS and VPA is getting serious the timber industry will lose exports to the European attention at federal and state levels (FAO, 2010b). Union unless issues are resolved. Even the logging in- dustry in the State of Sarawak, which was adamant Potential for Certi�cation, Veri�cation and NTLAs/VPAs about not signing a VPA with the European Union, is Potential exists to certify an additional 6.9 million hect- changing its stance. A VPA cannot be concluded with ares of natural production forests within the PRF and the European Union until particularly the State of thus increase the area of certi�ed natural forests by Sarawak addresses native customary rights and forestry 140%. is �gure is based on the uncerti�ed share of sector transparency issues. e Malaysian government PFEs classi�ed as production forests. e natural for- has been challenged to adopt a more inclusive partici- ests of Peninsular Malaysia are largely already certi�ed patory, multi-stakeholder process and to seriously ad- or will be certi�ed in the near future with government dress governance in the State of Sarawak. Negotiations �nancing. e certi�cation rate is very low in the States to conclude a VPA with the European Union have some of Sabah and Sarawak. Several concessionaires in these way to go. states have started the FSC certi�cation process, but few have been issued a certi�cate. Forest certi�cation 3.5.3 Vietnam would have the greatest impact in the State of Sarawak, where harvesting rights are given to private concession- Framework of Policies, Laws, Regulations and Targets aires and where the regulatory framework is the most e framework has changed signi�cantly since the new liberal. e State of Sarawak, with its abundant forest economic mechanism and adoption of free market prin- resources, has become the focal state for timber produc- ciples from 1986. Particularly during the last two de- tion, with 6 million hectares of natural forests gazetted cades, state forest enterprises have been reorganized and for forestry use. forest ownership and land-use rights have seen a growth in forest growing and forest products exports. Forests are e government is promoting forest plantation es- tablishment with tax exemptions and other �nancial incentives to the private sector to establish plantations 28. EU Forest Watch FLEGT-VPA Special Issue, November 2011: on alienated lands, such as on abandoned agricultural http://www.fern.org 46 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A classi�ed into conservation, protection and production. Vietnam has procedures to control the legality of imported Legislation was introduced to allocate land-use rights to timber. Custom authorities require log lists, invoices and companies, households and individuals for sustainable landing bills, and they check the log codes (or hammer forest production, conservation and protection. Since marks). However, the trade regulations do not ensure an 1998, the Five Million Hectare Reforestation Program efficient legality control of imported timber. e cur- has contributed signi�cantly to restoring national for- rent enforcement mechanisms are accessible to authori- ests however forest degradation remains a challenge ties, but private sector timber processors or traders do not (FAO, 2010b). have the mandate to inquire into the legal compliance of the timber. Existing regulations include guidelines Forest policies, laws and regulations encourage de- for veri�cation of legality of timber origin (Government centralization and greater participation – from public Regulation No. 44, 2006); veri�cation of harvested tim- to more people’s and private sector forestry, improved ber (Government Decision No. 40, 2005); and veri�ca- forest protection, increased plantation and agroforestry tion of transported timber (Government Decision No. establishment (particularly smallholders) and increased 59, 2005). ese, together with regulated procedures to wood processing for domestic and export markets. conform to the set harvesting quotas, the supervision of Protection of existing natural forests, greening areas harvesting planning, implementation and post-harvest of degraded lands, planting of production forests and activities, set a framework for law enforcement. sustainable use of forest resources is expected to increase the importance of forestry as an economic sector, while However, law enforcement controls do not system- contributing to income generation, livelihood improve- atically cover the different stages of the supply chain, ment and poverty reduction. although a range of documentation requirements, such as transport and invoices, could potentially form the e Vietnam Forest Protection and Development Law, basis for such a system. Existing control elements are 2004, provides for reform of state enterprises, reclassi�- also governed by different authorities, depending on the cation of forests, allocation of forest land to households stage of the supply chain (Proforest, 2009). However, and other organizations and forest protection and re- the existing elements provide a good basis for further forestation/afforestation. In 1999, Decree No 163/1999/ strengthening legal assurance veri�cation (e.g., under NZ-CP provided guidance for allocation and leasing of the FLEGT process. forest land to companies, households and individuals for forest management purposes (FAO, 2010b). Imports of illegal timber have trebled between 2000 and 2007, now estimated at 17% of total timber imports due e Vietnam Forestry Development Strategy 2006– to the de�cit in raw material supplies for forest industries. 2020, approved in 2007 highlighted �ve key programs: Illegal imports from Indonesia have decreased but are SFM and development; forest protection and biodiver- offset by increased imports from Cambodia, Lao PDR, sity conservation; forest product processing and trade; Malaysia, Myanmar and the Republic of Congo. Most research, education, training and forestry extension; imported wood is re-exported after processing (Lawson and renovating forest sector institutions, policy, plan- & MacFaul, 2010). ning and monitoring. e import of timber products from actual and po- Veri�cation tential VPA partner countries is considerable, which Legislation and procedures for controlling national has implications on the import controls when the timber production and targets for incorporating the VPA agreements signed in the countries exporting national regulations in a legality assurance system exist to Vietnam (e.g., the Republic of Congo, Cameroon, to address tenure rights, harvesting, processing, import Indonesia and ultimately, Malaysia). When Vietnam and export, statutory fees, and environmental and social proceeds with the VPA negotiations with the European regulations. e planned structure is in line with the Union, it will also make commitments to control the EU expectations of the legality de�nition. imports of illegal timber. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 47 TABLE 3.16: Forest and CoC Certi�cation in Vietnam, February 2012 FSC Forest Management certi�cates FSC CoC certi�cates Certi�cation body Type of forest Manager Area (ha) No No % SGS Qualifor 9,777 1 Plantation Private (foreign) 187 69 SmartWood Rainforest Alliance 10,175 1 Plantation State 46 17 GFA Certi�cation 9,761 2 Plantation Private (group) 2 1 CU Certi�cations 11,696 1 Plantation Private (group) 19 7 BV Certi�cation 8 3 LGA InterCert GMbH (IC) 4 1 Tüv Süd (TSUD) 6 2 Total 41,409 (0.6%) 5 272 100 Source: Authors’ compilation from http://www.fsc-info.org/; February 2012. e ability to assure markets that the source of imported negotiations for a FLEGT VPA and hope to conclude timber is legal will be a crucial issue for the Vietnamese the negotiations by the end of 2012. However, Vietnam timber industry, especially for the furniture industry has not yet developed a timber legality standard that exporting to the United States and European Union. would set the basis for VLC, for example, for FLEGT Vietnamese authorities recently recognized the im- licenses. Vietnam is a member of the ASEAN working portance of developing mechanisms to verify the legal group on forests that has de�ned the guiding legality source of timber imports, thus allowing Vietnamese standard for member countries. producers to meet the new market requirements. Concern exists among producers that additional veri- Forest Management and Chain of Custody Certi�cation �cation will increase the timber prices and production Table 3.16 summarizes forest and CoC certi�cation in costs, which could restrict small timber-processing Vietnam. Voluntary forest certi�cation is in its early companies from competing on international markets. stages of development in Vietnam, with no natural for- Increasingly, Vietnamese exporters, particularly to the ests certi�ed. Five forest plantation areas in the country United States and European Union, are already facing are certi�ed, covering only 41,409 ha. e certi�ed for- requirements to demonstrate legality and sustainability est is only 0.6% of production forest and 1.2% of planted of forest products imports, domestic production, wood forest area. According to area certi�ed, certi�cate hold- processing and export trade through veri�cation and ers are state, 25%; private (foreign), 24%; and private certi�cation (Proforest, 2009). (group) 51%. e forestry strategy has an optimistic target to achieve 30% of forest production certi�ed by e majority of timber products exported to the United 2020. Currently only 2.7% of production (102,000 m3) States, European Union and Japan are furniture items, is certi�ed.29 and some retailers have already introduced responsible purchasing policies. Such retailers include B&Q , IKEA, e number of FSC CoC certi�cates issued has al- Walmart, Home Depot, Castorama, Carrefour, and most doubled during the past four years, to 272 in ScanCom. Many of them have adopted a stepwise ap- February 2012, of which SGS issued 69%, SmartWood proach to gradually eliminate timber of suspect legality Rainforest Alliance 17% and Control Union 7%. Seven and sustainability and to increase the proportion of certi- different international forest certi�cation bodies un- �ed timber. e minimum entry level is that timber is from dertake CoC certi�cation assessments in Vietnam. At a known legal source, but certi�cation may be required in December 2011, 3 PEFC CoC certi�cates were issued high-risk instances, such as tropical hardwood products. in Vietnam. e rapid growth in CoC certi�cates in e Ministry of Agriculture and Rural Development 29. Source: Data from Quy Nhon Plantation Forest Company of (MARD) and the EU Commission have started formal Vietnam Ltd. 48 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.17 Forest Managers Complying with FSC TABLE 3.18 Forest and CoC Certi�cation Standards Controlled Wood Standards in Vietnam, March 2012 Implemented in Vietnam, March 2012 FSC Controlled Wood Scheme Standard Forest Management Owner Area Type of FSC SmartWood Rainforest Alliance SmartWood Certi�cation Body (ha) No forest Ownership interim standard for Assessing Rainforest Forest Management in Vietnam Alliance GFA Consulting Group 16,318 1 Plantation Private (Ver. 1 June 2010) GmbH FSC GFA Generic FM Standard, adapted GFA Total FSC Controlled 16,318 1 for Socialist Republic of Vietnam, Wood Version 1.0 Source: Authors’ compilation; http://info.fsc.org/, March 2012. FSC SGS Qualifor Forest management SGS standard for Vietnam (2010) Chain of Custody Vietnam reflects a recent interest to demonstrate sus- FSC FSC Standard for CoC Certi�cation FSC tainability to buyers. (FSC STD 40-004 V2-0) Standard for Company Evaluation As shown in Table 3.17, the interest in FSC controlled of FSC controlled wood (FSC STD 40-005 V2-0) wood shows an elementary level of entry toward achiev- Standard for Multi-site Certi�cation ing legality of harvesting, an interim step toward forest of CoC Operations (FSC STD 40-003 certi�cation. V1-0) Source: Authors’ compilation; http://info.fsc.org/, March 2012. Interest toward forest management certi�cation is increasing, which reflects the market demands in export countries for certi�ed timber products. Eight forest (FAO, 2010a). Dependence on wood production from enterprises managing natural forests are preparing for forest plantations has been increasing, but most indus- FSC forest certi�cation under an internationally �nanced trial roundwood for the wood industry is imported. In project. ese projects, supported by the Deutsche 2000, imports based upon value were from ASEAN Gesellschaft für Internationale Zusammenarbeit (GIZ), countries, 41% (Indonesia, Singapore); EU countries, WWF or government, account for 129,000 hectares of 13%; Japan, 10%; United States, 9%; New Zealand, 8%; natural forests, ranging from 9,000 to 27,000 hectares and China, 6%. In 2009, ASEAN countries remained at each. In planted forests, �ve forest companies plan to a similar level, 39%; the United States increased to 15%; apply for a certi�cate. e forest area covers 50,000 hect- China and the Republic of Korea doubled to 13% and ares, ranging from 5,000 to 20,000 hectares. In addi- 6%, respectively; and Japan and New Zealand reduced tion, groups of small plantation holders are preparing for to 6% and 5%, respectively.30 e heavy dependence on group certi�cation with the assistance of international forest products imports from ASEAN countries, China project funding. e total area of smallholder groups is and the Republic of Korea may reflect their greater leni- 30,000 hectares (MARD, 2007). When the certi�cation ency in legality and sustainability. of these planned areas is completed, the production of certi�ed timber may reach up to 0.7 million m3/year. In 2000, Vietnam forest products exports, in order of value, were China, 16%; Japan, 8%; ASEAN countries, e forest plantations are certi�ed against the Interim 1%; and the European Union and United States, negli- FSC standards, as detailed in Table 3.18. gible and “others,� 73%. In 2009, China increased to 22%, the Republic of Korea to 13%, ASEAN countries to 9%, A national FSC working group is developing a national the United States to 7% and India to 2%. Japan reduced forest management standard. to 3% and EU countries remained negligible.31 e negli- gible forest products trade with EU countries and reduced Trends and Influence Industrial roundwood production in 1990 was 3.4 million 30. FAOStat, Forest Products Statistics. m3; in 2000, 2.4 million m3; and in 2005, 2.7 million m3 31. FAOStat Forest Products Statistics. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 49 exports to Japan may reflect their greater demand for proof been developed for this, and therefore this target seems of legality and sustainability, because Vietnam does not optimistic. State enterprises managing 27.3% of pro- yet have the critical mass of certi�cation and veri�cation. duction forests have the greatest potential to increase e increased exports to China, ASEAN countries, the the certi�ed area, the theoretical upper limit consisting Republic of Korea and India may reflect their more lenient of 2.3 million hectares. Private companies managing requirements for proof of legality and sustainability. 1.3% of the forests could theoretically increase the cer- ti�ed area by 100,000 hectares, which is 2.5 times the e National Forest Development Strategy (2006–2020), current level. Individual households manage 37.1% of sets an optimistic target of achieving 30% of production production forests (3.2 million ha), but only two group meeting C&I and quali�ed for certi�cation. Achievements certi�cations have been issued to this type of applicant, to date have been modest. A national standard of SFM making large-scale certi�cation unlikely. has not yet been completed to outline the principles, crite- ria, indicators and veri�ers, although an Institute of SFM A large number of CoC certi�cates and increasing mar- has been established. Expertise, technology and knowl- ket requirements from importing countries will keep edge remain a constraint, relying heavily on external tech- the certi�cation of SFM on the agenda. Direct market nical and �nancial assistance because the standards and or �scal incentives are needed, as well as external sup- costs for certi�cation remain high. Land boundary issues, port, before state forest enterprises or private households precluding forest owners from obtaining a legal land-use take large-scale initiatives in voluntary certi�cation. In right certi�cate (Red Book) and compliance with trans- parallel, the capacity of certi�cation bodies should be parency in �nancial management, have proven signi�cant further strengthened to accommodate any potential constraints to achieving SFM certi�cation. increase in the demand for SFM and CoC certi�cates. Nonetheless, the recent launching of FLEGT-VPA Forest certi�cation has not had a signi�cant impact on negotiations with the European Union will shift the forest management in Vietnam because no natural for- focus and resources from voluntary certi�cation to the ests are certi�ed and only �ve forest plantations, totaling development of national legality veri�cation systems. 0.6% of production forest area, were recently certi�ed. However, interest has been shown to expand both natu- ral and forest plantation certi�cation. Commitment to 3.5.4 Thailand CoC certi�cation is the highest in the case study coun- tries, but because most have been issued very recently, it Framework of Policies, Laws, Regulations and Targets is too soon to ascertain impact. National banks do not e �rst National Forest Policy (1985) was based on require forest or CoC certi�cation for providing fund- the principles of SFM and environmental protection. ing to forestry projects. Agricultural intensi�cation, provincial land-use plan- ning, control of shifting cultivation, forest �res and Over the last decade, Vietnam has been rated as having land clearing by ethnic minorities were focus areas to remained much the same in regard to control of corrup- reduce forest conversions. Harmonized public and pri- tion but has made major improvements in rule of law vate sector management of forests and reforestation for and government effectiveness. However, because most industrial roundwood production and protection were certi�cation was very recent, this has had little impact. priorities. e forest cover target is 40%, of which 25% Certi�cation, FLEGT and REDD-plus programs will is for protection and 15% for production (FAO, 2010b). support continued improvements in forest governance (FAO, 2010b). In 2002, the forest-related policy, legislation and institutional frameworks distinguished protection and Potential for Certi�cation, Veri�cation and NTLAs/VPAs production. e Royal Forest Department (RFD) is e target to achieve 30% of production forest quali- now responsible for forests outside protected areas; the �ed for certi�cation equates to an estimated 2.5 mil- conservation and protected areas by the National Park, lion hectares by 2020. However, no action plan has Wildlife and Plant Conservation Department and the 50 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A coastal mangroves by the Department of Marine and of natural forests. Consequently, the incidence of illegal Coastal Resources. Decentralization and public partici- logging in natural forests has recently increased. pation in policy, planning and management of natural resources have been limited. After the coup d’état in According to the current control system, timber suppliers 2006, the constitution was drafted to promote public and processors must be able to demonstrate the legal ori- participation in environmental conservation and sus- gin of any timber and timber product. Processors also need tainable natural resources use. to keep an account of timber stocks on site and to prevent any timber without appropriate evidence of legality from e ailand 1941 Forest Act, amended in 1948 and being mixed into the stock. Government authorities have 1982, originally focused on provisions for extraction the mandate to perform regular checks in timber procure- and transportation of forest resources, although amend- ment, transport and processing sites. Evidence of legal ments progressively reflected the growing necessity for origin is also required for imported timber. e Customs forest conservation. A logging ban was introduced in Department controls timber imports and exports, whereas 1989. Opposition has existed between conservation- the RFD controls domestic timber production. e current oriented and people-oriented groups, because more than control system is paper based and does not provide fully re- 1 million households live within national parks, wildlife liable, up-to-date data for tracing timber at the point of sanctuaries and national forest reserve lands, considered export or processing. e RFD is developing a digital, bar- illegal by law. e Community Forestry Bill, introduced code monitoring system that will provide a better basis for by the RFD in 1991 to allow involvement of local com- reliable legality veri�cation. e digital system will allow munities in managing forests in and around national closer cooperation between the Customs Department and reserves was controversial and was approved in 2007, but RFD in preventing illegal timber imports and exports. awaits royal approval before enactment. e Bill does ailand is making preparations and seeking a domestic not provide full resource-use rights to forest-dependent consensus to start VPA negotiations with the European people. Illegal logging is still frequently reported, and Union. conflicts between authorities, villagers and civil society organizations and environmental and social NGOs are Forest Management and Chain of Custody Certi�cation widespread (FAO, 2010b). ailand is part of the ASEAN framework for tim- ber legality, which de�ned the general criteria and Veri�cation indicators for legal timber in 2009 and aims at a phased Legally produced timber can be sourced only from approach for timber certi�cation for sustainability by forest, agricultural and rubber plantations planted on 2015. e �rst forest plantation was certi�ed in 2006. private or permitted degraded land. Any timber origi- Certi�cation in ailand is detailed in Table 3.19. nating from natural forests is illegal because of the log- ging ban. During the ban, forest legislation has not been An FSC forest management certi�cate has been updated to tackle the current forms of unauthorized use issued to six forest plantation units covering an area of TABLE 3.19 Forest and CoC Certi�cation in Thailand, February 2012 FSC Forest Management Certi�cates FSC CoC Certi�cates Type of Certi�cation Body ha No Forest Manager No % SGS Qualifor 11,134 5 Plantation Private (group) 24 63 SmartWood Rainforest Alliance 11,360 1 Plantation State company 3 8 BV 10 26 SQS 1 3 Total 22,494 (0.6%) 6 38 100 Source: Authors’ compilation from http://www.fsc-info.org; February 2012. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 51 22,494 hectares, 50% to state enterprise and 50% to pri- TABLE 3.20 Forest Certi�cation Standards Implemented vate (group). at is only 0.6% of the total forest plan- in Thailand, February 2012 tation area. Five certi�cations are group certi�cations Scheme Standard Owner of smallholders producing rubber, wood or eucalyptus Forest Management on small farms ranging from 1 to 100 hectares. Two of 4. FSC SGS Qualifor. Forest management SGS the group certi�cations are organized by Siam Forestry standard for Thailand AD33-02 (2010) Co Ltd and one by Metro MDF. SGS and SmartWood 5. FSC SmartWood Rainforest Alliance SmartWood Interim Standard for Assessing Forest Rainforest Rainforest Alliance are the predominant forest certi�ca- Management in Thailand (FM-32- Alliance tion bodies and SGS and BV for CoC Certi�cation. e Thailand, 2008) Rainforest Alliance developed the Forest Management Chain of Custody Standard for ailand in 2008. SmartWood Rainforest 6. FSC CoC standard for companies supplying FSC and manufacturing FSC certi�ed Alliance certi�cates are issued to this standard. products (FSC STD 40-004) Standard for company evaluation of Also, the state enterprise Forest Industry Organization FSC controlled wood (FSC STD 40-005) (FIO), has been under the Rainforest Alliance’s Source: Authors’ compilation from http://www.fsc-info.org; SmartWood Program (SmartStep for Forest Operations) February 2012; and Rainforest Alliance, 2008. since 2008, and the 11,360 hectares of plantation teak in Northern ailand have been audited. e FIO man- ages 86,493 hectares of plantation teak and plans ulti- States reduced to 8%.32 ailand has a heavy dependence mately to achieve a forest management certi�cate for the on forest products imports from ASEAN countries and total area. China, which currently do not have mechanisms suffi- ciently in place to demonstrate legality and sustainability. ere were no instances of FSC controlled wood in Insufficient information was available on the level of do- ailand. mestic market forest products trade, but certi�cation and veri�cation are currently not critical requirements. ailand has 38 FSC and 7 PEFC CoC certi�cates, which is extremely low and reflects the general low level In 2000, ailand’s forest products exports, in order of in the production of certi�ed timber. Due to the high value, were to China, 48%; ASEAN countries, 10%; number of developed private timber-processing and the European Union, 10%; the Republic of Korea, 8%; exporting companies, considerable potential exists to the United Sates, 6%; Japan, 4%; and Australia, 4%. In increase CoC certi�cation in the country, and the poli- 2009, China had reduced to 29%, the European Union cies to strengthen the legality veri�cation will encourage to 2%, the United States to 1%, Australia to 2%, and companies to apply for a CoC certi�cate. Japan to almost zero. e Republic of Korea remained similar at 9%, but exports to ASEAN countries nearly e forest and CoC standards used in ailand are trebled to 28% (mainly Vietnam). e reduction of for- detailed in Table 3.20. est products trade with EU countries, the United States, Japan and Australia may reflect their greater demand for Trends and Influence proof of legality and sustainability, which ailand can- Industrial roundwood production in 1990 was 176,000 m3; not yet demonstrate. e increased exports to ASEAN in 2000, 45,000 m3; and in 2005, 11,000 m3. Dependence countries and maintenance of exports to the Republic of on production from forest plantations and forest products Korea may reflect their greater lenience in requirements imports has been increasing (FAO, 2010a). In 2000, im- for proof of legality and sustainability. ports, based upon value, were from the United States, 11%; ASEAN countries, 7%; Japan, 7%; and Canada, Because past commitment to forest or CoC certi�cation 5%. In 2009, the proportion of ASEAN countries more has been limited, little or no impact on sustainability than quadrupled to 31% and Japan increased to 10%, China to 9% and Canada to 7%, whereas the United 32. FAOStat Forest Products Statistics. 52 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A and/or legality of forest management or forest prod- been slow. However, a study for understanding tim- ucts has been seen. In this instance, investors in forests ber flows in ailand and their control by ailand’s and forest industries in ailand will not have access timber tracking systems is being undertaken as a pre- to funds from international commercial banks that liminary step on rubber wood products, pulp and paper require independent, third party certi�cation; however, species (primarily eucalyptus species), products pro- national banks have more lenient sustainability and cessed from imported timber from a non-VPA country legality conditions. in the Mekong region (e.g., Lao PDR or Cambodia) and products processed from another country (e.g., Over the past decade, ailand has been rated to Malaysia). have deteriorated in control of corruption and rule of law, but remained static on government effectiveness. Certi�cation will have little or no impact on forest gov- 3.5.5 Lao PDR ernance at this time (FAO, 2010b). Framework of Policies, Laws, Regulations and Targets Potential for Certi�cation, Veri�cation and NTLAs / VPAs e Forestry Strategy 2020, endorsed by the govern- Considerable potential exists to expand voluntary forest ment in 2005 aims to balance multiple objectives in and CoC certi�cation in ailand. Due to the logging forest management. e priorities were to provide a ban on natural forests, interest in certi�cation is focused sustainable flow of forest products and livelihoods; pro- on forest plantations. However, companies are not willing mote regeneration, reforestation and afforestation in to invest in certi�cation if it is not supported by the gov- natural and planted forests; and provide ecosystem ser- ernment or timber-processing industry. Smallholder plan- vices (e.g., soil, water, carbon, biodiversity, recreation). tations and agroforestry production on private farms are typical in ailand, which raises the need for group certi�- Land-use planning, village-based natural resource cations to produce substantial amounts of certi�ed timber. management, sustainable harvesting, rationalization Such certi�cations have been successfully implemented of the wood-processing industry, tree planting, law in ailand, but they need good organization and com- enforcement and participation to prevent unauthorized mitment on the part of the parties taking the initiative. activities and protection of watersheds are focus areas. Currently, 7,000 smallholders are participating in group ere is a shift toward achieving more community- and certi�cation schemes, but the potential for eucalyptus people-centered developments in an attempt to attain plantations alone is 20,000  farmers. e forest industry and maintain 70% forest cover (FAO, 2010b). recognizes the need to provide evidence of legal compli- ance and sustainable management to the international e Forest Law (2007) designates forest land accord- markets. In addition to the locally produced plantation ing to production, conservation or protection functions. wood, legal compliance is urgently needed for imported Timber harvesting is allowed only in production forests. timber originating from the natural forests of the neigh- Planted forests may be established only on fallow land. boring countries Lao PDR, Myanmar and Cambodia. Forest land also may be allocated to villages as village conservation forest and village utility forests. Villages In summary, potential exists to increase the supply of are given permits to harvest, for example, construction certi�ed timber from forest plantations, but not to pro- wood from the village utility forests. duce certi�ed timber from natural forests. To facilitate this potential expansion in certi�ed timber, the capac- Lack of consensus exists on the current forest cover levels ity of ailand’s certi�cation bodies should be further because of different de�nitions for forest. According to strengthened to ensure efficient and effective processing Lao PDR country reporting to FRA 2000, forest cover and auditing procedures. was 54%; FRA 2005, 69.9% (backdated 2000 �gure adjusted to 71.6%); and the FRA 2010, reported 68%. ailand is struggling with requirements for de�n- However, the Forestry Strategy 2020 used 41.5% forest ing legality and preparing a TLAS, so progress has cover. e scale of these variations is very signi�cant C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 53 TABLE 3.21 Forest and CoC Certi�cation in Lao PDR, March 2012 FSC Forest Management Certi�cates FSC CoC Certi�cates Type of Certi�cation Body Area (ha) No Forest Ownership No % SW Rainforest Alliance 82,760 1 Natural State or village 13 87 group GFA Consulting GmbH 86 1 Plantation Private group BV Certi�cation 2 13 Total 82,846 (2%) 2 15 100 Source: Authors’ compilation from http://www.fsc-info.org; March 2012. when establishing the baseline for reducing deforesta- project) and less than 1% in forest plantations, issued tion and forest degradation (FAO, 2010b). to private groups. Two forest plantation companies are undergoing preliminary certi�cation procedures Veri�cation in Lao PDR (Oji Lao Plantation Forest Co Ltd and PM Decree 59/2002 on Sustainable Management of Stora Enso). Production Forests sets the basic principles for estab- lishment and management of Production Forest Areas Table 3.22 details forest managers complying with FSC (PFAs), but forest management planning lags behind Controlled Wood Standards in Lao PDR. and leads to uncontrolled forest use. e Ministry of Agriculture and Forestry and Prime Minister’s Office e forest and CoC standards used in Lao PDR are have the overall control on forest management planning. summarized in Table 3.23. ey work in cooperation with local authorities on �eld surveys and monitoring. Village Forestry Organizations Trends and Influence organize villagers to participate in implementation of Industrial roundwood production in 1990 was 477,000 forest management activities based on an agreement m3; in 2000, 682,000 m3; and in 2005, 292,000 m3 with villagers and District FMUs. (FAO, 2010a). e installed capacity of the forest industry exceeds raw material supply so the pressure Lao PDR does not have a legality standard that could be for illegal logging and unsustainable harvest is high, used to monitor legal compliance. because forest resources are increasingly being desig- nated as protected areas and deforestation from com- Forest Management and Chain of Custody Certi�cation mercial agriculture, hydroelectricity production, new Two FSC forest management certi�cates cover 82,846 economic zones and shifting cultivation continue. e hectares of village-based forest management of natural government’s aim is to increase industrial roundwood forests, and one FSC forest management certi�cate cov- production from forest plantations in the future, but ers 86 hectares of teak plantation in a private smallholder group. Fifteen CoC certi�cates are held. e certi�ca- TABLE 3.22 Forest Managers Complying with FSC tion has been done with the support of the World Bank– Controlled Wood Standards in Lao PDR, March 2012 �nanced Sustainable Forestry and Rural Development FSC Controlled Wood (SUFORD) project. Despite the high export volumes Area Type of of timber and timber products, the number of timber- Certi�cation Body ( ha) No forest Ownership processing companies with CoC certi�cates remains SmartWood Rainforest 239,529 2 Natural State low. Table 3.21 summarizes these details. Alliance Total FSC Controlled 239,529 2 Wood Lao PDR has about 2% of production forests FSC certi- Source: Authors’ compilation from http://www.fsc-info.org; �ed, of which more than 99% is in natural forest, issued March 2012. to state or village groups (supported by the SUFORD 54 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Lao PDR has a low level of forest and CoC certi�ca- TABLE 3.23 Forest and CoC Certi�cation Standards Implemented in Lao PDR, March 2012 tions, almost entirely on natural forests issued to state Standard Owner or village groups (supported by the SUFORD project). Scheme Forest Management Nationally the impact may not be large, but as a model, 7. FSC SmartWood Rainforest SmartWood it has been important by demonstrating to the gov- Alliance Interim Standard Rainforest for Assessing Forest Alliance ernment and other communities how they can work Management in Lao PDR. together toward sustainability and legality of forest FM-32 (2008) management and forest products trade. At this stage, 8. FSC FSC STD 01-003 SLIMF. In Teak no major impact has been seen on commercial activities. Eligibility Criteria plantations Chain of Custody Over the past decade, Lao PDR is considered to have 9. FSC CoC standard for FSC companies supplying and deteriorated in control of corruption and government manufacturing FSC certi�ed effectiveness and remained static on rule of law (FAO, products (FSC STD 40-004) 2010b). 10. FSC controlled FSC STD 30-010 V-20 EN wood Potential for Certi�cation, Veri�cation and NTLAs/VPAs Source: Authors’ compilation, March 2012. Some resistance has been met from state forest in- dustries to certi�cation, and communities tend to be policies remain unclear, investment low, planted areas daunted by the high costs and perceived low bene�ts small and productivity poor. In the past 10 years, for- of certi�cation. Alternative strategies under consid- est products imports have increased, with 60% sourced eration include the WWF-GFTN and e Nature from ASEAN countries (mainly ailand), 33 which Conservancy (TNC) Responsible Asia Forest and currently do not have legality and sustainability mecha- Trade (RAFT) initiatives, which offer market ac- nisms and standards in place. Insufficient information cess for legal and certi�ed wood. In 2009, the project was available on the domestic market for forest prod- GFTN-Lao PDR was launched. ucts, but certi�cation and veri�cation do not seem criti- cal requirements for domestic trade. GFTN-Lao PDR is the Lao chapter of GFTN, WWF’s initiative to eliminate illegal logging and improve In 2000, forest products exports from Lao PDR, in the management of valuable and threatened forests. order of value, were Japan, 16%; China, 15%; the GFTN-Lao PDR is the �rst GFTN office operating European Union, 3%; Australia, 1%; the United States under a collaborative partnership program with e and ASEAN countries were not listed individually. In Forest Trust (TFT, formerly Tropical Forest Trust). 2009 a major increase occurred in exports to ASEAN e strategic approach of this partnership is to develop countries, to 56% ( ailand and Vietnam), similar to a favorable environment for certi�cation of natural and exports to China, at 14%, and exports to the European planted forests toward demonstration of sustainability Union and Australia basically ceased.34 e reduction of and legality. forest products trade with Japan, the European Union and Australia may reflect their greater demand for proof However, timber legality issues will demand higher pri- of legality and sustainability, which Lao PDR currently ority in the near future, because Vietnam, which is a cannot demonstrate. e major increase in exports to major trading partner of Lao PDR, has expressed an ASEAN countries and maintenance of exports to interest in negotiating a VPA with the European Union. China may reflect their greater lenience in requirements Lao PDR has been involved with the FLEGT program for proof of legality and sustainability. since 2009 and is in transition with the establishment of a FLEGT steering committee and the leader of the Department of Forest Inspection as focal point to 33. FAOStat Forest Products Statistics. oversee two working groups on (i) timber legality and 34. FAOStat, Forest Products Statistics. (ii) the National Timber Legality Assurance System C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 55 (NTLAS). e next major step is to decide whether or certi�cations are largely �nanced by private compa- when to enter into formal negotiations for a VPA with nies and supported by official development assistance the European Union.35 (ODA). FSC certi�cations in Indonesia, Lao PDR, and Vietnam are also supported by funding agencies, e potential to expand certi�cation in natural forests in donor funds, government �nancing or client organiza- the near future is slight because of the limited resources tions. Environmental and other NGOs have promoted in forest administration and challenges in establishing forest certi�cation through joint projects in the region. the production forest areas in line with the prevailing ese diverse initiatives show that although certi�ca- legislation. e area of forest plantations is still small, tion is in principle a market-driven tool, it is encour- and despite the high interest in them, it is foreseen that aged through various key actors from within and outside their area will expand only gradually. It is estimated the countries. that within the next �ve years, two production forests (100,000 to 150,000 has) and 10,000 hectares of forest e main driver for certi�cation in the forest indus- plantations will be certi�ed. try may be wood products market demand to maintain access to existing markets such as the European Union e government target is to increase interest in CoC cer- or United States. Increasingly companies and wood- ti�cation among timber-processing companies. Private based associations also wish to demonstrate corporate investors are increasingly certifying their plantation social and environmental responsibility, legality and forests. sustainability. Additionally, they may require certi�ca- tion to access major funds from development and com- mercial banks. Nonetheless, the underlying objective of forest certi�ca- 3.6 Forest Certi�cation Potential tion is to improve forest management and promote the in Southeast Asian Case Study trade of legally sourced timber from responsibly man- aged forests. erefore, voluntary forest management Countries and CoC certi�cation can play a crucial role help setting national TLAS standards. For instance, VPA require- Despite being a market-driven tool, forest certi�cation ments for forest management are currently mostly cov- was initially promoted in Southeast Asia by donors, ered by the existing voluntary standards. However, they governments, the private sector and NGOs desirous of need to be reviewed and updated to meet any additional demonstrating legality and sustainability. In general, VPA requirements in forest management and CoC. state and private investors are willing to invest in cer- is potential to access new, and maintain existing, ti�cation only if achievable bene�ts are possible. For markets has focused the interest among governments, instance, CoC certi�cates are pursued more readily by timber traders and the forest industry in Southeast Asia private sector companies to meet market requirements to seek CoC certi�cation. for proof of legality and sustainability with regard to the origin of wood products. However, certi�cation requirements can be onerous and expensive so are often implemented in a stepwise In the initial stages a mix of state and private sector approach, which can be adapted to include a legality involvement may thus be needed. is is the case in veri�cation scheme, as well as, ultimately, certi�cation Malaysia, where PEFC certi�cations are applied and of sustainability. e process to upgrade the operations �nanced by state forestry organizations, whereas FSC and documentation to meet the certi�cation require- ments can be time-consuming. Even in favorable condi- 35. Ministry of Agriculture and Forestry (MAF), Department tions, where companies are encouraged to take a stepwise of Forest Inspection presentation to ASEAN-EU-FLEGT Asia, Sub-regional Training Workshop on TLAS, Kota Kinabalu, approach, it may take three to �ve years. However, CoC State of Sabah, Malaysia, 25-27 October, 2011. systems along with the commitments and procedures to 56 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A procure and supply only legal and/or controlled wood than natural forests because of their simplicity of func- are the �rst steps toward certi�able forest management tion, high investment, intensive management, clear pro- and timber procurement. duction targets and high productivity and yield. Planted forests are also politically preferred in the sub-region Especially in FSC certi�cation, companies often work as the future source for increased timber production. with accredited certi�cation bodies in certi�cation and Additionally, large-scale forest plantations are technically auditing approaches (e.g., Rainforest Alliance SmartStep easier to certify than natural forests or group certi�cations program, SCS and SGS) while seeking stepwise techni- of smallholder forest plantations. If countries reach their cal support from technical frameworks such as TFT or national targets for forest plantations and investors are GFTN. In Southeast Asia, the interim FSC standard willing to certify their investments, the greatest potential has been adapted by the various certi�cation bodies tai- to increase certi�ed forest thus lies in forest plantations. It lored in consultative processes to suit the unique region, is assumed that if market demand exists, managers of for- country and certi�cation application context. is means est plantations can apply for a group certi�cate to achieve that meeting VPA requirements and TLASs should be a a larger scale. Smallholders in ailand and Vietnam continuous and complementary process. have already demonstrated that this can be achieved. e potential increase in certi�ed forest in the next three According to the Ministry of Forestry reporting to to �ve years was conservatively estimated taking into FRA 2010, forest plantations area in Indonesia was consideration potential increases from each country, as 3.5 million hectares in 2010, of which only 0.5 million detailed in the previous sections. e future increases in hectares are currently certi�ed by LEI and 0.1 million certi�ed forest area and related volumes of certi�ed timber hectares by FSC. New licenses for a further 10 mil- products are estimates because of uncertainties, including lion hectares of new industrial plantations have been (i) global demand, (ii) related regulations, (iii) support approved. erefore, in the medium term it is assumed for certi�cation (including sufficient capacity building that the majority of the existing 3 million hectares of for certi�cation bodies in-country and the promotion of forest plantations and 10% of new forest plantations – certi�cation for small-scale producers) and (iv) industry or a total of 3.5 million hectares – will be certi�ed by priorities (including the pace of establishing plantations PEFC, FSC or LEI in Indonesia. and trends regarding natural forest concessions). e estimates shown in Figure 3.7 are an upper bound. e area of forest plantations in Malaysia is increasing modestly and conversion restrictions, particularly for It is assumed that in the future nearly all forest plantations FSC certi�cation, limit their eligibility for forest cer- will be certi�ed, as long as they are not from converted ti�cation. A feasible estimate for the increase in certi- natural forests. Forest plantations are simpler to justify �ed forest plantation area is about 1 million hectares within the following �ve years in Peninsular Malaysia and States of Sarawak and Sabah. FIGURE 3.7 Current and Potential Natural and Planted Forest Area in the Study Countries In ailand, only planted forests can be certi�ed because of the logging ban in natural forests. Forest industry Million ha 10 Current area PotenƟal Increase enterprise FIO in cooperation with SmartWood Rain- 8 forest Alliance is planning to certify all its teak planta- Vietnam 6 tions, which would double the certi�ed forest area up Laos Thailand to 86,500 hectares. Moreover, potential exists to certify 4 Malaysia groups of small holdings in ailand in the range 10,000 2 Indonesia to 30,000 hectares. In Vietnam the interest for forest 0 Natural Forest Planted forest Natural Forest Planted forest certi�cation is also increasing as a result of the demands Source: Authors’ computation. in export markets. Eight new FMUs are preparing for certi�cation under donor-funded development projects, C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 57 which will certify 50,000 hectares of forest plantations the certi�ed area of natural forests to 160,000  hectares, and 30,000 hectares of smallholder groups. Finally, in but the formal establishment of FMUs with appropriate Lao PDR the area of forest plantations is still small and management plans lags behind and harvesting is illegal in expected to expand only gradually. their absence. Forest certi�cation in Lao PDR will hence proceed only if it is supported with international �nancing e potential to expand voluntary certi�cation of nat- or investment by the private sector. Moreover, certi�cates ural forests in Indonesia is debatable and depends on for SFM cannot be issued on conversion sites that currently whether the practice of converting natural forests for produce a large share of timber. Finally, the logging permits agricultural and forest plantation development will con- issued to the management of natural forests in Vietnam are tinue and whether a change in disposition by private or also very limited, estimated at 129,000 hectares. state-owned companies has occurred toward acceptance of forest certi�cation. e theoretical limit is around e fact that the potential of certifying planted forest 35.5 million hectares, which is the forest area managed is considerably higher in Southeast Asia than for natu- by members of the APHI. Only a fraction of the as- ral forest will imply that additional efforts have to be signed concession areas has a voluntary certi�cate, and made to protect natural forests. e latter play a key role merely one quarter has passed the mandatory certi�ca- in biodiversity conservation, the provision of ecosystem tion. Nonetheless, the potential for voluntary certi�ca- services and the support of livelihoods of local commu- tion remains modest in Indonesia, because the focus will nities and indigenous peoples. erefore, complemen- instead be on demonstrating legal compliance in line tary policy measures have to be put in place to safeguard with the terms of the VPA. Based upon stakeholder dis- these crucial environmental outcomes. cussions, the author assumed that if 1 in 10 current con- cessions holders apply for a certi�cate, the potential share of certi�ed concessions in natural forests will increase slowly from the current 6% to 10%.36 is  would in- crease the certi�ed forest area up to 3.6 million hectares. 3.7 Comparative Analysis of In Malaysia, approximately half the natural forests will Certi�cation and Veri�cation in be certi�ed, mainly as a result of unrealized potential the Southeast Asia Region in natural forests managed by the states in Malaysia where increase potential exists, in particular in the States of Sabah and Sarawak and three or four states 3.7.1 Legality Veri�cation Standards in Use of Peninsular Malaysia. Because the Malaysian gov- Voluntary legality veri�cation assures consumer countries ernment is allocating budget funding to support forest that producers have complied with the relevant national certi�cation, there is potential to certify an additional legislation and international legally binding instru- 6.9 million hectares of natural production forests, thus ments and is, thus, complementary to law enforcement. increasing the area of certi�ed natural forests by 140%. Traditionally, the role of national law enforcement Forest certi�cation would have the greatest signi�cance has been con�ned to national processes. However, the in the State of Sarawak, which has 6 million hectares demands on imported wood from both international of natural production forests, double the corresponding markets and end users have created a need to expand area in the State of Sabah and Peninsular Malaysia. legality monitoring systems beyond the national borders. e scope for certifying natural forests in the rest of National voluntary legality veri�cation aims to bridge Southeast Asia is much lower. In ailand the logging ban this gap, based on the relevant national and international forbids the commercial use of natural forests, thus elimi- forestry legislation and regulation. Furthermore, they can nating the possibility to trade legal and certi�ed timber strengthen law enforcement, because veri�cation systems from these forests. In Lao PDR, potential exists to enlarge are usually additional to the normal operational forest control and are often undertaken by independent agen- 36. Calculated average for a concession area is 85,000 hectares. cies. erefore, voluntary legislative veri�cation schemes 58 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.24 Voluntary Legality Veri�cation Systems in Southeast Asia Implemented in System Description Southeast Asia Legal origin Ⅲ Timber Legality and Traceability Veri�cation (TLTV) promoted by the Timber Trade Malaysia Action Plan (TTAP) through TFT Legal origin → legal Ⅲ TLTV run by SGS* since 200537 Vietnam compliance Ⅲ Stepwise approach to VLC: VLO certi�cate for 2 years → VLC certi�cate with no time limit Legal origin → legal Ⅲ VLO and VLC run by the SmartWood program of the Rainforest Alliance* since 2007 Indonesia, Malaysia compliance → FSC Ⅲ Stepwise approach to FSC certi�cation: VLO-certi�cate valid for 3 years → VLC for and Vietnam certi�cation 3 years → application for FSC forest certi�cation Decisions made case by case Legality veri�cation Ⅲ Legality veri�cation system run by Certisource since 2007 Indonesia system → FSC certi�cation Ⅲ Legality veri�cation offered for 2 years when commitment for FSC certi�cation is required *Accredited FSC certi�cation body. Source: Proforest (2011a). 37. Because of advances in forest certi�cation standards to support legal veri�cation and the development of third party veri�cation schemes, SGS is phasing out the provision of timber legality and traceability veri�cation services to new clients. The service will continue with existing clients until their Timber Legality and Traceability Veri�cation (TVLV) certi�cate expires. can be seen as complementary to law enforcement and 3.7.2 Assessment of Certi�cation and Veri�cation can lend legitimacy and credibility to the forest manage- Standards ment system, thus reassuring consumer countries. Forest Management Certi�cation A range of organizations provide voluntary legality In general, three categories of forest management cer- veri�cation systems, but not all of them offer services ti�cation standards exist: (i) national FSC- or PEFC- in Southeast Asia. Table 3.24 highlights voluntary le- endorsed standards that comply with international gality veri�cation systems used in Southeast Asia. e performance requirements, (ii) interim FSC standards Rainforest Alliance, SGS and SCS are all active in that are country-speci�c standards developed by FSC- Southeast Asia. However, it is important to note that accredited certi�cation bodies based on their global ge- there is no accreditation for legality veri�cation systems neric standards that FSC auditors review and approve per se (Proforest, 2011a). (FSC is moving toward eliminating interim standards in time) and (iii) national certi�cation standards that Voluntary legality veri�cation schemes are often seen as are not endorsed by international certi�cation frame- a �rst step toward forest certi�cation and are typically works, such as the standards for natural forest, forest designed accordingly, with time-bound requirements. plantation and community forest management of LEI Veri�cation service providers and standards developers of- in Indonesia. Of the countries included in this report, ten emphasize that legal compliance is the �rst step toward Malaysia is the only country with a national PEFC- forest certi�cation. Some schemes have introduced tight- endorsed forest certi�cation for natural forest and for- ening requirements over time to (i) form a logical man- est plantations. All FSC certi�cations carried out in the agement improvement path and (ii) facilitate and structure region are made against the generic FSC standard and the operator’s efforts toward full certi�cation. For instance, developed by certi�cation bodies. Indonesia’s LEI forest the SmartWood program of the Rainforest Alliance �rst certi�cation scheme is the only example in the region of requires the producer to obtain a VLO certi�cate and then a national standard that does not have an international to apply for a VLC certi�cate after three years. Full FSC endorsement, although FSC and LEI have a memoran- certi�cation has to be obtained after another three years. dum of understanding pursuing closer collaboration. SGS and Certisource, which operated in Vietnam and Table  3.25 summarizes forest management standards Indonesia, respectively, have similar requirements. used in Southeast Asia. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 59 TABLE 3.25 List of Forest Management Certi�cation Standards in Southeast Asia Country Forest Management Standard Owner PEFC-Endorsed Malaysia* Natural Forests: Ⅲ PEFC-MTCS MC&I 2002 Ⅲ MTCC Forest Plantations: Ⅲ MTCS MC&I forest plantations Ⅲ MTCC FSC-interim Malaysia* Natural Forests: Ⅲ FCP Interim Standard For Forest Management Certi�cation in Malaysia Ⅲ SCS under the FSC Version 4-1 (2010) Ⅲ Forest Management Generic Standard State of Sabah, Malaysia (2010) Ⅲ SGS Qualifor Indonesia Natural Forests: Ⅲ SmartWood Rainforest Alliance Interim Standard for Assessing Forest Ⅲ SmartWood Rainforest Alliance Management in Indonesia (FM32-Indonesia) (2008) Ⅲ Draft Interim standard for Natural Forests and Plantation Forest Ⅲ SCS Management Certi�cation in Indonesia V1.0 (2009) Thailand Natural Forests: Ⅲ Forest Management Standard for Thailand AD33-02 (2010) Ⅲ SGS Qualifor Ⅲ Interim Standard for Assessing Forest Management in Thailand Ⅲ SmartWood Rainforest Alliance (FM-32-Thailand) Lao PDR Natural Forests: Ⅲ Interim Standard for Assessing Forest Management in Laos FM-32 (2008) Ⅲ SmartWood Rainforest Alliance Vietnam Forest Plantations: Ⅲ SmartWood Rainforest Alliance Interim Standard for Assessing Forest Ⅲ SmartWood Rainforest Alliance Management in Vietnam (Ver. June, 2010) Ⅲ Forest Management Standard for Vietnam Ⅲ SGS Qualifor Ⅲ Generic Forest Management Standard adapted for Socialist Republic of Ⅲ GFA Consulting group FSC Vietnam VER 1.0 accredited certi�cation body National Certi�cation Standards Indonesia Natural Forests: Ⅲ LEI Standard 5000-1 System for Sustainable Natural Production Forests Ⅲ LEI Management Community-Based Forests: Ⅲ Sustainable Community-Based Forest Management Ⅲ LEI Forest Plantations: Ⅲ LEI Standard 5000-2 Sustainable Forest Plantation Management System Ⅲ LEI Source: Authors’ compilation from http://www.lei.or.id; http://www.scscerti�ed.com; http://www.forestry.sgs.com/forestry-certi�cation.htm; http://www.mtcc.com.my; http://rainforest-alliance.org/forestry/certi�cation/management From 2014 the FSC will have international generic consider standards and criteria across the entire value indicators for the new principles and criteria that all cer- chain. CoC  certi�cates (i) control the flow of wood ti�cation bodies will use. FSC national standards will be through the entire value chain and (ii) exclude any con- in place in line with the international generic indicators troversial or otherwise unacceptable wood from the and with the backing of broad stakeholder processes in chain. e scope of CoC certi�cates is thus much wider 2014 Malaysia, Indonesia, Vietnam and China (poten- than for forest management certi�cates, as a claim on tially as part of a Greater Mekong Regional Standard). legal origin or legal compliance can be issued only if no wood originating from unacceptable sources is mixed in Voluntary Chain of Custody Certi�cation with the legally sourced wood within a product or a con- CoC certi�cates not only complement but also sup- signment. Table 3.26 summarizes the CoC certi�cation plement forest management certi�cates, because they standards in Southeast Asia. 60 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.26 List of CoC Certi�cation Standards in Southeast Asia Country Chain of Custody Standard Owner Malaysia PEFC Council CoC of Forest Based Products – Requirements (2005); will be transferred by 26 November 2011 to PEFC Indonesia PEFC International Standard (2002:2010) – CoC of Forest-Based Products Requirements Indonesia LEI CoC certi�cation system LEI Malaysia FSC CoC standard for companies supplying and manufacturing FSC certi�ed products (FSC STD 40-004) FSC Indonesia Multisite CoC certi�cation (FSC STD 40-003 V1-0) Lao PDR FSC standard for company evaluation of FSC controlled wood (FSC STD 40-005) Vietnam FSC standard for forest management enterprises supplying non–FSC certi�ed controlled wood (FSC STD 300-10) Thailand FSC standard on sourcing reclaimed material (FSC STD 40-007) Source: Authors’ compilation from http://www.pefc.org/index.php/standards/chain-of-custody; http://www.lei.or.id; and http://www.fsc.org. e FSC introduced the concept of controlled wood for PEFC and FSC CoC standards also require a risk assess- non-certi�ed �ber originating from recognized sources. e ment of suppliers with a particular focus on “high-risk� Controlled Wood Standard requires a risk assessment and sourcing, as de�ned in Table 3.28. e objective of these does not allow illegally harvested wood, violation of tradi- assessments is to minimize the risk for supplying wood tional and civil rights, harvesting in HCVFs, conversion of from “high-risk� sources, that is, from regions or coun- natural forests and harvesting of genetically modi�ed trees.38 tries where the likelihood of illegal operations is high. ese illegal operations include (i) violations of tradi- Traditionally, CoC standards included requirements tional or civil rights or international sanctions, (ii) use of for known origin of sourcing and adequate control and genetically modi�ed wood, and (iii) sourcing from natu- recording. However, this was no longer considered ral forest conversion sites. For instance, PEFC requires adequate, because the workers’ health and safety, the a second or third party veri�cation program for “high- protection of endangered species and the compliance of risk� sources, including identi�cation of the whole supply subcontractors had been neglected. Consequently, both chain, onsite inspection, and corrective and preventive PEFC and FSC are constantly revising their CoC stan- measures. Similarly, FSC-certi�ed companies must pro- dards and post these revisions on their respective web- vide evidence that wood from “high-risk� sources com- sites; requirements are as detailed in Table 3.27. For plies with the requirements for FSC controlled wood. instance, PEFC-certi�ed products cannot originate from eir risk assessment analysis includes (i) the perceived manufacturing or other business activity that violates the level of corruption; (ii) the transparency of public infor- fundamental rights of workers’ health and safety39 or en- mation on illegal harvesting; and (iii) the quality of key dangers CITES species. In addition, FSC has included data, documents and reports. ese resulting rankings the concept of controlled wood for non-certi�ed �ber facilitate supplier selection and provide assurance of legal originating from recognized sources. is standard does compliance. ese are summarized in Table 3.28. not set speci�c management system requirements like a forest management certi�cate, but  requires evidence of timber legality and sustainability. 3.7.3 Assessment of Credible Certi�cation and Veri�cation Schemes 38. FSC controlled wood: http://www.fsc.org/controlled-wood.40.htm 39. Based on requirements of ILO Declaration on Fundamental Forest and Forest Industries Managers Principles and Rights at Work (1998), a PEFC CoC-certi�ed Many foresters and forest industries managers in organization must demonstrate (i) workers are not prevented from Southeast Asia have been reluctant to embrace cer- associating freely, choosing their representatives, and bargaining collectively with their employer; (ii) no forced labour is used; (iii) no ti�cation because of concerns of restrictions in for- workers are used who are under the minimum legal age, the age of est operations, particularly on harvesting, complexity 15, or the compulsory school attendance age, whichever is higher; (iv) workers are not denied equal employment opportunities and and costs for being certi�ed (both for forest manage- treatment; and (v) working conditions do not endanger safety or health. ment and CoC), reductions in annual allowable cuts, C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 61 TABLE 3.27 Complementing Requirements in CoC Standards Standard Issue PEFC CoC Standard FSC CoC Standard FSC Controlled Wood Management system requirements Ⅲ Policy Yes Yes (Yes)* Ⅲ Documented procedures Yes Yes Ⅲ De�nition of responsibilities Yes Yes Ⅲ Competence resources (human and technical) Yes Yes Ⅲ Recordkeeping Yes Yes Ⅲ Inspection, auditing Yes Yes Ⅲ Veri�cation of subcontractor’s compliance Yes Yes Ⅲ Complaints procedures Yes Risk assessment Yes Yes License control for CITES species Yes Yes Workers’ health and safety Yes Yes Compliance of subcontractors Yes Yes Yes * The FSC Controlled Wood Standard does not set speci�c management system requirements, but requires evidence of timber legality and sustainability. Source: PEFC ST 2002:2010 CoC of Forest Based Products – Requirements (2010/2011); FSC STD 40-004 V2-1 EN FSC Standard for CoC Certi�cation (October 2011); FSC STD 40-004 V2-0 FSC Standard for CoC Certi�cation (2008); FSC STD 40-005 2-1 Company Evaluation of FSC Controlled Wood (2006). conversion of natural forests to plantations and lack of NGOs, trade associations and national governments. price premium for certi�ed forest products. Companies However, if forest and wood industries managers and that have had forests and forest products certi�ed have forest concessionaires are to adopt these tools, they must overwhelmingly stated that building the brand, meeting perceive and achieve bene�ts. Uptake has been slow, but increased market demand for certi�ed wood products momentum is now gathering to protect market share, and giving a competitive advantage over competitors as access signi�cant European and North American mar- key drivers. ese are summarized in Table 3.29. kets and demonstrate corporate commitment to sustain- ability and legality. e measures promoting use of credible certi�cation and veri�cation schemes may be multifaceted. In some Major Buyers and Key Importing Countries instances the measures are stimulated by international e EUTR prohibits illegally harvested timber from regulations, donors (multilateral and bilateral), fund- being placed on the EU market for the �rst time and ing institutions, key importing countries, major buyers, requires traders to exercise “due diligence� and keep TABLE 3.28 Criteria for “High-Risk� Sourcing in PEFC and FSC Schemes PEFC FSC Ⅲ License control for CITES species Ⅲ Illegally harvested wood Ⅲ Wood harvested in countries that are covered by the United Ⅲ Wood harvested in violation of traditional or civil rights Nations or applicable European Union or national government Ⅲ Wood harvested from forest in which high conservation values sanctions relating to export and import of forest-based products are threatened by management activities Ⅲ Presence of genetically modi�ed organisms Ⅲ Wood harvested from forests in which genetically modi�ed trees are planted Ⅲ Wood harvest from (primary) forests that are being converted to Ⅲ Wood harvested from forests or other wooded ecosystems that other vegetation type, including forest plantations are being converted to plantations or non-forest uses. Source: Authors’ compilation. 62 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE 3.29 Factors Affecting Low Uptake of Certi�cation in Southeast Asia Concern Reason Evidence Reduced impact logging RIL, which is mandatory for forest certi�cation, is RIL requires more labor-intensive or even more (RIL) translates into reduced considered more expensive. expensive (helicopter logging) alternatives. income Worker resist RIL, because it requires adopting practices different from those that they are used to and they may consider unnecessary. High initial costs, so larger Cost of consultants and implementation of A GFTN and WWF study (2007) concluded that companies bene�t more certi�cation varies, but generally requires high �xed the average initial one-off implementation cost costs, so larger concessions bene�t from economies for FSC or MTCC Forest Management certi�cation of scale. cost in Malaysia of up to US$28/ha; cost varies on the size of the forest area. Annual allowable cut Companies when certi�ed may need to set aside A Malaysian case study found implementation of reductions additional areas as HCVF, protected species, buffer SFM could result in an average reduction of 33% zones, water courses and reduced harvest yields of existing annual allowable cut levels. Unclear �nancial bene�ts Price premiums remain inconclusive. When there is a A study of 20 Malaysian timber companies price premium, it may take some years for companies revealed that only half respondents certi�cation to break even on the certi�cation investment. received a price premium. FAO reported that certi�cation provides market access in which consumers prefer green products, but not necessarily at a price premium. CoC complex and expensive Implementation of CoC is easier said than done. Due In Indonesia, concessions are legally required to to globalization, forest products are often exported produce annual work plans that include annual to countries for value added processing (e.g., to visits to logging blocks. Large concessionaires China or Vietnam) and may be re-exported to other claim this is labor intensive and expensive. countries for further processing. CoC documentation According to new Forest Footprint Disclosure, is very complex (and expensive) but could mask new tracking technologies for timber remain mixing of legal and illegal forest products from prohibitively expensive. sustainable and unsustainable sources. Source: Cheng and Le Clue (2010). records. If wood-based products are covered by valid and BREEAM (United Kingdom), recognize multiple FLEGT or CITES licenses, they are considered to forest certi�cation standards, including FSC- and comply with the requirements of EUTR, though this PEFC-endorsed schemes; however, LEED (United is not the case for certi�ed timber products. In contrast States) and Green Building Council of Australia have to EU FLEGT licensing, the Lacey Act of the United FSC preference. States does not establish standards or require veri�ca- tion by the government or a third party. At this stage, certi�cation has not had a major impact on imports among Southeast Asian countries, but wood- Green public procurement policies are emerging in based products supply- and demand-driven solutions countries around the world and differ markedly in their to ensuring legality and sustainability will eventually legality and sustainability requirements. e Olympic affect these markets, too. e green building policies are Delivery Authority and similar policies in other coun- beginning to take effect. Asia is expected to be the fast- tries of Europe increasingly specify that wood products est growing market, with the number of �rms dedicated must be FSC or PEFC certi�ed. to green building expected to double from 36% to 73% by 2015 (Cheng and Le Clue, 2010). Green building initiatives like the green building codes in the European Union, North America and Non-Governmental Organizations (NGOs) Asia in recent years favor the use of wood products in NGOs are the most active and powerful stakeholder construction. Most of these schemes, such as Green groups representing local population and civil soci- Globes (United States and Canada), CASBEE (Japan) ety’s interests regarding forestry. In contrast to other C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 63 stakeholder groups, environmental NGOs set a broad as the FSC scheme, because it has not yet gained range of requirements for sustainable wood sourcing, the extensive support of international environmental which often go beyond the national legislation. ey organizations. offer schemes of different scope, which are often part of a broader, phased approach toward improved forest Timber Trading Organizations management. For example, WWF considers FSC the Timber trading associations play an important role in most credible certi�cation system to ensure environ- de�ning general standards for certain market areas and mentally responsible, socially bene�cial and economi- enhancing further development of selected procedures cally viable management of forests.40 and requirements. To analyze the preferences and proce- dures required by the associations both in the European In addition to the broad scope, the close relations be- Union and United States, two large-scale associations tween NGOs and FSC can be seen in both the sup- were analyzed – the Timber Trade Federation (TTF) port and constructive criticism given. FSC certi�cation from the United Kingdom, selected to represent the is promoted by campaigns and marketing strategies that markets in the European Union, and the National have included �nancial assistance for certi�cation pro- Wood Flooring Association (NWFA) to represent the cesses. is NGO support strengthens the position of US markets. FSC in the markets, in particular in the management of natural forests, because companies view FSC certi�ca- Timber Trade Federation (TTF) tion as an effective risk mitigation measure. However, e TTFs procurement policies are based on recom- despite being the preferred certi�cation, FSC has faced mendations made by the UK government–contracted criticism from NGOs that has led to suspensions or ad- CPET. Among the EU countries, TTF procurement ditional audits for some forest management companies. policies and those of the UK government are consid- A good example is the suspension of APRIL’s FSC con- ered to be among the most comprehensive. Both poli- trolled wood certi�cation in 2010.41 Most of this criti- cies are based on recommendation made by CPET, cism is aimed at companies certi�ed against interim which is operated by an independent consulting com- FSC standards. In general, NGOs appreciate these pany, Proforest, and was set up by the Department for locally adjusted national standards, which may help Environment, Food and Rural Affairs. CPET’s rec- certi�cation gain traction in progressive approaches. ommendation on the credibility of different schemes is However, criticism is often leveled at the power of certi- often referred in other countries’ policies. �cation bodies to make decisions on certi�cation as part of their business. CPET divides the legality veri�cation schemes into two categories, A and B. Category A consists of recognized Nonetheless, the international markets also recog- certi�cation schemes considered adequate to prove the nized national certi�cation if the underlying scheme origin. At the moment, CPET recognizes only FSC is strong, as was the case for the PEFC-endorsed and PEFC schemes. However, FLEGT licenses will be MTCS scheme. For instance, in Malaysia buyers did considered to have equal cogency with the approved cer- not prefer any speci�c certi�cation scheme. e large ti�cation schemes, once they start to be used. Category export markets to other Asian and Far East countries B consists of other approved sources of evidence dem- accepted PEFC-MTCS certi�ed timber, since they onstrating that the timber supplied is at a minimum had more neutral views about the different schemes. from legal and sustainable sources. e majority of these PEFC-endorsed certi�cation is recognized especially sources are to be considered on a case-by-case basis. e in EU countries however, it has not been as accepted category includes a variety of international third party veri�cation schemes. Most of these schemes do not include commitments to CoC systems, which reduce 40. WWF preference for FSC certi�cation: http://wwf.panda.org/ what_we_do/footprint/forestry/certi�cation/ their acceptability as a proof of legality. However, if an 41. http://ran.org/content/indonesian-paper-giant-april%E2%80% approved CoC is in place within the chain, they can be 99s-certi�cation-status-suspended used as a proof of legality. 64 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TTF member companies are obliged to commit to Second, its procurement policy and document proce- TFF’s code of responsible purchasing of timber and dures are assessed and adjusted to conform to the RPP timber products. e code includes requirements to- Standard. ird, an onsite audit is carried out, in which ward promotion of sustainable wood production and the auditor reviews the policies, procedures and records forest certi�cation, refusal of illegally produced wood and tours the facilities where wood products are han- and commitment to continuously raise the proportion dled. e audit includes interviews with staff to assess of timber and timber products originating from legal training levels and on-the-ground application of writ- and sustainably managed forests. e member compa- ten procedures. After the site visit, the auditor prepares nies are required to be transparent and allow appointed a detailed report. e report is reviewed by SCS, which auditors to assess and verify the company’s progress and gives a certi�cation recommendation to the NWFA compliance against the policy. However, the code of RPP Board. After receiving a certi�cate, the company conduct does not set any clear de�nitions or time lines will be listed on the NWFA and SCS websites and for the progress required. undergo annual surveillance assessments. As part of TTF’s code of conduct, member companies Each NWFA member company must also ful�ll time- are required to implement a due diligence process to bound requirements for moving though the RPP tiers prove the origin of traded timber and reduce the risk to the most demanding tier, as detailed in Table 3.30. for illegal wood entering the supply chain. e compa- e RPP scheme is built on three FSC-based certi�ca- nies are allowed to have their own due diligence system tion and veri�cation schemes: (i) VLO veri�cation, (ii) or to use TTF’s Responsible Purchasing Policy as their FSC controlled wood certi�cation and (iii) FSC forest due diligence tool. is policy is mainly targeted at un- management and CoC certi�cation. e program does certi�ed wood and considered complementary to certi- not recognize PEFC certi�cation as an approved veri- �cation. On cogency of different certi�cation schemes, �cation of wood origin. However, NWFA recognizes the code of conduct refers to CPET’s recommendations. the difficulties of small forestry companies in achieving e procedure includes an independent auditor to con- FSC certi�cation. As a consequence, it has developed �rm compliance with the due diligence commitments. a program for assisting small landowners to over- After successful auditing, the company receives a certif- come barriers to FSC forest management certi�cation icate issued by TTF as proof of compliance to the TTF through group certi�cation. code of practice. End Users National Wood Flooring Association (NWFA) e increased public awareness of environmental issues Legislation and public opinion are clearly reflected in both the United States and European Union can be in the wood procurement policies and preferences seen in end-user company wood procurement policies. In in the United States, for example, in the Responsible general, the demand in the EU and US markets requires Procurement Plan (RPP) of the NFWA. In contrast to major operators to show their responsibility in securing companies and associations operating in the European the legality of wood origin as well as the sustainability of Union, guidelines and documents are more developed production. erefore, most major companies have devel- and detailed in the United States. A good example is oped their own wood procurement policies, usually built the NFWA’s RPP in close cooperation with SCS, an on stepwise improvements and strict minimum require- FSC-accredited certi�cation body. Similar to the devel- ments for their timber suppliers. e preferences for veri- opment programs in the European Union, the RPP is �cation schemes are in line with the societies’ preferences a stepwise approach for hardwood manufacturers and and awareness. However, the difficulties in meeting these distributors to increase the quality of their management. requirements are widely known, especially regarding tropical countries and countries with weak governance NWFA and SCS have established a well-documented and poor law enforcement capabilities. Despite this, the procedure for producers entering into the RPP. First, the acceptability and preferences toward the various schemes company submits its application under SCS guidance. are clearly visible in their procurement policies. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 65 TABLE 3.30 Steps in National Wood Flooring Association, Responsible Procurement Program Step Requirements Timeline Tier 1: FSC VLO veri�cation Ⅲ Create a company policy in line with NWFA RPP 0–3 years Ⅲ Engage with NWFA approved legality veri�er (high-risk countries) Ⅲ Participate in the NWFA CoC system as administered by SCS Ⅲ Benchmark all existing sources into veri�ed and unknown origins as proportion of total sales Ⅲ Once veri�ed, authorized to use a NWFA transitional veri�ed legal import label on marketing. The transitional label is intended to be used only as an approval of development toward FSC certi�cated products. Tier 2: FSC Controlled Wood Ⅲ Meet FSC Controlled Wood Standard for all products after 2 years in tier 2 or 5 years in the 3 ϩ years Certi�cation program Ⅲ Achieve a FSC CoC certi�cate Ⅲ All products from high-risk countries veri�ed against VLO program by a NWFA approved auditor Ⅲ Establish a plan for FSC targets and actively sell FSC certi�ed products Tier 3: FSC Forest Management Ⅲ Meet all tier 1 and 2 requirements for 3 or more consecutive years No strict and CoC Certi�cation Ⅲ Achieve a minimum level of 50% of FSC forest management certi�ed products timeline Ⅲ All non-FSC forest management products produced under FSC Controlled Wood Standard Source: Authors’ compilation. e main international wood consumer companies refer (ii)  forestry operations causing social conflicts, (iii) to governments’ procurement policies and public opin- uncerti�ed intact natural forests or other areas classi- ion. As a default, the main market operators within the �ed as HCVF, (iv) areas being converted from tropical European Union prefer and refer to the international and sub-tropical vegetation zones for plantations, and certi�cation schemes, which will allow them to adapt to (v) officially recognized and geographically identi�ed the requirements set in the VPA agreements. In general, commercial genetically modi�ed tree plantations. the corporate social responsibility (CSR) policies of ma- jor companies address the sustainability of the produc- IKEA divides the wood origins into low and high risk tion, going beyond legality veri�cation. However, like and generally requires FSC certi�cation for high-risk the timber trade associations, the leading companies sources. IKEA has developed a four-step development base the minimum required level of veri�cation on the program for its suppliers to promote SFM. For low-risk legislation in force. areas, an FSC certi�cate is required for the �nal and most demanding step. However, for areas considered to To demonstrate trends in Western markets, IKEA and be high risk, an FSC-based certi�cation and veri�cation DLH are studied. IKEA, a Swedish-owned company, are required as a �rst step. For some product catego- consumes about 7 million m 3 of wood products for ries, PEFC certi�cation is accepted on low-risk areas. its furniture manufacture annually. DLH, a Danish However, IKEA clearly prefers FSC over other certi�- company, trades about 1.5 million m 3 of sustainable cation and veri�cation schemes and does not accept any timber and wood products on international markets other national or international veri�cation schemes as annually. a default. However, the general framework of require- ments remains unclear, with case-wise exceptions, IKEA reflecting the developing and changing �eld of con- IKEA, one of the world’s largest low-cost furniture formity with legality and sustainability standards. e retailers, with 300 stores in 35 countries and annual company has a dedicated, internal audit team for sup- revenues in excess of US$32 billion, sources most of its pliers that have not yet obtained certi�cation. IKEA is wood products from Poland, Russia, China, Romania a member of the GFTN and works with the Rainforest and Sweden. IKEA builds its procurement policy Alliance. FSC certi�ed wood accounted for approxi- on the FSC basic wood origin standards that restrict mately 25% of IKEA’s supply in 2011, which it plans to wood originating from (i) illegal harvesting operations, increase to 35% in 2012. 66 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A DLH International differences in scope have signi�cant implications for the DLH has developed a clear and well-documented wood veri�cation procedures, because each stage is often the procurement policy that requires third party veri�ca- responsibility of a different entity. is affects the over- tion for high-risk sources. e policy is based on a sup- all credibility of the scheme. plier development scheme similar to that of IKEA. For suppliers operating in high-risk areas, DLH has cre- e subsequent two sections assess these differences in a ated its own Good Supplier Program (GSP) risk assess- systematic way by comparing the scope of each scheme ment system that is a prerequisite that their suppliers with the ASEAN Criteria for Legality of Timber and must meet. DLH prefers FSC certi�cation and veri�ca- by analyzing the differences in the veri�cation proce- tion schemes but also recognizes other schemes, such dures used. as PEFC, Canadian Standards Association (CSA), Sustainable Forest Initiative (SFI), MTCS, TLTV and Legal Requirements of the Different Schemes Origine et Légalité du Bois (OLB). e DLH objective e ASEAN Criteria for Legality of Timber provide was to cover 100% of its traded tropical wood with GSP a good reference for legal timber. Several related stan- and know the origin of 95% of all traded timber by the dards address tenure and harvesting rights, approved end of 2011. It failed to meet these targets, narrowly management practices and payment of statutory fees, achieving 99% and 92%, respectively. yet no universally agreed de�nition of timber legality exists. As a consequence, the ASEAN working group on forests adopted the ASEAN Criteria and Indicators 3.7.4 Certi�cation and Veri�cation: Proof of for Legality of Timber in 2008 as a regional reference Compliance with National Laws and Regulations framework for legality of timber in ASEAN Member States. Six criteria and 14 indicators specify the quali�- By providing a systematic approach to managing both cations for legal timber (Hinrichs, 2009). ese include natural and planted forest resources according to estab- (i) the legal right to operate and harvest timber at the lished legality and sustainability criteria, standards and designated forest site, (ii) approved authorization for the indicators, veri�cation and certi�cation provide useful harvesting operations based on an approved cut, (iii) benchmarks to investors and users on the adoption of compliance with CITES and relevant environmental best practices and the legality of forest product sources. laws and regulations, (iv) compliance with social laws Veri�cation and certi�cation provide assurance that the and regulations, (v) the payment of statutory charges, enterprise has committed to, and applied, the legality and (vi) the implementation of a traceability system that and sustainability standards. allows for tracking of all logs from the forest gate to the relevant harvesting sites. Compatibility of Legality Veri�cation and Voluntary Certi�cation e ASEAN Criteria are thus used as a reference base It is important to keep in mind that evidence on legal when comparing the performance requirements for compliance provided by the different schemes var- legal and certi�ed timber. In order to make a veri�ed ies with the scope of implementation and veri�cation conclusion on the role of voluntary certi�cation (e.g., in procedures used. Voluntary and mandatory legality proving legal compliance for FLEGT licenses), it is veri�cation and certi�cation schemes share some simi- important to assess in detail how legality is de�ned larities (e.g., in third party veri�cation procedures and in the certi�cation standard, in other scheme require- similar methods to determine compliance). However, ments and in the legality standard under a speci�c differences can be large, especially in regard to the FLEGT VPA. Conformity to the forest management scope of implementation. VLCs, VLOs and volun- standards for voluntary certi�cation generally ensures tary forest certi�cation are all limited in their scope to legal compliance in forest management planning and forestry operations, whereas TLASs, voluntary CoC forestry operations. In performance requirements, for- certi�cates or FLEGT licenses usually verify legal com- est certi�cation standards and national legality veri- pliance along the entire value chain. In addition, these �cation schemes are largely compatible. However, C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 67 certi�cation standards may contain a narrower percep- Each standard requires a different level of compliance with tion of relevant legislation than the legality standard, social legislation, which covers the rights of three groups: though it may also be the other way around. Annex local communities, indigenous people and workers. e 3 describes the compatibility of (i) the Indonesian standards emphasize these three groups to a varying de- and Malaysian national timber legality standards gree. For example, the national timber legality standards (SVLK and TLAS), (ii) the voluntary legality stan- in Indonesia and Malaysia would require strengthening of dards (VLOs and VLCs), (iii) the Malaysian PEFC- these rights. Reasons for this may be the lack of legisla- endorsed MTCS, (iv) the Indonesian LEI standard, tion protecting social rights, or instead, a prevailing per- and (iv) interim FSC standard with ASEAN criteria ception that these regulations are not relevant to forest for timber legality. Table 3.31 presents a summary of management operations. Among the assessed certi�cation the conclusions. standards, interim FSC standards have the strongest so- cial requirements that may exceed the national legislation. All standards include requirements for established ten- e Malaysian PEFC standard also requires compliance ure and use rights, but not necessarily for compliance with laws and lists the relevant legislation. Likewise, the with environmental requirements (Table 3.31). e LEI standard has general requirements on the protection different standards are very similar in their require- of community and worker’s rights, but puts less emphasis ments for tenure and use rights. For instance, each on the special rights of indigenous people. ese are also standard requires a legal license to operate, but apart addressed to a limited extent in the Indonesian legislation. from the SmartWood Rainforest Alliance VLO and VLC standards, they do not speci�cally require moni- Similarly, each standard requires the payment of dif- toring the legality of the licensing process. Moreover, ferent taxes and statutory fees, yet all request evidence all standards rely on approved management plans, of reliable traceability. e payment of taxes and stat- when looking for evidence of authorized harvesting. utory fees is a core element in legal compliance and Greater differences exist with regard to the environ- establishes the basis for bene�t sharing in forestry. e mental requirements. A case in point is the VLO stan- two national legality standards as well as VLOs and dard, which does not address environmental issues. In VLCs require payment of fees related to the concession contrast, forest certi�cation standards require adher- area and harvesting, but because they do not cover post- ence to environmental legislation and good environ- harvesting issues, they do not address taxes and fees mental performance. on transportation or processing. In this respect, these TABLE 3.31 Summary on the Compatibility of Legality Veri�cation and Certi�cation Standards with ASEAN Criteria for Legal Timber ASEAN Legality Criteria Standard 1. Tenure 2. Use right 3. Env laws 4. Soc laws 5. Fees 6. CoC National Legality Standards Indonesia legality SVLK Yes Yes Yes Partly Partly Yes Malaysia legality TLAS Yes Yes Yes Partly Partly Yes Voluntary Legality Standards SmartWood Rainforest Alliance VLO Malaysia Yes Yes – – Partly Yes SmartWood Rainforest Alliance VLC Malaysia Yes Yes Partly Partly Partly Yes Voluntary Forest Certi�cation Standards Malaysia PEFC MC&I Yes Yes Yes Yes Yes Yes Indonesia LEI 5001 Yes Yes Yes Partly – Yes FSC Interim SGS Qualifor Malaysia Yes Yes Yes Yes Yes Yes Source: Authors’ compilation, March 2012. 68 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A schemes cannot provide full evidence of legal compli- Differences in Veri�cation Procedures ance of a forest product at the point of export, as is, for Veri�cation systems used in assessing legal compliance instance, required for an FLEGT license. Among the or conformity to certi�cation requirements differ consid- certi�cation standards, LEI does not address the issue, erably to those used by traditional law enforcement and although it does have a general requirement for payment national TLAS, as illustrated in Figure 3.8. Traditional of all fees. e FSC standard focuses more exclusively law enforcement is the responsibility of public authorities, on harvesting-related fees. Despite these differences, all whereas this is not the case for voluntary certi�cation. In assessed standards require reliable traceability up to the fact, independent certi�cation bodies, which are often pri- forest gate. Moreover, each forest certi�cation scheme vate companies, make the audits and issue the certi�cates. includes speci�c CoC standards that cover the addi- Nevertheless, it is possible that authorities outsource law tional stages of transport, processing and sales. enforcement to private bodies. For instance, forest author- ities in Indonesia have outsourced the VLC in some tim- e review indicates that the forest certi�cation stan- ber trade–related activities to private veri�cation bodies dards address the legality requirements quite well, but that operate under the accreditation of government. the differences in scope are problematic. Voluntary forest certi�cation and voluntary legality veri�cation In contrast to traditional law enforcement or national schemes only address forest management activities and TLAS, voluntary certi�cation schemes also set the CoC up to the forest gate (i.e., the point at which the requirements for the certi�cation/veri�cation body’s forest management operations relinquishes legal control competence. Voluntary certi�cation schemes often re- of harvested products to another party). erefore, they fer to FSC, PEFC and/or International Organization have very limited provisions for other aspects of timber for Standardization (ISO) accreditation requirements for procurement and processing, which signi�cantly lim- the competence of the certi�cation or veri�cation body. its their potential to provide evidence of legality in the For instance, certi�cation bodies doing FSC certi�ca- timber product trade. In contrast, the scope of CoC cer- tion have accreditation from the Accreditation Services ti�cations is much wider, because FSC and PEFC cover International GmbH (ASI) Accreditation Program. ose speci�c product lines across the whole wood-processing doing PEFC or ISO certi�cation must have accreditation value chain. However, they do not provide evidence for from official national accreditation bodies that are mem- overall legal compliance, as is often the case in national bers of the International Accreditation Forum. No such TLASs. e latter require legal compliance for the en- requirements exist for traditional law enforcement or na- tire value chain, drawing on traditional forest legislation tional TLAS unless they are endorsed by FSC or PEFC. and social and environmental legislation. is is usually the case for legality standards, which are developed in a e focus of veri�cation is also different in legality veri- stakeholder process under FLEGT VPA negotiations. �cation and certi�cation, which can make a difference in FIGURE 3.8 Types of Veri�cation Systems in Forest Management Source: Authors’ compilation. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 69 countries with a weak regulatory framework. Voluntary Certi�cation bene�ts from better forest governance and forest certi�cation standards typically include require- can strengthen compliance at the FMU level. However, ments dictating speci�c performance targets for forestry it cannot address broader institutional and governance operations. In addition, the standards require that cer- failure. Better law enforcement cannot be expected to ti�cate holders have an adequate management system in be achieved through voluntary certi�cation (European place that can ensure systematic compliance throughout Tropical Forest Research Network [ETFRN], 2012). the organization and over time. In contrast, legislation usually sets the requirements for legality veri�cation that Because of unacceptable levels of deforestation, for- tend to focus on speci�c operations in the forest and sup- est degradation and related illegal logging and unsus- ply chain. Legality standards are also limited to the reg- tainable forest management, a stronger focus has been ulatory framework, whereas voluntary standards usually placed on improving forest governance in recent years. have certain requirements that go beyond the regulations. e case study countries already �nd it difficult to en- In countries where legislation is well-de�ned and the en- force existing laws and regulations. e impact of recent forcement is on a high level, voluntary standards may not international and national regulatory approaches will add very much. However, they make a considerable dif- thus depend heavily on the capacity and political will- ference in countries with a weak regulatory framework, as ingness of governments to enforce them and includes: long as third party veri�cation is done by impartial, inter- nationally recognized and accredited veri�cation bodies. Ⅲ Mandatory public procurement policies for wood and wood products that recognize veri�cation and Veri�cation has not met its potential fully, because pro- certi�cation (e.g., European and North American tracted negotiations have not always been able to de�ne countries, Japan) unambiguous legal standards and indicators given that Ⅲ CITES to regulate international trade in endan- the legal and regulatory frameworks governing the for- gered tree species est sector in the Southeast Asian countries have been Ⅲ Prohibitions on export or import of particular spe- complex, unclear and subject to dispute. e legal and cies, sizes or illegal logs regulatory frameworks span forest management, for- Ⅲ Legally binding trade agreements specifying wood est industries wood processing and export licensing. legality between exporters and importers (EU In addition, they have links to food security, poverty FLEGT VPA and EUTR, Australian Illegal Log- alleviation, sustainable livelihoods, natural resources ging Prohibition Bill, US Lacey Act) management and climate change. In the past, there has Ⅲ Mandatory due diligence measures (timber trade been a tendency to take the narrow forestry focus rather organizations, green building schemes, signatories than the more integrated, intersectoral approach. to the Equator Principles, development banks) Veri�cation, Certi�cation and Forest Governance e European Union (EUTR) and United States (Lacey Voluntary certi�cation schemes have received consid- Act) promote such regulatory approaches aimed to cre- erable public sector support in the form of direct and ate the governance structures that reinforce capacity for indirect subsidies through public procurement policies. In law enforcement and oblige companies to respect the some instances, governments have actively promoted the law, prohibit illegal logging and minimize the risk for development of national certi�cation schemes (MTCS involvement in associated illegal forest products trade. in Malaysia and LEI in Indonesia). is has blurred Figure 3.9 outlines a representation of the relationships the distinction between private sector and government- between voluntary and regulatory approaches to legal led approaches. In fact, the relationship between volun- and sustainable forest products. Public procurement tary approaches and forest sector governance is complex. policies recognize both legality and sustainability. Government failures relating to property rights, market conditions, investment climate, stakeholder involvement, e regulatory approaches have focused on legality that law enforcement, cronyism and corruption can undermine is based upon the country’s own legal framework stan- the potential bene�ts of voluntary certi�cation schemes. dard for legal harvesting and trade. e sustainability 70 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE 3.9 Voluntary and Regulatory Approaches to Legality and Sustainability Sustainability Forest cerƟ�caƟon by FSC, PEFC and CITIES others Public procurement policies Voluntary Regulatory Public procurement policies NaƟonal export and import prohibiƟon VLO EU FLEGT VPAs VLC EUTR US Lacey Act Australian Illegal Logging ProhibiƟon Bill Legality Source: ETFRN News 53. April 2012. standard is not used because the debate on an interna- and independent third party monitoring to ensure credi- tionally agreed upon de�nition of SFM is unresolved, bility. However, the two approaches have their differences: and country-wide sustainability is not achieved without addressing underlying governance issues. Additionally, Ⅲ Regulatory approaches cover the entire forest sec- sustainability standards are often perceived by develop- tor in a country, whereas voluntary initiatives focus ing countries to be imposed by developed nations, and on certi�ed enterprise or forest management unit legality standards reinforce national sovereignty over or possibly a product line (it is much more difficult forest resources and forest products trade. to implement and enforce a sector-wide perfor- mance than a localized one). e degree to which legality and sustainability poli- Ⅲ Companies use voluntary standards to improve cies, standards, practices and procedures overlap de- their market conditions and meet CSR or ESG pends upon the degree to which each country’s legal policies, whereas governments may use regulations framework incorporates sustainability criteria. It would to create fair conditions and improve practices be advantageous if mandatory legal frameworks speci- within the sector as a whole, across the country. �ed both legality and sustainability standards, so the Ⅲ Voluntary initiatives depend upon the goodwill focus could be on enforcement. Within the European of the actors and are binding on those within the Union, little evidence exists that the market will perma- scheme, whereas regulatory measures are compul- nently accept legality as sufficient proof of sustainability. sory and the laws apply to all actors. In  addition to legality standards, public procurement policies, large retailers, timber trade organizations, e complementarities among governance, law enforce- green building schemes and �nancial institution sig- ment, certi�cation and legality veri�cation schemes natories to the Equator Principles, require certi�cation can be realized only if promoted aggressively, with at- for environmental, social and governance (ESG) and tempts made to better de�ne and systematically har- CSR to meet expectations of shareholders and custom- monize the various standards. Key stakeholders need to ers. Proof of both legality and sustainability are hence ensure that the complementarities between voluntary required. certi�cation and legality veri�cation schemes are built upon. Efforts should focus on (i) increasing areas under Both voluntary and regulatory approaches depend upon certi�cation and legality veri�cation and (ii) support- the influence of markets to promote better forest manage- ing countries in Southeast Asia to recognize voluntary ment. ey use clearly de�ned standards to assess compli- certi�cation as a source of legal evidence and build na- ance, multi-stakeholder dialogue to ensure transparency tional TLASs. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 71 Synergies among FLEGT Action Plan, EUTR and equivalence to FLEGT legality controls, the parties may Voluntary Schemes agree to accept the voluntary scheme as meeting all or part FLEGT VPAs and voluntary certi�cation processes dif- of their requirements for issuing a FLEGT license. fer in standards, scope, approach and procedures, but they are potentially mutually supportive.42 VPAs can bene�t If such a combination of legality and sustainability from veri�cation traceability mechanisms and auditing controls were to develop, the FLEGT VPA will im- processes at the FMU level. Voluntary schemes can be a prove transparency and strengthen forest governance testing ground for case-based and practical solutions for and could become another driver for the acceptance of understanding application of national laws and regula- voluntary schemes in those countries. FSC has revised tions, multi-stakeholder processes that can feed into VPA their Global Principles and Criteria and prepared a new processes and use of tracking and tracing procedures that Q&A from FSC International to explain how FSC is can feed into traceability systems under VPAs. Voluntary being used with EUTR.43 Similarly, PEFC is reviewing approaches can also pioneer best practices approaches in how to improve synergies between voluntary schemes countries that are not ready for nation-wide regulatory and FLEGT VPAs. FSC is likely to have issues with approaches. In these circumstances, countries can pre- two of their speci�cations related to genetically modi- pare for new export market challenges and opportunities �ed trees and conversion from natural forests that are (e.g., EUTR and US Lacey Act). not likely to be covered under FLEGT. In turn, voluntary certi�cation may bene�t from e EUTR prohibits placing illegal timber and tim- VPAs, particularly in greater clarity on legality de�ni- ber products on the EU market. Companies within the tions, standards, indicators and veri�cation procedures; European Union are to exercise due diligence to minimize multi-stakeholder processes in the sector; and enhanced the risk for trade in illegally harvested forest products. e transparency and public disclosure. e improved gov- regulation recognizes forest products with an FLEGT li- ernance and law enforcement should reduce the risk cense and CITES certi�cate as meeting its requirements. for stakeholder conflicts and help streamline the pro- Voluntary forest certi�cation and legality veri�cation are cess toward achieving sustainability certi�cation. In not considered equivalent proof of legality but may be these ways, good forest governance may be viewed as used to reduce risk and go some way to demonstrating due a prerequisite for certi�cation. e two approaches are diligence. If certi�ed forest products were to be regarded mutually reinforcing. Voluntary certi�cation deepens as low risk under the EUTR, this would provide an addi- management commitments to social, environmental tional impetus to global certi�cation efforts. and economic sustainability at the enterprise level, and VPAs strengthen legality requirements and good gov- Other International Drivers ernance to the forest sector as a whole (ETFRN, 2012). ere is a strong call for sustainability and legality in for- ests and forestry from the UN Conventions (UNFCCC, It is important to avoid duplication of efforts (and costs United Nations Convention to Combat Deserti�cation to enterprises) between FLEGT VPAs and voluntary [UNCCD], Convention on Biological Diversity [CBD], schemes and to avoid encouraging companies to opt for World Heritage), international treaties (CITES, the lower legality veri�cation rather than higher sustain- Convention on Wetlands of International Importance ability certi�cation. e EUTR has allowed for use of [RAMSAR]), international processes (UNFF, voluntary schemes and to create practical synergies be- International Tropical Timber Agreement [ITTA], tween certi�cation and FLEGT. Voluntary schemes can Montreal Process), political summits (G8, APEC and be linked to the TLAS developed under the VPA. In fact, ASEAN), donors (multilateral and bilateral), NGOs after rigorous evaluation, if the voluntary scheme has (social and environmental), reputable funding institu- tions, forest and forest industries investors, wholesalers, 42. e role of certi�cation and enforcement of the EUTR can be viewed on: http://www.euflegt.e�.int/�les/attachments/euflegt/ faqs_on_due_diligence_certi�cation_and_enforcement_of_the_ 43. Q&A for FSC and EUTR: http://www.fsc.org/ eutr.pdf timber-regulation.46.htm 72 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A retailers, buyers and governments, particularly in indus- Ⅲ Mechanisms that strive to be credible, effective, trialized countries of Europe, North America, Oceania efficient and equitable and Japan. However, in the Southeast Asian case study Ⅲ Compliance with government regulations countries, the lack of political will, generally inconsistent Ⅲ Security of access to markets and potential for and conflicting forest governance, weak law enforcement, price premiums difficult socioeconomic conditions and poor technical Ⅲ Support to partnership arrangements capacity and capability have allowed illegal harvesting Ⅲ Reliable, independent, third party audit and ac- and unsustainable natural resources management to con- creditation by certi�cation bodies tinue at unacceptable rates. Critical Mass in Veri�cation and Certi�cation in 3.8.2 Bene�ts of Veri�cation and Certi�cation Southeast Asia Voluntary certi�cation is at early stages of acceptance and Certi�cation and veri�cation were originally introduced application in the Southeast Asian case study countries, as market-based incentives toward reducing illegal logging where signi�cant potential exists to expand use of this and unsustainable forest management practices. However, tool. Only 11% of the PFA is certi�ed (8% of total for- their impacts have introduced other bene�ts, including: est area) and less than 6% of forest plantations. However, these averages mask signi�cant differences across Ⅲ Diversi�cation: Promotion to use of lesser known countries, with Malaysia and, to a much lesser extent, species, use of forest and forest industries residues, Indonesia leading the certi�cation effort. In contrast, new NWFPs and ecosystem services to markets Lao PDR, Vietnam and ailand are lagging consider- by branding them as environmentally preferable ably. However, the countries in the region are aiming to goods and services increase timber production from forest plantations and Ⅲ Commercialization: Capture of new goods and consequently promote certi�cation of these areas. It is ecosystem services to improve �nancial returns on estimated that the potential to increase certi�cation in investment in forest management natural and plantation forests in the case study countries Ⅲ Risk reduction and mitigation: Assistance to com- is large, particularly in Indonesia and Malaysia. panies and banks to reduce investment risk and facilitate risk mitigation through transparent, third party, independent assessment of social, environ- mental, economic and governance factors Ⅲ Access to �nance: Assessment of clients by interna- 3.8 Lessons Learned tional commercial banks to qualify for access to �nance for forestry and forest industries investments 3.8.1 Base Attributes of Veri�cation and Ⅲ Access to donor support: A measure of commitment Certi�cation to legality and sustainability that can attract bilat- eral and multilateral �nancial support Recognized attributes of veri�cation and certi�cation Ⅲ Participatory approaches: Democratization of forest include: management planning Ⅲ Transparency: All processes are public, including Ⅲ Recognition of SFM as the objective, with stated access to evaluations and audit reports criteria and veri�able indicators Ⅲ Stakeholder con�dence: Con�dence building be- Ⅲ Veri�cation and certi�cation standards adapted to tween forest managers and key stakeholder groups local country contexts Ⅲ Standards and measurable indicators: Measuring out- Ⅲ Stepwise approaches toward SFM comes of projects/program through clearly de�ned Ⅲ Transparent and participatory approaches among social, environmental, economic and other indicators key stakeholder groups to improve understanding, Ⅲ Green building policies and practices: Tools to assess relationships and ownership legal and sustainable supplies of wood products C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 73 Ⅲ National regulatory enforcement: Support govern- services proving a challenge, particularly in forests ment enforcement of regulatory requirements managed for protective or conservation purposes through third party, independent assessment Ⅲ Complementary and Mutually Supportive of Inter- In the case study countries the serious concerns and national Regulatory Enforcement: Support to EU misunderstandings on the bene�ts of certi�cation in FLEGT Action Plan, including preparation and Southeast Asia are real. In a comprehensive study in monitoring of TLAS and VPAs, EUTR, Lacey Malaysia, the average cost for certi�cation was US$28/ Act (United States), Illegal Logging Prohibition Bill hectare and involved an average reduction in the an- (Australia), and other international regulations nual allowable cut of 33% and a reduction in the PFA relating to forestry and forest products trade to allow for protected areas and buffer zones. However, Ⅲ Support to Forestry Programs: Supports to major these costs were not balanced by increased premiums on forestry programs, such as FLEGT Action Plan, prices or market access. Companies in Southeast Asia REDD-plus, food security, poverty alleviation, that can continue to sell wood on substantial domestic sustainable livelihoods markets, ASEAN country markets and China did not see a compelling business case for forest certi�cation, Several of these items relate to good forest governance despite the regulatory mechanisms with the FLEGT, and law enforcement, which dovetail inseparably with EUTR and US Lacey Act. e incentives that most legality veri�cation and sustainability certi�cation. companies look for in certi�cation are an agreed upon certi�cation standard, strong and stable demand for cer- ti�ed products, guaranteed price premium and �nancial 3.8.3 Constraints to Veri�cation and incentives to become certi�ed (GFTN, 2007). Certi�cation Some constraints highlighted for the lack of uptake of Bene�ts from certi�cation and veri�cation are not certi�cation in Southeast Asia include: always available to all enterprises. ose that bene�t the most tend to have large holdings or long-term conces- Ⅲ Lack of requirement for certi�ed wood in ASEAN sionary rights, procure raw material from state-owned importing countries and China natural forests or plantations, or have economies of scale Ⅲ Shortage of local capacity to assist with develop- in forest management and certi�cation assessment. ment and implementation of systems Enterprises that have experienced difficulties in secur- Ⅲ Limited capacity in certi�cation bodies to process ing and bene�ting from certi�cation and veri�cation certi�cation requests in a swift and efficient way include: and to monitor performance Ⅲ Increased costs and reduced income and concerns Ⅲ Small holdings, because of their small size, difficult over a biased playing �eld (developed vs. develop- access and high unit costs, unless they form groups, ing countries; rich vs. poor; large vs. medium- and to achieve economies of scale small-scale enterprises; individual enterprises vs. Ⅲ Community forests with weak management sys- smallholder groups or communities and plantation tems and orientation to essential livelihoods ac- forests vs. natural forests) tivities, which need to be factored into market Ⅲ Worker resistance because of additional work load decisions and high costs and new skills requirements Ⅲ Small- and medium-scale enterprises, particularly Ⅲ e perception that building the forest management in developing countries, because certi�cation has and auditing capacities in-country to international higher costs (in relative terms) and their informa- standards for certi�cation are difficult and costly tion, control systems and market experience tend Ⅲ Unclear �nancial bene�ts and business case to be less developed and poorly documented Ⅲ Complex and expensive CoC Ⅲ Forest products generally restricted to wood, �ber Ⅲ Reputational risk associated with failure (not and fuel with NWFPs and provision of ecosystem attaining certi�cation) 75 SECTION 4 C E R T I F I C AT I O N A S Q U A L I F I C AT I O N S FOR FINANCIAL CREDIT INSTITUTIONS 4.1 Introduction financial institutions (local, national and international [including multilateral banks]) facilitates money laun- dering and profitability of illegal logging. Moreover, the T his section focuses on introducing the forestry sec- tor financing context, identifying and introduc- provision of financing to companies with dubious assets ing banks that finance the forest sector in the case or operations, including fraudulent timber concessions, study countries, including international develop- helps to keep illegal logging in business� (Transparency ment banks, international commercial banks and local International, 2011). The effects of weak due diligence banks. Some banks operate in all five countries, whereas were clearly illustrated by the past financial crises (1987, others operate only locally. An important caveat is that 1997, 2008) and their fallout, particularly in Southeast commercial banks are sensitive about disclosing forest Asia. The failure of previous “due diligence� arrange- sector portfolios (including types and scales of invest- ments revealed the gaps that allowed excessive risks to be ment, availability of funding) as a classified and confi- taken, to the detriment of investors. Such breakdowns dential part of their business strategy. In addition, banks permitted the proceeds of corruption from illegal log- that do not commit to sustainability issues are generally ging and other illicit activities to flow and be laundered less open, which biases the sample. However, consider- through the financial system. Some financial institutions ing the constraints, the sample of banks used in this re- and banks even regarded forestry clients as prime clients port gives some indication of the principles and guideline because they brought significant business and profits. of international and local banks in Southeast Asian case study countries. Annex 4 “Banking Sector: Know Your In support of the Financial Action Task Force Against Client Criteria and Guidelines,� supplements this section Money Laundering (G-7 Summit, Paris, 1989), the with more detail on development banks as well as inter- Basel Committee on Banking Supervision, an interna- national and local commercial banks. tional forum of the world’s central banks, issued guide- lines for preventing banks being accessories to crime. One of these was the “Know Your Client� (KYC) rules that required banking supervisors to ensure that their 4.2 Know Your Client clients adopted responsible policies, practices and proce- dures. The KYC rules required financial institutions and Financial institutions provide operational loans, credit banks to report any suspected activities to appropriate guarantees and other forms of investment for companies authorities. Expansion and more systematic exchange of that log or process wood. “Weak due diligence by financial intelligence have occurred, facilitated by better 76 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A communication through new technologies within and 4.3 Types of Financial Flows to among financial institutions around the world. This has not only improved the expertise and capacity of person- the Forestry Sector nel but also increasingly exposed those engaged in and benefiting from forestry crimes, particularly at the top The forestry sector is funded by various financial resources, of the company hierarchy. In extreme cases, accounts sources and mechanisms, including foreign bilateral and of financial backers of illegal logging or forestry crimes multilateral ODA and both foreign and domestic pri- can be frozen, if their laundered money is within the vate sector investments from forest-based companies and international financial system. commercial banks, as synthesized in Table 4.1. KYC rules require financial institutions to undertake Bilateral sources of financing are primarily official due diligence to check the legality, sustainability, health, loans and donations, foreign direct government loans safety, human rights and financial risks of their client’s and access to credits for exports. Multidonor sources investments and activities. Th is helps to identify concerns of financing include loans from global development before proceeding with an investment and can highlight banks (e.g., World Bank Group, including International past problems to be dealt with and future risks to be mit- Finance Corporation [IFC]); loans, technical assistance igated. Proactive measures for financial institutions to and grants from regional development banks (e.g., Asian more effectively undertake the KYC rules include: Development Bank [ADB], African Development Bank [AfDB], Inter-American Development Bank [IADB], Ⅲ Adopt corporate responsibility standards (Inter- European Bank for Reconstruction and Development national Finance Corporation [IFC] Performance [EBRD], EuropeAid), projects and programs from Standards or Environment Health and Safety [EHS] UN agencies (UN Development Program [UNDP], Guidelines, Equator Principles, or other standards) International Labor Organization [ILO], FAO, Ⅲ Use third party, independent verification or International Fund for Agriculture Development certification [IFAD], World Food Programme [WFP], UNEP), and Ⅲ Extend current legislation, agreements or memo- others (Global Environmental Facility [GEF]). randa of understanding into the forestry sector Ⅲ Engage civil society for advocacy and monitoring Commercial private sector financing by foreign or in a transparent manner domestic investors can be (i) direct investments, Table 4.1 Funding and Financing Institutions to the Forestry Sector Bene�ciary/Recipient Source of Private Sector Funding Public Sector Commercial Non-commercial Domestic Ⅲ Government departments Ⅲ Forest companies Ⅲ Subsistence farmers Ⅲ Government agencies Ⅲ Sectoral investors Ⅲ Rural communities (including (e.g., forestry corporations) Ⅲ General direct investors indigenous communities) Ⅲ Research Institutes Ⅲ Large-scale landowners Ⅲ Community-based organizations (forestry institutes and and networks universities Ⅲ NGOs (usually implicit in kind) Foreign Ⅲ Bilateral donors Ⅲ International forestry companies Ⅲ Foundations Ⅲ Multilateral donors Ⅲ Sectoral investments Ⅲ Specialist concessionaires funds (development banks and Ⅲ Specialist direct investors Ⅲ Philanthropists benefactors UN agencies) Ⅲ Institutional equity investors Ⅲ International NGOs Ⅲ Research institutions (banks, pension funds, insurance (general and sectoral) companies, timber investment management organizations, etc.) Source: UNFF (2006). C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 77 with effective direct control/ownership through eq- A summary of bilateral and multilateral financing uity/shares in the business or (ii) indirect invest- flows to the forestry sector in 2000 to 2007 is given in ments such as debt (e.g., commercial bank loans) or Table 4.2. equity (e.g.,  preferential stock, venture capital, etc.). Governance and specifically the prevailing policies for Multilateral financing to forests is estimated at US$0.8 investment and level of risk are critical for both direct billion annually for 2005 to 2007. The World Bank and indirect private investments. Although the pri- Group increased from 51% to 73% for 2000 to 2007, of vate sector is expected to play the lead role in global which the IFC accounted for 55% in the form of equity economic and production activities, higher investment and credit to private sector enterprises. GEF’s share risks are associated with the social, environmental declined from 31% in 2000 to 2002 to 14% in 2005 to and economic factors in long rotations necessary for 2007. The AfDB accounted for 9% of the total multilat- SFM (natural and plantation forests). In addition, un- eral flows to the forestry sector for 2005 to 2007 while even distribution of costs and revenues and unresolved the ADB and the IADB were marginal sources only. issues exist related to the benefits of providing non- ITTO’s contribution was 5% in 2001 but dropped to 2% market, ecosystem services from forests. Investments in 2005 to 2007 (PROFOR, 2008). in developing countries are also associated with higher levels of risk per se. 4.3.2 Private Sector Financing 4.3.1 Bilateral and Multilateral Financing The amount of direct investment in the forestry sector (forests, industries and trade) globally was estimated The bilateral and multilateral funding to the forestry at US$60 billion/year, of which the predominant ratio sector between 2000 and 2002 was US$1.3 billion was domestic (UNFF, 2006). Private investment in the annually and US$1.9 billion annually between 2005 forestry sector in developing countries and countries in and 2007. For the period, the combined bilateral and transition was estimated to be at least US$15 billion/ multilateral financing flows increased by 48%, mainly as year, or up to nine times more than the prevailing a result of increased financing from multilateral sources, ODA flows (World Bank, 2008). Large-scale invest- which accounted for three quarters of the total abso- ments such as pulp and paper plants, forest industries lute increase. Bilateral ODA also increased, albeit at a plants and forest resources that provide the raw ma- slower rate (15%), largely because of contributions by terials from natural or planted forests are often made Japan, which increased by 61%. by international investors and joint ventures, including local partners and development banks willing to cover Since 2000, two thirds of the cumulative forestry ODA the risks. globally has been allocated to Asia, with a peak in 2003, when it reached almost 80% of the total. Of the global Increasing pressure and mechanisms have been applied bilateral ODA to the forestry sector, 95% was provided to ensure that the foreign direct investments are made by nine donors (the European Community, France, in a socially and environmentally responsible manner Finland, Germany, Japan, Netherlands, Switzerland, and that all activities are undertaken in accordance the United Kingdom and the United States). There with legality and sustainability standards. Additionally, has been a trend for bilateral donors to reduce their a growing share of forest industry corporations are ex- allocation to project and program funding and in- porting to environmentally sensitive markets engaged in crease contributions to budgetary support not allocated CSR and have achieved SFM certification or are com- by individual sectors. Additionally there is a trend mitted to stepwise approaches toward demonstrating to integrate forests as a component of wider climate sustainability of their wood supplies. In order to avoid change, food security, poverty alleviation, rural devel- financing illegal and unsustainable activities in forest opment, landscape restoration, integrated watershed investments, international commercial banks are in- management and energy programs (PROFOR, 2008). creasingly signatories to the Equator Principles and the 78 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Table 4.2 Bilateral and Multilateral Financing Flows to the Forestry Sector, 2000–2007 2000–2002 2005–2007 Change 2000–2007 Fund Source US$ millions/year Share % US$ millions/year Share % % Bilateral 2006 exchange rates and prices European Union 101.2 10.6 115.7 10.5 14.3 Finland 20.3 2.1 12.7 1.2 237.4 France 21.3 2.2 19.3 1.7 29.2 Germany 130.9 13.6 126.0 11.4 23.8 Japan 329.0 34.3 530.5 48.1 61.3 Netherlands 111.7 11.6 88.5 8.0 220.8 Switzerland 30.2 3.1 30.6 2.8 1.4 United Kingdom 39.2 4.1 28.7 2.6 226.8 United States 95.9 10.0 97.6 8.8 1.8 Other 79.5 8.3 53.8 4.9 232.4 Sub-total 959.2 100 1,103.4 100 15.0 Multilateral 2006 exchange rates and prices AfDB 35.8 10.7 72.7 9.0 103.2 ADB 6.9 2.0 12.4 1.5 79.9 GEF 104.1 31.1 109.4 13.6 5.1 IADB 2.1 0.6 9.1 1.1 331.3 ITTO 16.6 5.0 16.3 2.0 21.8 IFC 78.0 23.3 324.0 40.2 315.4 World Bank 91.5 27.3 262.7 32.6 187.1 Sub-total 335.0 100 806.7 100 140.8 Total 1,294.3 1,910.1 47.6 Bilateral Share % 74.1 57.8 Source: PROFOR (2008). UN Principles of Responsible Investment (PRIs) and developing countries, where the social and environmen- have adopted legality and sustainability safeguards in tal standards were less stringent and potential financial their project finance. returns higher. Target markets were East Asia (China, Hong Kong and Singapore), Latin America (Brazil, The global trends show that although foreign direct Mexico and Argentina) and North Africa. Domestic investments remain important in developing coun- direct investment remains extremely important in the tries because they bring foreign exchange earnings and forestry sector; however, information is either non-exis- technology transfer, 80% to 95% of private investment, tent or not available. Local banks and other domestic in- in 1995 to 2004, including in the forestry sector, was vestors in Southeast Asia, generally, are not signatories domestic financing (ITTO, 2006b; UNFF, 2006; and to the Equator Principles or PRIs and do not require or PROFOR, 2008). In the 1980s, foreign direct invest- monitor compliance with international social, environ- ment was 85% in developed countries and only 15% mental, health or safety standards, nor proof of legal- in developing countries. During the 1990s a signifi- ity or sustainability through verification or certification cant increase was seen in foreign direct investment into schemes. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 79 4.4 Global Principles, Standards Ⅲ Performance Standards 3 on Environmental and So- cial Sustainability (2006, updated 2012) that defines and Guidelines in Forestry Sector client roles and responsibilities for IFC support Ⅲ Environmental, Health and Safety Guidelines (EHS),4 Investment which is a technical reference document that pro- vides general and industry-specific examples of good The framework of social, environmental and economic international industry practices for IFC staff and sustainability and legality standards for financial clients, used particularly during project appraisal. institutions to commit to responsible decisions on their Reference to the general EHS Guidelines by IFC investments and their clients’ business activities are clients is required under IFC Performance Standard detailed in the Sustainability Framework of the IFC, 3 (Pollution Prevention and Abatement). EHS the Equator Principles and the PRIs. guidelines specific to forestry are elaborated in sepa- rate four business areas: board and particle-based products, sawmilling and wood-based products, for- 4.4.1 International Finance Corporation (IFC) est harvesting operations, and pulp and paper mills Sustainability Framework Ⅲ Environmental and Social Review Procedures Manual,5 which defines the client compliance requirements The IFC is a member of the World Bank Group and with respect to the Policy and Performance Standards provides loans, equity, structured finance, risk man- on Environmental Sustainability, Access to Informa- agement products and advisory services to the private tion Policy and Environmental Health and Safety sector in developing countries. The IFC prepared a suite Ⅲ Guidance Notes, which supplement the Perfor- of Safeguard Policies (1990–1998) and Environment, mance Standards to guide clients and IFC staff on Health and Safety Procedures from 1998. A more how to meet the standards comprehensive and integrated IFC Sustainability Ⅲ Exclusion List,6 which defines the types of projects Framework1 was originally adopted in 2006, recently that IFC will not finance updated from 1 January 2012 to incorporate lessons from IFC’s implementation experience and feedback The Sustainability Framework components are reported from stakeholders and clients around the world. The in more detail in Annex 4. new Sustainability Framework reflects the evolution in good practice for environmental and social sustain- In addition, the IFC has an Access to Information ability, risk mitigation and transparency. It helps protect Policy that reflects their commitment to transparency people and the environment, promotes accountability, and good governance on its operations and outlines and supports clients in managing risks and doing busi- their institutional disclosure obligations regarding its ness in a sustainable way. investment and advisory services. The key Sustainability Framework components are: 3. IFC Performance Standards for Environmental and Social Sustainability: http://www1.ifc.org/wps/wcm/connect/115482804a 0255db96f bffd1a5d13d27/PS_English_2012_Full-Document.pdf? Ⅲ Policy on Environmental and Social Sustainability 2 MOD=AJPERES that defines IFC responsibilities in supporting proj- 4. IFC Environmental Health and Safety Guidelines: http://www1. ifc.org/wps/wcm/connect/190d25804886582f b47ef66a6515bb18/ ect performance ESRP_Manual.pdf?MOD=AJPERES&CACHEID=190d258048 86582f b47ef66a6515bb18 5. IFC Environmental and Social Review Procedures Manual: http://www1.ifc.org/wps/wcm/connect/190d25804886582f b47ef66 a6515bb18/ESRP_Manual.pdf?MOD=AJPERES&CACHEID 1. IFC new Sustainability Framework: www.ifc.org/sustainability =190d25804886582f b47ef66a6515bb18 2. IFC Policy on Environmental and Social Sustainability: http:// 6. IFC Exclusion List: http://www1.ifc.org/wps/wcm/connect/Topics_ www1.ifc.org/wps/wcm/connect/7540778049a792dcb87efaa8c6a83 Ext_Content/IFC_External_Corporate_Site/IFC+Sustainability/ 12a/SP_English_2012.pdf?MOD=AJPERES Sustainability+Framework/IFC+Exclusion+List/ 80 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 4.4.2 The Equator Principles Ⅲ One Asian banking group is an EPFI and local Asian banks lend without significant social or The Equator Principles are a voluntary set of standards for environmental due diligence the financial institutions for determining, assessing and Ⅲ As a voluntary standard, the EP monitoring and managing social and environmental risk in project financ- compliance by EPFIs are not enforced ing. The Equator Principles were derived from the IFC’s Ⅲ Lack of transparency and open to interpretation by Performance Standards on Social and Environmental signatory banks Sustainability, and on the World Bank Group’s Ⅲ Signatories may be unwilling to disclose lending Environmental, Health and Safety general guidelines.7 The activities to the public due to client confidentiality Equator Principles provide a common baseline and frame- work of sustainable banking principles for use by adopt- There is potential for the Equator Principles and EPFIs ing institutions to prepare their own internal social and to be more proactive to legality and sustainability environmental policies, procedures and standards. There using existing verification and certification tools avail- are currently 76 Equator Principles Financial Institutions able. Additionally, there is potential for EPFIs and (EPFIs) that are signatories to, or adopters of, the Equator governments to encourage domestic commercial banks to Principles.8 These are mainly international commercial become signatories to the Equator Principles or at least banks. The Equator Principles are broadly in line with the integrate social and environmental, health and safety is- Safeguard Policy Statement of the Asian Development sues into their risk management standards for investment. Bank, the policies of the European Investment Bank and the Export Credit Agencies of the OECD. 4.4.3 UN Principles for Responsible The Equator Principles have increased awareness Investment (PRIs) of legality and social, environmental and economic sustainability in business management. In the forestry Established in 2005, the PRIs were derived by some sector, EPFIs are committed to: of the world’s largest institutional investors. There are currently 1,054 signatories globally, of which more than Ⅲ Exclude investment in commercial logging opera- 60% are investment managers. The six principles are: tions or purchase of logging equipment for use in primary tropical forests Ⅲ Incorporate ESG issues into investment analysis Ⅲ Finance only preservation and light, non-extractive and decision making processes use of HCVFs Ⅲ Be active owners and incorporate ESG issues into Ⅲ Finance forest plantations only on non-forested ownership policies and practices areas or degraded forest lands (conversion from Ⅲ Seek appropriate disclosure on ESG issues by the natural forests prohibited) entities in which they are invested Ⅲ Promote acceptance and implementation of the However recognized limitations include: Principles within the investment industry Ⅲ Work together to enhance effectiveness in imple- Ⅲ Threshold project financing is US$10 million menting the Principles Ⅲ Forest financing is not typically on a project basis, Ⅲ Report on activities and progress toward imple- as most forestry companies use their balance sheet menting the Principles to finance expansion Ⅲ There is no specific reference to verification or cer- PRIs are voluntary, and membership is reviewed annually. tification (forest or CoC) as tools for legality and If signatories do not report on progress toward achieving sustainability the PRIs, they are removed from the responsible investors list. PRI Network Supporters are non-profit, peer organi- 7. See more: http://www.ifc.org/ifcext/sustainability.nsf/Content/ EnvironmentalGuidelines (Sourced: 24 February 2011) zations that actively support the PRI and raise awareness 8. Equator Principles website: http://www.equator-principles.com/ of responsible investments within their investment com- index.php/members-reporting munity in different sectors and regions. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 81 In Asia there are only 21 Local Fund Manager sig- Ⅲ Review and measure internal progress toward natories (Japan, 7; Hong Kong, 5; Republic of Korea, sustainability goals 4;  Singapore, 3; and Malaysia and India, 1 each), Ⅲ Adapt and develop products and services to two Asset Owner signatories (both in the Republic promote the principles of sustainable development of Korea), and 14 Professional Service Partners (the Republic of Korea, 6; Japan, 2; Hong Kong, 2; and As signatories to the UNEP Statement of Commitment Malaysia, Singapore and India, 1 each). Southeast Asia by Financial Institutions on Sustainable Development, is almost invisible, with only nominal representation financial institutions recognize the role of the fi nan- from Malaysia. This demonstrates a lack of awareness cial services sector in making economies and lifestyles of, or commitment to, the Principles by local commer- sustainable and commit to the integration of environ- cial banks, investment organizations, local fund manag- mental and social considerations into all aspects of their ers and professional service providers. financial services operations. The potential is huge to strengthen domestic financial In Indonesia, PT Bank Negara Indonesia Tbk (BNI) and institutions’ awareness of, and commitment to the PRIs. Bank bjb (West Java state government) are signatories to the UNEP Finance Initiative. No banks in Malaysia, Vietnam, Thailand or Lao PDR are signatories. 4.4.4 United Nations Environment Program (UNEP) Finance Initiative 4.4.5 Asian Development Bank (ADB) Safeguards The UNEP Finance Initiative9 is a global partnership Policy Statement (SPS) between UNEP and 200 signatories representing the global fi nancial sector, to develop and promote linkages The ADB SPS, governing the environmental and between sustainability and fi nancial performance. social safeguards of their operations, were approved in Activities include research on internalizing ESG 2009 (ADB, 2009). The SPS aims to avoid, minimize issues; guidelines for implementation tools, training or mitigate harmful environmental impacts and social and capacity building; and seminars and conferences costs and help clients strengthen their safeguard and networking among signatories and stakeholders. systems. The policy has safeguards for environmental, involuntary resettlement and indigenous peoples. The Key sustainability commitments include: ADB also has a forest policy that focuses on the promo- tion of SFM and a Rapid Environmental Assessment Ⅲ Adopt a precautionary approach to environmental Checklist that determines the risk category for for- and social issues, to anticipate and prevent potential estry projects and the need for an environmental im- negative impacts on the environment and society pact assessment. The ADB has a prohibition list that Ⅲ Comply with local, national and international laws includes activities that they will not fund. Included is and regulations on environmental and social issues commercial logging or purchase of logging equipment Ⅲ Identify and quantify environmental and social to use in primary tropical moist forests or old growth risks as part of risk assessment and management, forests. Furthermore, their Vision 2020 focuses on ar- both in domestic and international operations resting deforestation and greenhouse gas emissions Ⅲ Pursue best practice in environmental manage- through SFM and improved land-use management; ment and seek to form business relations with enhancement of carbon stocks through reforestation, customers, partners, suppliers and subcontractors, afforestation, forest and landscape restoration); and who follow similarly high environmental standards conservation of existing carbon stocks. Ⅲ Update practices periodically to incorporate new developments in sustainability management Over the last decade, the level of loans, technical assistance and grant contributions to the forestry sector in the case 9. UNEP Finance Initiative: http://www.unepfi.org/about/index. study countries dropped from more than US$208 million html (Sourced 28 May 2012). in 1980 to 2000 (average US$20 million annually) to 82 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Table 4.3 ADB Loans, Technical Assistance and Grants in Case Study Countries, 2000–2012. Funding Country Project Description Status Type US$ (Millions) Indonesia Forest Investment ADB TA 0.2 Assist government to prepare Approved Strategy forest investment strategy 2012 Government 5.0 Sustainable Forest ADB TA 0.7 Support government toward Proposed & Biodiversity achieving SFM Approval, GEF 2.5 Management in Borneo June 2012 Climate Change Fund 1.3 Vietnam Forests for Livelihoods ADB Loan and TA 45.3 Natural and plantation forest Approved in the Central Highlands SFM to improve livelihoods 2006 Forest Trust Funds, TA 0.8 Lao PDR Tree Plantations for ADB TA 0.7 Improve livelihoods through Approved Livelihoods tree plantations 2001 ADB Loan 7.0 Forestry Plantation ADB TA 0.3 Private sector forest Approved Sector Development plantation development 2004 Total ADB 54.2 Co-funding 9.6 Total 63.8 Source: ADB Projects Database: http://www2.ADB.org/Projects/ US$54 million in 2000 to 2012 (average US$4.5 million banks in this report are actively financing companies annually). There were no loans, grants or technical and operations in the forestry sector in Southeast Asia. assistance specifically for the forestry sector in Malaysia More detail on each bank is provided in Annex 4. or Thailand between 2000 and 2012. This decrease may be due to the social and environmentally sensitivity of forestry investments, concerns for governance and corrup- 4.5.1 Hong Kong Shanghai Banking tion in the forestry sector, the prevalence of other sources Corporation (HSBC) of finance (bilateral and multilateral donors, commercial The HSBC, a founding Equator Principles Financial banks, etc.) and the integration of forestry within inte- Institution (EPFI) since 2003, has policies covering grated rural development, landscape, livelihoods, climate a wider range of financial services, which are applied change and bioenergy programs. The ADB financing in regardless of the value of transaction or size of busi- the case study countries is summarized in Table 4.3. ness. The HSBC has developed a series of risk policies for sensitive sectors, including the Forest Land and Forest Products Sector Policy (2008),10 consistent with the Equator Principles, that provides guidance on their 4.5 Selected International legality and sustainability standards. Clients involved in logging and harvesting activities must respect permits, Commercial Banks in quotas and concession areas; local laws and corruption; Southeast Asia 10. HSBC updated and strengthened its Forest Land and Forest There are no readily available data or information on the Products Sector Policy in 2008: http://www.hsbc.com/1/PA_esf- forestry investments by international commercial banks ca-app-content/content/assets/csr/080905_forest_land_and_forest_ products_sector_policy_summary.pdf and http://www.hsbc.com/1/ in the case study countries, because of the confidenti- PA_1_1_S5/content/assets/csr/080905_forest_land_and_forest_ ality and sensitivity of the information. The case study products_sector_policy_faq.pdf (Sourced: 21 May 2012). C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 83 legal rights of communities; and low impacts in HCVF. credible path toward operating managed forests that Additionally, clients must minimize harm to ecosys- are certified by the FSC or equivalent standard, and tems; maintain forest productivity; maintain forest process or trade in products that are FSC certified or ecosystem health and vitality; safeguard traditional equivalent (with CoC equivalent documentation). The and customary rights of indigenous communities; and SCB will finance forest plantations on previously con- balance economic, social and environmental interests. verted natural forest land, only after fi ve years have passed and if no direct link can be demonstrated to the The HSBC will not finance illegal logging activities original deforestation. All new forest plantation devel- or logging in World Heritage Sites or wetlands within opments must have an environmental and social impact the RAMSAR list. Restrictions exist on activities assessment acceptable to SCB. In recognition that not in HCVF; plantations converted from HCVFs; pulp all clients can immediately meet these standards, the and paper without certification; biofuels unless from SCB or independent technical specialists will work with sustainable sources; palm oil and soy plantations, unless the clients to develop a time-bound action plan toward certified; and a cautious approach to forests managed on verification and certification and to monitor the client’s peat lands. progress. The HSBC uses the FSC certification scheme as a 4.5.3 Citibank benchmark but does not finance plantations converted from HCVF from 2004. In FSC the cutoff year is Citibank was one of the four global financial institutions 1994. HSBC clients are considered fully compliant with that drafted the initial set of Equator Principles and was the bank’s policy, when their activities are 70% certi- a founding EFPI in 2003. Citibank has shown leader- fied as sustainable and when there is evidence that the ship on the EPFI Steering Committee and several EPFI remaining (30%) is legal. working groups and was the principal drafter of the Equator Principles review in 2006. In 2003, Citibank 4.5.2 Standard Chartered Bank (SCB) developed their own Environmental and Social Risk Management (ESRM) Policy, which applies a review The SCB, a founding EPFI since 2003, has adopted an and risk management framework similar to that of the environmental and social safeguards approach. For new Equator Principles.12 and existing clients to be eligible for SCB financing, they must conform to the SCB Forestry and Palm Oil In the Citibank’s ESRM Policy risk assessment process Position Statement that details the standards and prac- standards and impacts on forests were detailed in their tices to evaluate and mitigate social and environmental Sustainable Forestry Policy Sector Standard13 first devel- risks.11 SCB also follows the IFC’s EHS industry sector oped in 2004 under an Anti-Illegal Logging Initiative guidelines on Forestry and Plantation Crop Production and refined and expanded in 2006. The Sustainable (2007) and complements and reinforces their commit- Forestry Policy Sector Standards are based on the IFC’s ment to the Equator Principles. Performance Standards and EHS Guidelines. Citibank clients directly involved in logging or harvesting natural The SCB will not finance commercial logging opera- or plantation forests or primary processing of timber14 are tions or logging equipment to be used in primary tropi- subject to Citibank’s risk management actions according cal moist forests, HCVFs, critical natural habitats, illegal logging, or CITES listed species. However, the SCB encourages its clients to manage forests cer- 12. http://www.citigroup.com/citi/environment/esrmpolicy.htm (Sourced: 5 April 2011). tified by FSC or equivalent standards, demonstrate a 13. http://www.citigroup.com/citi/environment/data/forestry.pdf (Sourced: 5 April 2011). 11. http://www.standardchartered.com/_documents/Forestry_and_ 14. Primary processing includes milling of logs for pulp, paper, Palm_Oil_Position_Statement.pdf (Sourced: 4 April 2011). sawnwood, plywood or veneer. 84 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A to the sensitivity and location of their operations. All BoA will not finance companies or projects with opera- clients, regardless of risk level, must comply with tions in illegal logging; primary, tropical moist forests; local and national forestry and environmental laws to indigenous communities that have not had free prior prevent illegal logging. Clients operating in “high-risk� and informed consultation or consent (FPIC); indige- countries15 with a significant threshold of concern over nous lands where claims are not settled; uncontrolled or legality must develop a plan to achieve FSC certification illegal fire; or violation of local, state, national or inter- within a timeframe to be agreed upon with Citibank national environmental, labor or social laws. (e.g., 3–5  years). Clients are subject to an annual for- est products risk assessment to determine the client’s BoA supports third party certification with credible, in- risk status. If customers refuse to develop an action dependent and widely accepted standards (e.g., FSC, SFI plan toward FSC certification, Citibank would consider and CSA) as demonstrating legality and sustainability.17 terminating the client relationship. Under Citibank’s ESRM Policy, no operations that significantly convert BoA’s Paper and Procurement Policies seek to maintain or degrade critical habitats will be fi nanced. the ecological health of forests through source reduction and recycling, sustainable forest practices and protection of endangered forests. The bank also encourages third 4.5.4 Bank of America (BoA) party suppliers of goods and services to employ sound en- vironmental business practices. The Paper Procurement BoA, an EPFI since 2004, adopted its own Sustainable Policies are detailed in Annex 4, Table A4.13. Forestry Policy in 2004. Its Forest Lending Policy16 applies to all extensions of credit and to bond under- writing, where proceeds are project-specific. BoA has three pillars to their global corporate investment bank 4.6 Local Financial Credit policy in forestry, including Forest Practices; Forest Certification; and Paper Procurement. BoA expects due Institutions in Southeast Asia diligence and monitoring of all operations. 11.6.1 Indonesia The Forest Practices have policies on legality, sus- Partly due to the 1997 Asian Financial crisis and tainability, critical habitats, reforestation, indigenous changing expectations on corporate behavior, financial communities, uncontrolled fi re and international com- institutions and banks in Indonesia have been mitments. To maintain sustainability of operations, increasingly scrutinized on their influence on the use BoA partners with reputable environmental agen- and governance of forests and actions needed to miti- cies to evaluate the value of various forest certification gate adverse environmental, social, health and safety programs to reduce risk and encourage best practices effects. In the Indonesian forestry sector, state-owned to achieve SFM. In critical habitats, such as primary and international banks and financial institutions were forests or HCVFs, BoA requires independent, third linked to industrial growth and wealth creation. During party audit and proof of authorities of government. The the Suharto regime, Indonesian forestry companies bank will finance tree plantations on previously cleared became major players in international forest products forest land if conducted in compliance with applicable markets, particularly in plywood and pulp, through laws and regulations. Exceptions are allowed after five subsidized credits and political cronyism. This resulted years, if there is no direct link to deforestation. in inappropriate investment and gross over capacity (three times sustainable wood supply) in forests prod- ucts industries, which remain drivers of unsustainable 15. Citibank’s Sustainable Forestry Policy refers to a list of “ high-risk� countries that have been documented to have a higher forest practices, deforestation and illegal logging. rate of illegal logging than other countries. 16. http://webmedia.bankofamerica.com/environment/pdf/Forest_ 17. http://webmedia.bankofamerica.com/environment/pdf/Forest_ Lending_Policy.pdf (Sourced: 6 April 2011). Certification.pdf (Sourced: 6 April 2011). C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 85 International financial institutions financing logging threats to their financial security (CIFOR, 2007). and forest industries in Indonesia include Credit Mandiri Bank has no robust standards or monitoring Suisse, First Boston, ING Bank N.V., Credit Lyonnais systems in place to measure legality or sustainability of of Singapore, which supported the rapid expansion forestry sector activities or actively encourage verifica- of particularly the pulp and paper sector. Financial tion or forest certification systems. institutions supporting oil palm plantation development that has triggered deforestation in Indonesia included BNI and Bank bjb (West Java) are signatories to the four Dutch banks, ABN AMRO Bank, ING Bank, UNEP Finance Initiative so that they are aware that Rabobank and Mees Pierson (CIFOR, 2005). economic development needs to be compatible with human welfare and a healthy environment and that The Indonesian Bank Restructuring Agency (IBRA) was sustainable development is the collective responsibility created as a super agency in 1998 with sweeping powers of governments, businesses and individuals. However, to reform and restructure the banking sector, including there was no evidence of a commitment to verification or the forestry sector. IBRA was strongly influenced by forest certification as tools for legality or sustainability. the Financial Sector Policy Committee, rather than the Indonesian Working Group on Forest Finance, so The Indonesian government enacted law 25/2003 on forestry sustainability issues were ignored and forest pol- anti–money laundering that included forestry and envi- icy undermined in IBRA’s policy and restructuring of ronmental crimes in the list of crimes to be monitored.19 debt. IBRA saw the forest industries as strategic for eco- In 2009, the Indonesian Central Bank put in place a nomic recovery of Indonesia and viewed unsustainability regulation requiring commercial banks to implement and legality as low priorities. The companies reformed an anti–money laundering program and a circular that and restructured by IBRA continued and even increased required forestry documentation requested by banks to their forest products exports, mostly under their original verify forest-based companies’ claim on the sources of owners. As a result, cash flows were not used to reduce their revenues. However, monitoring and enforcement debt but suspicious financial transactions continued, in- of the law and regulations are weak. cluding party transactions and trade credits, currency and interest rate swaps, expansion of business in China (and 4.6.2 Malaysia elsewhere) and creative accounting to report financial losses to gain favorable tax rates, debt restructuring and The largest public bodies fi nancing the forest sector in write-off terms. By 2002, IBRA had 234 forestry based Malaysia are the federal and state governments. They accounts with US$3.22 billion of debt (CIFOR, 2007). allocate annual operational budgets for administering and managing forests, including certification of natural In 2004, nearly half of the assets of the banking system forests in the PRFs in Peninsular Malaysia; and the were controlled by state-owned banks. Some examples five-yearly development budgets under the five-year of local or state-owned banks in Indonesia are Mandiri development plans (currently the Tenth Malaysia Plan, Bank, PT Bank Negara Indonesia TbK (BNI) and 2011–201520) for (i) development of the forest resources Bank Rakyat Indonesia (BRI). Most forestry conglom- and (ii) implementation of conservation and manage- erates are clients of Bank Mandiri, the largest bank in ment projects and (iii) forest protection programs. Indonesia. Although one of Bank Mandiri’s missions states concern for the environment and communities,18 The federal government also grants soft loans to the bank has been lenient on illegal logging and companies to fund forest plantation projects, which have unsustainable harvesting of forests, because the forestry conglomerates and the forest industries posed serious 19. CIFOR: http://annualreport2010.cifor.cgiar.org/articles/ improving-due-diligence-to-reduce-money-laundering-in-the- forestry-sector.html 18. Good Corporate Governance Charter: http://phx.corporate-ir. net/External.File?item=UGFyZW50SUQ9MTczMnxDaGlsZElE 20. Government of Malaysia: http://www.epu.gov.my/html/themes/ PS0xfFR5cGU9Mw==&t=1 (Sourced: 21 April 4 2011). epu/html/RMKE10/rmke10_english.html. 86 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A no social or environmental preconditions. Applications institutions should incorporate environmental and so- for such a loan are restricted to 5,000 hectares per ap- cial dimensions into their borrower appraisal system plication. Currently the federal government provides soft when complying with Decision 493. 26 However, little in loans of ringgit (RM) 5,400 (US$ 1,713.20) and RM practice has been applied. 3,200 (US$ 1,015.23) for companies to plant a hectare of Hevea species (rubber trees) and non-Hevea species, Vietnamese banks financing the forest sector are the respectively.21 The criteria for getting a soft loan do not Vietnam Bank for Agriculture and Rural Development specify social or environmental preconditions or demands (Agribank) and Vietnam Bank for Industry and Trade on the company. The government is mainly concerned (operating as VietinBank). Local Vietnamese banks do with the company’s title to land, its financial performance not require documentation of sustainability, legality or and stable cash-flow, and past record of loan repayments.22 certification. The international financial institutions and banks in Malaysia 23 generally comply with international Equator 4.6.4 Thailand Principles and ESG policies and standards. However, the ESG policies and standards were less apparent for More than 10 commercial banks operate in the for- national banks and investment houses.24 It proved to be estry sector in Thailand, including both local and in- difficult to find out which local banks financed the for- ternational commercial banks. The international banks, est sector in Malaysia, because this information is gen- such as SCB, BoA and Citibank, have operated in the erally confidential between the institutions and their sector for some time. Examples of Thai banks support- clients. There are no specific national private financing ing natural resource–related projects are (i) Krung Thai bodies in Malaysia with specific polices, strategies or Bank, PCL, in which the Thai Government holds the commitments to sustainability principles when financ- largest shares; (ii) Siam Commercial Bank, PCL, which ing the forestry sector. supports community enterprises and stresses the im- portance of environmental conservation; (iii) Kasikorn Bank, PCL, which is similar to Siam Commercial Bank 4.6.3 Vietnam PCL; and (iv) Government Savings Bank, owned by the Government of Thailand. In Vietnam, banks are required to set up a system of as- set classification and provisions under Decision 493, 25 Since the 1997 Asian financial crisis, the Stock which does not include environmental or social risks as Exchange of Thailand (SET) has sought to regain in- part of assessing borrowers. However, the State Bank vestor confidence through strengthening listed com- of Vietnam recommended in 2005 that all financial panies’ corporate governance systems and practices. Several provisions of SET’s principles and recommen- 21. Indufor’s local consultant in Malaysia. dations for good corporate governance relate to environ- 22. http://www.fao.org/forestry/25441-067d0dd8b03293df878d2d mental and social performance. SET’s good corporate f3abbd6550b.pdf . governance principles identify stakeholders that should 23. For instance, ABN Amro Bank, Bangkok Bank, Bank of be recognized by the company and “should be treated America, Bank of China, Bank of Tokyo-Mitsubishi, Citibank, Deutsche Bank, HSBC, JP Morgan Chase Bank, Bank of Nova fairly in accordance with their legal rights as specified Scotia, OCBC Bank, Standard Chartered Bank and United in relevant laws.� These include the communities with Overseas Bank. whom the company operates.27 24. For instance, Maybank, CIMB Bank, Public Bank, RHB, AMMB Holdings, Hong Leong Bank, EON Capital, Affi n Holdings and Bank Islam. 26. IFC: http://www.ifc.org/ifcext/mekongpsdf.nsf/Content/PR-43 (Sourced: 19 April 2011). 25. The State Bank of Vietnam has enacted Decision No. 493/2005/ QD-NHNN dated 22 April 22 2005 issuing the Regulations 27. Thailand’s Commercial Banks’ Role in Financing Dams in on Classification of Debts and Loss Provisioning in Banking Lao PDR and the Case for Sustainable Banking http://www. Operation of Credit Institutions. Source: http://www.ykvn-law.com/ internationalrivers.org/fi les/attached-fi les/sustainablethaibanks_ir_ publications/Decision%20493.v2_eng.pdf (Sourced: 19 April 2011). dec09.pdf. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 87 Regarding sustainability risk management, Thai com- There are also a few active private fi nancing bodies in mercial banks have made largely aspirational state- the forest sector of Lao PDR, but they only evaluate ments with few details. None of the banks have publicly financial indicators. The private financing bodies are released a detailed environmental and social policy, as Banque Pour Le Commerce Extérieur Lao (BCEL), recommended by the SET. Only Kasikorn Bank has Phongsavanh Bank, Lao-Viet Bank, Lao Development a publicly available CSR Policy, 28 which is, however, Bank and Agriculture Promotion Bank (APB). These far from comprehensive. Kasikorn Bank and Krung banks screen their wood industry clients by evaluat- Thai Bank are also members of the Thailand Business ing the financial indicators only. They have no criteria Council for Sustainable Development, which intends to to evaluate sustainability and legal compliance risks of establish a set of voluntary social responsibility guide- their prospective forestry clients. lines under the ISO 26000. 29 Only Siam Commercial Bank explicitly identifies reputational risk “in dealing with businesses that are subject to social criticism,� but it does not exclude dealing with such businesses. It 4.7 Evaluation of Client Legality merely lays out a decision making chain of command and Sustainability to consider such lending. It is clear that at present Thai banks’ commitments to ESG, legality or sustainabil- The policies, practices and procedures vary considerably, ity are not rooted in their day-to-day business decision particularly between international and local financial making. institutions and banks. International development fi- nance institutions together with commercial banks most 4.6.5 Lao PDR often have advanced principles and policies in place to minimize the risk for financing illegal or unsustain- In most cases in Lao PDR, social and environmental able activities. In contrast, the policies of local banks to preconditions for financing are based on project sup- evaluate sustainability risks are generally weak, because port, while the screening is based on the procedures of they typically focus on traditional financial risks. Local the Department of Forest Inspection (DOFI). This is banks are thus less equipped to provide comprehensive the case for SUFORD, which assists the Lao PDR gov- social, environmental and legality risk-rating for their ernment to develop participatory SFM. The screening loans. Table 4.4 summarizes ESG policies of financial of forestry clients is based on procedures specific to the institutions in case study countries. evaluation of sustainability, risks and legal compliance by DOFI. DOFI is the Lao PDR government’s primary A broad categorization of the level of ESG due dili- agent to address the problems of illegal logging, smug- gence by broad type of financial institutions studied is gling of timber and wildlife, forestry-related corruption summarized in Table 4.5. and illegal land encroachment. DOFI is empowered to conduct forestry control operations, investigate al- 4.7.1 Client Legal Compliance (Legality) legations of illegal logging, make arrests and pursue prosecutions and collaborate with other agencies, the With regard to legal compliance risks, all financial private sector and civil society in pursuit of forest law credit institutions and banks make some reference to enforcement.30 compliance with applicable international, national, lo- cal and, at times, even customary laws and regulations. 28. CSR: http://www.kasikornbank.com/EN/SocialActivities/ All banks thus state that they will not finance activities Pages/SocialActivities13.aspx (Sourced: 15 April 2011). that are in violation of the law. The sample of interna- 29. ISO 26000 is an ISO International Standard guiding tional commercial banking groups in this report were organizations in their efforts to operate in socially responsible manner. signatories to the Equator Principles, but additionally 30. http://www.katoombagroup.org/~foresttr/documents/fi les/ had principles, policies and procedures in place that ex- doc_832.pdf (Sourced: 15 April 2011). pected clients to comply with local, regional, national 88 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Table 4.4 Examples of ESG Commitments of Financial Institutions in Southeast Asia Fund Signatories to: Forest Policy Highlights Institution PRI EP Policy International HSBC Yes Yes Yes Ⅲ Will not �nance or support illegal logging or plantations based on conversion of natural forests or operations that disturb HCVFs Ⅲ Will not �nance manufacture of pulp and paper if raw material supplier not certi�ed in accordance with HSBC policy on certi�cation Ⅲ Policy based on FSC certi�cation as a benchmark, but monitoring by credible third party technical experts, publicly available information and commissioned analyses SCB No Yes Yes Ⅲ Will not �nance or support commercial logging and purchase of logging equipment for purchase, trade or process of timber from primary tropical moist forest; HCVF and critical natural habitats; companies in violation of local or national laws on illegal logging; and logging of CITES listed species Ⅲ Will �nance forest plantations on previously converted natural forests after 5 years, if no direct link with the conversion; and subject to an approved environmental and social impact assessment report Ⅲ Will work with clients on a time-bound action plan toward veri� cation and certi�cation Ⅲ Encourages clients to manage forests that are FSC certi�ed, or equivalent standard, or demonstrates a credible path toward FSC certi�cation, or equivalent standard CitiBank No Yes Yes Ⅲ All operations must comply with local and national forestry and environmental laws Ⅲ Will not �nance clients that signi�cantly convert or degrade a critical habitat Ⅲ For other high-risk geographies/operations, client must agree to a plan to achieve FSC certi�cation within 3–5 years Ⅲ Launched a training program with Rainforest Alliance (2007) to help bankers understand illegal logging issues BoA No Yes Yes Ⅲ Will not �nance projects in illegal logging; primary tropical moist forests; indigenous communities without free, prior informed consent; indigenous lands with disputed claims; uncontrolled or illegal �re; violation of local, state, national or international environmental, labor or social laws Ⅲ Paper and Procurement Policies support SFM, protection of endangered forests and recycling and more efficient wood raw material supplies Ⅲ Require government approvals and independent, third party audit of critical habitats Ⅲ Recognizes FSC, SFI and CSA certi�cation and will consider other credible, independent and widely accepted third party certi�cation standards National Mandiri Bank, No No No No robust ESG or related risk measures or monitoring systems identi�ed to Indonesia measure legality or sustainability Am Bank, Malaysia No No No No robust ESG or related risk measures or monitoring systems identi�ed to measure legality or sustainability CIMB Bank, Malaysia No No No No robust ESG or related risk measures or monitoring systems identi�ed to measure legality or sustainability RHB Bank, Malaysia No No No No robust ESG or related risk measures or monitoring systems identi�ed to measure legality or sustainability Agribank, Vietnam No No No No robust ESG or related risk measures or monitoring systems identi�ed to measure legality or sustainability VietinBank, Vietnam No No No No robust ESG or related risk measures or monitoring systems identi�ed to measure legality or sustainability Kasikorn, Bank, No No No No robust ESG or related risk measures or monitoring systems identi�ed to Thailand measure legality or sustainability Source: Authors’ compilation. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 89 Table 4.5 Varying Degrees of ESG Due Diligence (Know Your Client) between Financial Institutions Institution Financial Services Levels of ESG Due Diligence Development banks Equity, debt, hybrid Typically strong due diligence practices and monitoring policies in place (e.g., World Bank, �nance, trade �nance and as part of their mandates. Leaders in ESG safeguards and guidelines and IFC, ADB) sustainable �nance provide leadership to influence national banks through their role in funding intermediaries. Encourage credible third party veri�cation and certi�cation for legality and sustainability. International Bank loans, project Certain degree of self-regulated policies, practices and procedures for ESG in commercial banks (e.g., �nance, trade �nance, conformity with the IFC Performance Standards or EHS Guidelines, or Equator HSBC, SCB, Citibank, BoA) �nancial advisory Principles, including in the forestry sector. Guidelines or rules of operations and projects that will, and will not, be funded or supported. Require third party veri�cation and certi�cation (FSC preference) for legality and sustainability or an action program toward that end. National commercial Bank loans, project Generally no formal recognition of the IFC Performance Standards, EHS banks in case study �nance, trade �nance Guidelines or Equator Principles. ESG policies, practices, procedures and countries monitoring are weak or non-existent. No speci�c requirements for veri�cation or certi�cation for legality, sustainability, health or safety. Source: Authors’ compilation. and international laws and regulations. Auditing and Clients assume obligations, and if they fail to uphold monitoring by credible, independent, third party veri- them, can be held liable under international law. fication and certification bodies and standards were common. Local banks studied tended to lack specific 4.7.2 Client Sustainability policies, practices, procedures and criteria for legality. Based on the small number of banks and fi nancial insti- International development and commercial banks ex- tutions analyzed in this report, it is apparent that inter- pect their clients to comply with the legally binding national commercial banks apply a two-way approach to international laws and treaties as listed in Table 4.6. ensure that they are not exposed to sustainability risks through their forestry sector clients. The first is to spec- Table 4.6 Relevant International Treaties Referred to by ify to clients the sustainability policies, practices, crite- International Financing Bodies ria and monitoring procedures to measure compliance Category International Treaty with sustainability standards. Secondly, banks state Labor and working Ⅲ International conventions negotiated “exclusions� that will not be fi nanced. Financial credit conditions through the ILO and the United Nations31 institutions in Southeast Asia screen and mitigate sus- Pollution Ⅲ Convention on Long-range tainability risks posed by their forestry clients based on prevention, waste Transboundary Air Pollution and hazardous Ⅲ Montreal Protocol on Substances that four broad categories: environment, labor and working materials Deplete the Ozone Layer conditions (occupational health and safety), local com- Ⅲ Basel Convention on the Control of Transboundary Movements of munities and indigenous people. Hazardous Wastes Ⅲ Stockholm Convention on Persistent Environmental requirements are the first main screening Organic Pollutants criteria for sustainability risk. Environmental concerns Biodiversity Ⅲ CITES conservation Ⅲ Convention on Biological Diversity dominate financial credit institutions’ criteria and stan- Ⅲ Ramsar Convention on Wetlands dards. The case study banks analyzed ban the conversion of Cultural heritage Ⅲ Convention Concerning the Protection of primary tropical moist forest or HCVF to plantation use. the World Cultural and Natural Heritage Banks also require their clients to (i) conduct an environ- Source: Authors’ compilation. mental impact assessment, (ii)  take environmental plan- 31. Not all signed by the study countries. Even if a country is a signatory to a convention, implementation remains a challenge. ning and management systems into account, (iii) avoid and minimize pollution and emissions (to water, air and land), 90 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A (iv) protect and conserve biodiversity and ecosystems, Table 4.7 Sustainability C&I of LEI Standard 5000-1 (I) (v)  promote sustainable management and use of natural Scope Criteria resources, and (vi) have no link to deforestation activities. Productive Ⅲ Sustainability of forest resources sustainability Ⅲ Sustainability of forest products International financial credit institutions also set require- Ⅲ Sustainability of business ments for labor and working conditions and criteria re- Ecological Ⅲ Stability of the ecosystem sustainability Ⅲ Survival of endangered, endemic, and lated to the engagement of local communities. The main protected species requirements related to labor and working conditions Social Ⅲ Guaranteed community-based forest are (i) fair treatment, non-discrimination and equal op- sustainability tenure system Ⅲ Guaranteed resilience and community and portunity of workers; (ii) avoiding child labor and forced employees’ economic development labor; and (iii) safe and healthy working conditions. The Ⅲ Guaranteed continuity of social and cultural engagement of local communities involves disclosing in- integration of community and employees Ⅲ Responsibility to safeguard nutritional formation, consulting affected local communities, and status and prevent negative impact on engaging them in a project. Financial credit institutions community health Ⅲ Assurance of workers’ rights should also (i) avoid or minimize risks to, and impacts on, the health and safety of local communities; (ii) avoid, Source: Authors’ compilation. or at least minimize, involuntary resettlement, and when that is non-avoidable, provide compensation for loss of assets, assistance and benefits for displaced persons; and listed in Table 4.7. Second, the SmartWood Rainforest (iii) establish a grievance mechanism. Alliance Interim FSC Standard for Vietnam (1 June 2010 version) is listed in Table 4.8. Third, the Malaysia C&I Furthermore, requirements related to indigenous people for Forest Management Certification (MC&I [2002]) need to be fulfilled. In particular, forestry sector clients (PEFC) principles were considered. Because they are should respect the dignity, legal and human rights, aspira- identical to those of the SmartWood Interim Standard tions, sacred places, cultures and natural resource–based for Vietnam, they are not presented separately. The only livelihoods of indigenous peoples. They should also avoid difference is that the MC&I do not include a separate adverse impacts on indigenous peoples and minimize, mit- chapter on plantations, which is covered by a separate igate or compensate them for adverse impacts in a culturally chapter of the Malaysian timber certification scheme. appropriate manner when negative impacts are unavoid- able. Finally, forestry sector clients are obliged to carry out meaningful consultation with affected indigenous peoples Table 4.8 SmartWood Rainforest Alliance Interim Standard and ensure their informed participation in all projects. Principles to Assess Forest Management in Vietnam (II) Principle Content From the sample of local financial institutions and 1 Compliance with laws and FSC principles banks, if ESG policies or practices are stated, they tend 2 Tenure and use rights and responsibilities to be generic, without specific indicators or monitoring systems in place. 3 Indigenous peoples’ rights 4 Community relations and worker’s rights 5 Bene�ts from the forest 6 Environmental impact 4.8 Potential Role of Certi�cation 7 Management plan Schemes in Know Your Client 8 Monitoring and assessment 9 Maintenance of HCVFs To determine the potential role certification standards 10 Plantations could play in KYC, three representative examples were Source: Authors’ compilation. selected. First, the C&I of the LEI Standard 5000-1 are C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 91 4.8.1 Opportunities resettlement of local people), (ii) employment (where compensation refers to salary) and (iii) “off setting� of Forest certification can significantly improve finan- negative environmental and social impacts. However, cial credit institutions’ client screening and evaluation they do not refer to compensation in the case of use and procedures for existing forest and forestry investments implementation of a community’s traditional knowl- and, less so, new investments. The most important ben- edge regarding the use of forest species or management efit that forest certification can bring to financial credit systems in forest operations. In contrast, all three cer- institutions’ sustainability risk management is the sig- tification standards clearly state that indigenous peo- nificant amount of specificity the standards contain ple should be compensated for the application of their concerning SFM and biodiversity conservation. The traditional knowledge. Recognizing the value of tra- standards make detailed requirements concerning, for ditional knowledge is a form of granting indigenous instance, RIL, allowable harvesting levels, safeguard- (or  local) people intellectual property rights. Because ing rare species, maintenance of HCVFs, safeguarding are no copyrights, trademarks or patents are available ecological functions of forests, adoption of environmen- for traditional knowledge, a monetary compensation is tally friendly pest management and biological control the second best way to take responsibility for the use methods, specific content of management plans and of traditional knowledge and skills. There are cases in monitoring and assessing forest operations. In tropi- which local communities have assembled to defend their cal conditions, certification schemes also apply differ- “knowledge rights� against companies. Therefore, mak- ent standards and criteria to the management of natural ing compensation for the use of indigenous knowledge and planted forests. is a good way to reduce sustainability risks. In addition, certain issues that certification standards By insisting upon third party, independent certification, address are missing from banks’ client evaluation re- funding institutions can reap the benefits of supporting quirements, such as a contribution to local and regional clients that can demonstrate compliance with legality economic development. Many of the banks studied in and sustainability criteria, without having to undertake this report require that the communities within or adja- the monitoring themselves. These tasks are entrusted to cent to a forest management area should be given equal specialist third party, independent certification bodies opportunities for employment by a forest operator. All with the technical expertise, experience and indepen- three certification standards chosen for this analysis, dence, paid for by the client. however, go further. In addition to offering employ- ment to local people, they also require that forest man- agement should diversify local economy and contribute 4.8.2 Constraints to regional economic development and the growth of domestic capital. This is an important risk management The standards to be achieved for forest certification for measure, because it decreases the dependence of the lo- some forest entities in the case study countries may be cal community on a single forest product or forest oper- considered too high to be achieved within the short to ator. Through supporting the growth of local small and medium term. The compliance with certification cri- medium-size enterprises and local entrepreneurship in teria may be considered by some clients as too rigid, general, with time, a forest company can become one both technically and time wise. Specification of FSC among many potential employers in the region. This certification is the most rigid, with SFI and PEFC less will leave local people with several employment options so and giving alternatives in accordance with an ap- and reduce a company’s pressure for offering a job to all proved scheme the least. Time-wise, to borrow from the unemployed people. HSBC, BoA or SCB requires compliance with certifi- cation, and Citibank required proof of certification un- Financial credit institutions also do not compensate der an approved certification scheme within three to five for the use of traditional knowledge. They focus on the years. National or local banks generally do not have any need to compensate (i) loss of land or assets (in case of requirements for certification. 92 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Although international commercial banks conform to resettlement is unavoidable, provide compensation, the Equator Principles, IFC Performance Standards assistance and benefits for displaced persons. Forest and EHS Guidelines and have in-house forest poli- certification does not impose requirements to avoid cies and CSR programs, commercial loans are gener- involuntary resettlement nor to improve or restore the ally granted without explicit and formal processes for livelihoods and standards of living of displaced persons. assessing social and environmental sustainability. Banks tend to take for granted that effective monitoring and However, it is important to note that forest certifica- reporting of compliance are conducted by regulatory au- tion standards are usually imposed at a different time thorities. Credit teams and managers do not generally to financiers’ requirements. That is, a bank may finance assess commercial and reputational risk and opportuni- the forest industry long after the initial forest manage- ties associated with SFM or forest certification. Banks ment and timber procurement phases. Therefore, it is do not understand the risks associated with forestry, nor sufficient for forest certifications to set requirements for do they offer incentives to their clients to achieve forest established and approved tenure rights and for transpar- certification (GFTN, 2007). ent consultations with local communities (e.g., FPIC). However, for a bank’s risk management it is important New projects, in which clients will commence a new for- to have a strategy for involuntary resettlement. Forcibly est concession or new afforestation project, will not be displaced people are never happy with their situation able to demonstrate certification, no matter how much and create a significant social risk to a company or finan- they may agree with certification principles, policies, cier behind the company responsible for displacement. standards and practices. However, long-term investors in the forestry sector have a track record that they can disclose, for better or worse. In a variation on this, a forestry client may have existing funding, which did not require certification, but now the funding institution’s 4.9 Lessons Learned policies and criteria have changed. The funding institu- tions will need to demonstrate resilience in application 11.9.1 International Checklist of Safeguards and apply the policies and criteria from the point of refi- nancing. The client needs to be aware of this and ensure The IFC, Performance Standards and EHS Guidelines, that the process for certification is commenced. Equator Principles and ADB Guidelines provide the checklist of internationally credible safeguards that One issue that is missing from both certification stan- responsible financing institutions and investors are dards and banks’ requirement relates to working against expected to clarify with their clients. These are summa- corruption. Corporate corruption, that is, corporate rized according to Table 4.9. criminality and the abuse of power by corporate offi- cials (including, in some developing countries, police obstructing justice), is illegal. Corruption or bribery 4.9.2 Veri�cation and Certi�cation are governance risks rather than social or environmen- tal risks per se; however, not addressing them poses Voluntary certification fulfi lls a valuable role for finan- significant sustainability risks for companies and their cial credit institutions seeking to evaluate the legality financiers. and sustainability risk of their forestry clients. In fact, global financial credit institutions use ESG screening Involuntary resettlement is one of the issues that forest tools (and exclusion lists) to identify, quantify and ad- certification standards do not address, but banks do. The dress risks associated with financing forest sector ac- international development financing bodies emphasize tivities in Southeast Asia. These tools are used for the the importance of having a clear strategy to avoid or at purpose of foreseeing and mitigating banks risk for fi- least minimize involuntary resettlement of local people nancing illegal and unsustainable forestry operations. by exploring project alternatives and, in case involuntary Many international commercial banks have policies that C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 93 Table 4.9 Safeguards for Financing Institutions and Investors to Clarify with Their Clients Safeguards Questions to Clarify General management Ⅲ What is the company’s policy on SFM, and does the company have a long-term forest management plan? policies Ⅲ Does the company have ISO 14001 Environmental Management certi�cation for any of its operations? Ⅲ If so, what is the scope of certi�cation? Ⅲ If not, has the company developed a clear policy on environmental management? Ⅲ Does the company have a policy to deal with conflicts with the communities where it operates? Ⅲ Has the company endorsed international collaborative measures to address relevant ESG issues such as human rights or labor rights? SFM Ⅲ Is the company involved in land-use change or forest conversion? If so, what is the proportion of this as a percentage of forest under management? Ⅲ What was the condition of land before conversion (e.g., primary forest, secondary forest, degraded)? Ⅲ Does the company employ RIL? Ⅲ Before any logging activities, does the company have a process to ensure that areas of HCVF are protected? Ⅲ What measures are in place to control and prevent loss of biodiversity? Ⅲ What is the company’s rate of replanting? Is replanting sufficient to replenish logging activities? Ⅲ Does the company have a policy in place to combat flooding, natural �re and other natural disasters? Ⅲ What pesticides does the company use and does it have a pesticide management plan? Ⅲ How does the company manage the potential impact of logging on nearby watersheds? Certi�cation Ⅲ Has the company developed a policy on certi�cation? Ⅲ What is the proportion of certi�ed forest under management? Ⅲ Does the company have a clear working timetable and target for forest certi� cation? Ⅲ Is the company working with any NGO, trade network or consultants toward certi� cation? Ⅲ Does the company have a policy for its supply chain to be certi� ed? Ⅲ For integrated players, is there a system to segregate between certi�ed and non-certi�ed wood? Compliance Ⅲ Have there been any legal claims relating to a breach in environmental legislation, land conflict, worker health and safety associated with the company’s operations? Ⅲ How does the company keep abreast of changing regulatory environment and assess regulatory risk? Ⅲ Does the company have systems in place to ensure that logging quotas and requirements set by the government are strictly adhered to? Social conflict Ⅲ Does the company have a system in place to ensure legality of land and that boundaries are clearly drawn? Ⅲ What strategies does the company employ to settle social conflict with local communities and indigenous peoples? Ⅲ Has the company been engaging with local communities and NGOs to understand local social and environmental issues Ⅲ Does the company have a policy of requiring FPIC of local communities before commencement of any logging activities? Ⅲ Is there a system in place to ensure that resolutions are fair to both the local and indigenous people? Ⅲ Is there a clear and transparent complaints procedure for local and indigenous people? Legality Ⅲ Does the company have policies in place to ensure that its concession boundaries are protected against illegal loggers? Ⅲ Is the company participating in international collaborative measures to combat illegal logging, such as the WWF GFTN? Ⅲ What is the proportion of wood that is sourced from third parties? Ⅲ Is there is any system to ensure that such third party wood can be veri�ed? Source: Authors’ compilation. require forest certification schemes, with preference for sustainability of forests and forest products trade. Local FSC certification or an equivalent credible certifica- banks in Southeast Asia focus on traditional financial tion scheme. In this way, these financing institutions risks and, in the main, have little reference to ESG cri- reduce legal, social, environmental and fi nancial risks teria or require third party, independent verification or and ensure that their client’s projects commit to legal certification. and sustainable practices. Because most bank staff are not specialists in SFM, international, third party certi- As international commercial banks are either insisting fication fulfi lls a critical role in monitoring legality and upon or encouraging the processes toward verification 94 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A and certification, it would seem a reasonable CSR certified forest products and the potential markets policy to provide incentives to their clients to meet and price premiums that can be achieved the relatively high, up-front cost of verifi cation and Ⅲ Support feasibility studies and financial analyses certification. The high up-front costs, increased op- on certification to better understand the costs and erational costs, reduced productivity and lack of a pre- benefits and to build confidence mium paid by buyers and customers are considered Ⅲ Banks, external partners and clients work to clarify important disadvantages of particularly certification forest policies, procedures and practical implemen- by forest and forest industries investors and managers. tation tools and control mechanisms Financial institutions and commercial banks could Ⅲ Establish external partnerships (e.g., Rainforest consider strengthening the following actions to stim- Alliance, GFTN) to provide capacity building and ulate more forest certification in Southeast Asia and third party, independent and credible services to reduce social, environmental, economic and fi nan- Ⅲ Introduce progressive finance facilities structured cial risks: to support SFM, certification and a sensible risk management strategy (better risk management Ⅲ Improve market intelligence and communication equates to better business for the financial institu- between producers and buyers on the availability of tions and banks, as well as their clients). 95 SECTION 5 R E C O M M E N D AT I O N S T O S T R E N G T H E N C E R T I F I C AT I O N A N D V E R I F I C AT I O N L I N K S W I T H F O R E S T L AW ENFORCEMENT T he complementarities among law enforcement, approaches coupled with �nancial and non- certi�cation and legality veri�cation schemes �nancial incentives (e.g., �scal incentives, rep- can be realized only if promoted aggressively and utational gains for certi�ed companies, linking attempts are made to better de� ne and system- business and SFM managers, government atically harmonize the legality and sustainability stan- regulations on green building codes and green dards, followed by better enforcement and monitoring public procurement). systems. The key areas for engagement that cover a (ix) Incentives to smallholders: Encourage group cer- broad range of issues involving public as well as private ti�cation by providing streamlined procedures stakeholder are: and lower certi�cation costs to small-scale pro- ducer, groups or communities, access to mar- (vi) Harmonization and integration of standards: kets and smallholder training programs and Harmonize legality veri�cation and certi�- offering �nancial support to cover part of the cation standards, building upon synergies in certi�cation cost. procedures, methods and standards to system- (x) Access to credit: Encourage and motivate local atically include the legal requirements de�ned banks toward stronger legality and sustainabil- in national legality assurance standards and ity criteria that can lead to an ordinance with international legality standards for the certi- legal implications for those banks that do not �able activities in the supply chain (including apply stronger legality and sustainability crite- EUTR and FLEGT requirements). ria in their �nancing decisions. (vii) Capacity building in producing countries: Increase capacity and resources in producing countries The detailed policy recommendations to target organi- to develop credible internal monitoring sys- zations to achieve this are summarized in the follow- tems as well as effective and independent certi- ing section. Given the limited uptake of certi�cation in �cation and veri�cation bodies. Southeast Asia so far and the large potential to increase (viii) Incentives to the private sector: Encourage cer- certi�cation in each study country, these policy recom- ti�cation by providing incentives for stepwise mendations broadly apply to all of them. 96 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Development Banks and standards, ultimately reaching the required perfor- mance level of SFM (which should be higher than Other Donors the legal requirements). Ⅲ Provide targeted �scal incentives to encourage Ⅲ Continue to provide technical support to timber- SFM in public and private forests, ranging from producing and timber-processing countries to har- simpli�ed auditing procedures to reductions in monize, demonstrate and implement forest and timber royalty rates for certi�ed companies with CoC certi�cation and/or legal veri�cation in step- preferential treatment for small-scale producers. wise approaches to legality and sustainability. Ⅲ Introduce/enhance government regulations on Ⅲ Encourage countries to recognize and strengthen green building codes and green public procurement. voluntary certi�cation as evidence on legal compli- Ⅲ With certi�cation bodies and other key stake- ance and encourage markets to recognize and accept holders, lead processes to harmonize legality veri�- such evidence for legal compliance and SFM. cation and certi�cation standards to systematically Ⅲ Provide long-term assistance in development and include legal requirements de�ned in national le- comparison of experiences of national timber le- gality assurance standards for the certi�able activi- gality standards and veri�cation systems in coop- ties in the supply chain. eration with other VPA signatory countries, civil Ⅲ Integrate, as appropriate, reliable, impartial and effi- society and private sector familiar with implemen- cient audit and veri�cation procedures implemented tation of voluntary certi�cation in forestry and in voluntary certi�cation into the legality veri�cation. timber industry. Ⅲ Recognize certi�cation as an impartial, reliable, Ⅲ Increase capacity and resources in producing coun- controlled and transparent tool contributing to- tries to develop monitoring systems to improve ward (but not guaranteeing) legal compliance and internal control in private and public forestry or- sustainability of all forest operations. ganizations and integrate third party certi�cates as Ⅲ Review how legality is de�ned in each certi�ca- optional evidence on compliance. tion standard compared to the legality standards Ⅲ Increase technical assistance and improve coopera- of FLEGT-VPAs and to meet EUTR, Lacey Act, tion with certi�cation and regional governmental Australian Illegal Logging Prohibition Bill and other bodies for building capacity of certi�cation bodies international regulatory requirements. in-country. Ⅲ Improve cooperation with technical assistance Ⅲ Facilitate and enhance cooperation between wood- providers and certi�cation bodies to build capacity producing countries, ASEAN importing countries of certi�cation bodies in-country. and China, as well as key consumer countries, to Ⅲ Improve cooperation with ASEAN importing harmonize legality veri�cation and certi�cation countries and China, as well as key consumer requirements. countries, to harmonize legality veri�cation and Ⅲ Continue to support good forest governance in col- certi�cation requirements. laboration with the FLEGT Action Plan and other Ⅲ Encourage and motivate local banks toward stron- national and international regulatory initiatives and ger legality and sustainability criteria that can lead encourage strengthening of cross-sector linkages. to an ordinance with legal implications for banks that do not apply stronger legality and sustainabil- ity criteria in their �nancing decisions. Government Institutions Ⅲ Provide incentives to enterprises to encourage Certi�cation Bodies stepwise approaches to put in place veri�cation schemes that demonstrate legal conformance Ⅲ Continue efforts to increase the area under certi�- while developing national certi�cation criteria and cation or legal veri�cation in stepwise approaches. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 97 Ⅲ Provide early orientation and guidance on proce- InternationalCommercial Banks in dures to potential clients and follow up in a swift and efficient manner to their certi�cation requests. Southeast Asia Ⅲ Offer group certi�cation with streamlined pro- cedures and lower certi�cation costs to small- Ⅲ Integrate legality and sustainability criteria in scale producers and groups of producers, while banks’ �nancing evaluation and risk assessment. offering �nancial support to cover part of the Ⅲ Evaluate projects and clients for legality, sustainabil- certi�cation cost. ity and other risks against agreed upon standards as Ⅲ With government institutions and other key applied in their unique local contexts and risks. stakeholders, harmonize legality veri�cation and Ⅲ Introduce progressive �nance facilities structured certi�cation standards, building upon synergies to support SFM, certi�cation and sensible risk in procedures, methods and standards to system- management strategy. atically include the legal requirements de�ned in Ⅲ Enhance networking with key stakeholder groups national legality assurance standards for the certi- to use their knowledge of the Southeast Asian �able activities in the supply chain. forests and forestry context and establish external Ⅲ Review how legality is de�ned in each certi�ca- partnerships to provide capacity building and third tion standard in contrast to the legality standards party independent and credible services. for FLEGT-VPAs and to meet EUTR, Lacey Act, Ⅲ Improve market intelligence and communication Australian Illegal Logging Prohibition Bill and other between producer and buyers on the availability of international regulatory requirements. certi�ed forest products and the potential markets Ⅲ Improve cooperation with technical assistance and price premiums that can be achieved. providers and regional governmental bodies to build capacity of certi�cation bodies in-country. Local Banks in Southeast Asia Ⅲ Adopt international principles, standards, safe- Enterprises in the Forestry Sector guards and procedures for greater transparency on client evaluation procedures, risk assessment prac- Ⅲ Review the business case for certi�cation and veri- tices and more sustainable business modes. �cation for legality and sustainability and share Ⅲ Cooperate and make joint efforts when improving through forestry and forest industries networks. client evaluation procedures and risk assessment Ⅲ Demonstrate leadership in corporate responsibil- practices to reduce associated costs and bureaucracy. ity by responding to market preference by adopting existing processes for legal veri�cation and certi- �cation (forest and CoC) as proof of legality and sustainability. 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Important Web Links Accreditation Services International FSC Program http://www.accreditation-services.com/programs/fsc ADB Environmental Safeguards http://www.ADB.org/site/safeguards/environment ADB Policy Safeguards Statement http://www.ADB.org/site/safeguards/policy-statement ASEAN and REDD-plus http://www.aseanforest-chm.org/asean-regional-knowledge- network-on-forests-and-climate-change-fcc/ ASEAN Forest Clearing House Mechanism http://www.aseanforest-chm.org/asean-forest-clearing-house- mechanism-chm/ ASEAN Strategic Plan of Action (2005–2010) http://www.asean.org/news/item/strategic-plan-of-action-on- asean-cooperation-in-food-agriculture-and-forestry ASEAN Vision 2020 http://www.aseanhrmech.org/downloads/Asean-Vision-2020.pdf Australia, Illegal Logging Prohibition Bill, 2011 http://www.daff.gov.au/forestry/international/illegal-logging Confederation of European Paper Industries http://www.cepi.org/ CertiSource http://www.certisource.co.uk/ Chatham House, Illegal Logging http://www.illegal-logging.info/ Chatham House. Measuring the Response to Illegal Logging: http://www.chathamhouse.org/research/eedp/current-projects/ Indicators of Progress measuring-response-illegal-logging-indicators-progress China Forest Certi�cation Council http://www.cfcn.cn/ CIA The World Factbook https://www.cia.gov/library/publications/the-world-factbook CIFOR http://www.cifor.cgiar.org Collaborative Partnership on Forests http://www.cpfweb.org/en/ CPET http://www.cpet.org.uk EFI European Forest Institute http://www.euflegt.e�.int Environmental Paper Network http://www.environmentalpaper.org/ Equator Principles http://www.equator-principles.com/ Europa – Press Releases http://europa.eu/rapid/search.htm European Commission Timber Regulation http://ec.europa.eu/environment/forests/timber_regulation.htm FAOStat Forest Products http://www.fao.org/forestry/databases/29420/en/ Forest Certi�cation Assessment Guide http://siteresources.worldbank.org/EXTFORESTS/Resources/FCAG_ WB_English.pdf FERN http://www.loggingoff.info FLEGT Home http://www.euflegt.e�.int/portal/ FLEGT Action Plan European Union http://ec.europa.eu/environment/forests/illegal_logging.htm FLEGT Brie�ng Note Notes www.euflegt.e�.int/�les/.../euflegt/e�_brie�ng_note Forest Certi�cation Assessment Guide http://siteresources.worldbank.org/EXTFORESTS/Resources/ FCAG_WB_English.pdf FSC Certi�cate Database http://info.fsc.org/ G8 Action Program on Forests http://www.illegal-logging.info/item_single.php?it_ idϭ38&itϭdocument GFTN Global Forest & Trade Network http://gftn.panda.org/about_gftn/ Global Forest Resources Assessment, 2010 http://www.fao.org/forestry/fra/fra2010/en/ (continued) C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 105 Global Forestry Registry http://www.globalforestregistry.org Global Forestry Services http://www.gfsinc.biz/ Global Integrity Report http://www.globalintegrity.org/report Global Integrity, 2011: Why We Killed the GII http://www.globalintegrity.org/node/792 Good Wood Good Business http://www.tft-forests.org/downloads/GWGB_English.pdf International Council of Forest and Paper Associations http://www.icfpa.org IFC Sustainability http://www.ifc.org/sustainability Illegal Logging Info Database http://www.illegal-logging.info/ ITTO http://www.itto.int/ Lacey Act USDA http://www.aphis.usda.gov/plant_health/lacey_act/ LEI http://www.lei.or.id/ Malaysian Timber Certi�cation Council http://www.mtcc.com.my/ Mongabay http://rainforests.mongabay.com Montreal Process for C&I for SFM in Temperate and Boreal Forests http://www.unece.org/�leadmin/DAM/timber/meetings/4.1_ Montreal_Process.pdf National Wood Flooring Association http://woodfloors.org/ Nature, Ecology and People Consult http://www.nepcon.net/ PEFC Certi�cation Services http://www.pefc.org/certi�cation-services/overview PEFC Council Information Register http://register.pefc.cz/ PILI-GreenNetwork http://redd-indonesia.org Pinchot Institute for Conservation http://www.pinchot.org/about_pic/mission REDD-plus portal http://redd-plus.com/drupal/ Scienti�c Certi�cation Systems http://www.scscerti�ed.com/ SGS Forestry http://www.sgs.com/en/agriculture-food/Forestry.aspx Rainforest Alliance http://www.rainforest-alliance.org/ Rainforest Alliance, Timber Legality Veri�cation http://www.rainforest-alliance.org/forestry/veri�cation/legal Sustainable Forest Finance Toolkit http://www.pwc.co.uk/sustainability-climate-change/issues/forest- �nance-home.jhtml Sustainable Procurement of Wood and Paper-based Products http://www.sustainableforestprods.org/ The Prince’s Rainforest Project http://www.rainforestsos.org/about-rainforests/whats-happening- to-them/drivers-of-deforestation/ Timber Trade Federation http://www.ttf.co.uk/ Timber Procurement Assessment Committee http://www.tpac.smk.nl/ Transparency International, Corruption Perceptions Index, 2011 http://cpi.transparency.org/cpi2011/ Tropical Forest Trust http://www.tft-forests.org Tropical Forest Trust news, 11 October 2011 http://www.tft-forests.org/ UN FAOSTAT, ForesSTAT http://faostat.fao.org/ UN Population Division 2008 http://www.un.org/esa/population/ UK government timber procurement policy http://www.cpet.org.uk/uk-government-timber-procurement- policy Verifor, Principles in Forest Veri�cation http://www.odi.org.uk/node/15991 Wikipedia on sustainable forest management http://en.wikipedia.org/wiki/Sustainable_forest_management World Bank: CPIA http://data.worldbank.org/data-catalog/CPIA World Bank: World Wide Governance Indicators http://info.worldbank.org/governance/wgi/sc_country.asp World Business Council for Sustainable Development: Forestry http://www.wbcsd.org/work-program/sector-projects/sustainable- Solutions forest-products-industry.aspx World Resource Institute http://www.wri.org/ WRI: Governance of Forests Initiative (continued) http://www.wri.org/project/governance-of-forests-initiative WWF-Indonesia http://www.wwf.or.id/ 107 ANNEXES Page 1 Framework for Good Forest Governance 108 2 Southeast Asian Country Status and Trends 111 3 Compatibility of National Legality Stadards and Voluntary Certi�cation Schemes 152 4 Banking Sector: Know Your Client Criteria and Guidelines 156 108 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A ANNEX 1: FRAMEWORK FOR GOOD FOREST GOVERNANCE TABLE A1.1: Building Blocks and Principal Components of Good Forest Governance (good forest governance diagnostics, indicators and toolkit to be derived for each country) Principle Components Indicative Sub-components Building Block 1: Transparency, Accountability and Public Participation Transparency in the forest sector Ⅲ Public availability of forest data, plans, laws, budgets and other information relevant to Decentralization, devolution and public forest use and management participation in forest management Ⅲ Public notice of pending forest agency actions Accountability of forest officials to Ⅲ Transparent allocation of wood and NWFP concessions stakeholders Ⅲ Forest communities have institutional roles in creating public forest management rules Accountability within forest agencies and plans Ⅲ Accessibility to forest resources by local communities Ⅲ Support framework for participatory forest management Ⅲ Forest agencies responsive to public input Ⅲ Participatory processes structured to promote consensus Ⅲ Feedback to stakeholders about forest resources and their management Ⅲ Presence of autonomous organization for monitoring activities Ⅲ Influence and interest of civil society organizations on forest issues Ⅲ Management in the forest agencies/departments is oriented toward accountability: Ⅲ Clear statement of forest management strategy or goals Ⅲ Goals and objectives of forest management disseminated to rank and �le officials Ⅲ Forest officials evaluated and held accountable for failures to meet stated goals Building Block 2: Stability of Forest Institutions and Conflict Management General stability of forest institutions Ⅲ Risk posed to forest management from changing forest agency budgets, leadership or Management of conflict over forest resources organization Ⅲ Risk posed to forest management from changing or inconsistent laws and policies and their implementation Ⅲ Risk posed to forest management because of unreliability of tenure rights Ⅲ Perceived fairness of distribution of rights Ⅲ Level of conflicting claims over public forests Ⅲ Prevalence of violence or use of arms by forest users Building Block 3: Quality of Forest Administration Willingness to address forest sector issues Ⅲ Commitment to veri�cation of legality, certi�cation and SFM Capacity and effectiveness of forest agencies Ⅲ Support for adoption of forest best practices code/guide Corruption control within the forest sector Ⅲ Support for private certi�cation Forest monitoring and evaluation (M&E) Ⅲ Support for codes of professional conduct for foresters and civil servants Ⅲ Institutional separation of key functions – legislative, administrative, control, law enforcement Ⅲ Signatory to and quality of implementation of international commitments related to forestry Ⅲ Maintenance of workable forest policies Ⅲ Collaboration with regional partners to harmonize forest policies and legal frameworks Ⅲ Cross-sectoral policy coordination Ⅲ Ability to revise and respond to change Ⅲ Public con�dence in forest agencies Ⅲ Capacity of forest agencies Ⅲ Human resources, skills and knowledge Ⅲ Equipment and tools Ⅲ Stability of budgets and quality of budget process C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 109 TABLE A1.1: Building Blocks and Principal Components of Good Forest Governance (good forest governance diagnostics, indicators and toolkit to be derived for each country) (continued) Principle Components Indicative Sub-components Building Block 3: Quality of Forest Administration Ⅲ Quality of forest resource management Ⅲ Quality of information on forests Ⅲ Quality of planning and impact assessment (including cross-sectoral coordination) Ⅲ Activities in the forest are comply with plans Ⅲ Commitment to sustainability Ⅲ Effectiveness of enforcement institutions Ⅲ Fairness and responsiveness of forest officers (and police, if involved in forest enforcement) Ⅲ Effectiveness of prosecutors and courts on forestry matters Ⅲ Forest extensions and environmental education efforts Ⅲ Independence of civil services uniformly applied and collected Ⅲ Availability of incentives to practitioners and responsible forest use and management Ⅲ Revenues from forests accounted for Ⅲ Budget transparency Ⅲ Audits of forestry projects Ⅲ Existence of government anticorruption institutions and measures, including channels for reporting corruption and whistle blower protection Ⅲ Effectiveness of anticorruption institutions and measures Ⅲ Clear code of business conduct for forest industries Ⅲ Presence of strong NGO watchdogs Ⅲ Continuous forest inventory of plots established and measured regularly Ⅲ Documentation and record of forest management and forest activities to facilitate monitoring Ⅲ Results of M&E are incorporated into new forest management plans Ⅲ Results of monitoring are readily available to the public Ⅲ Local people are involved in monitoring of forest resources Building Block 4: Coherence of Forest Legislation and Rule of Law Quality of domestic forest legislation Ⅲ Forest legislation effectively and efficiently implemented by forest agencies Quality of civil law implementation Ⅲ Avoids legislative overreaching Quality of criminal forest law enforcement Ⅲ Avoids unnecessary and cumbersome requirements Quality of forest adjudication Ⅲ Enhances transparency and accountability Property rights recognized, honored and Ⅲ Informal rules, where present, are consistent with formal rules enforced Ⅲ Forest legislation is consistent with participatory governance Ⅲ Gives local actors a stake in good management Ⅲ Developed with public involvement Ⅲ Clearly states how local people can play a meaningful part in planning, management and allocation of forest resources Ⅲ Forest laws veri�ed as actually applied Ⅲ Labor, safety, environmental, human rights and other laws are applied in forest settings Ⅲ Suppression: Credible and graduated sanctions, consistently applied Ⅲ Detection: Capacity to detect illegal activity Ⅲ Prevention: Number of forest-related crimes Ⅲ Organized crime Ⅲ General crime (continued) 110 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A1.1: Building Blocks and Principal Components of Good Forest Governance (good forest governance diagnostics, indicators and toolkit to be derived for each country) (continued) Principle Components Indicative Sub-components Building Block 4: Coherence of Forest Legislation and Rule of Law Ⅲ Access to courts or arbitrators Ⅲ Fair, honest and independent Ⅲ Affordable, rapid Ⅲ Enforceable outcomes Ⅲ Formal and informal rights to forest resources in harmony Ⅲ Security of property rights to forest resources, including carbon Ⅲ Quality of forest surveys, records and cadastre Ⅲ Contracts and agreements honored/enforced Ⅲ Legality of land-lease contract with international investors Ⅲ Support for community, small, medium enterprises Building Block 5: Economic Efficiency, Equity and Incentives Maintenance of ecosystem integrity: Ⅲ Knowledge of supply and demand for forest products and their alignment Sustainable forest use Ⅲ Minimum safeguards for sustainability included in forest management plans Incentives for sustainable use and penalties Ⅲ Forest stakeholders have reasonable share in economic bene�ts from forest use for violations Ⅲ Payments for protecting environmental services from forests Forest products pricing Ⅲ Forest law enforcement targets illegitimate operations Commercial forest products trade and forest businesses Ⅲ Expected returns from illegal logging use lower than expected penalties imposed for illegal use Equitable allocation of forest bene�ts Ⅲ International market prices used as reference prices for traded products Market institutions Ⅲ Internalization of effects of social and environmental externalities arising from forest Forest revenues and expenditures resources use Ⅲ Removal of distortionary subsidies within the forest sector Ⅲ Forest resource allocation based on market prices Ⅲ Transparent wood and NWFPs concession allocation processes Ⅲ Competitive forest products auctions Ⅲ Streamlined export taxes and import duties on forest products Ⅲ Equitable pattern of land and forest resource tenure Ⅲ Adequate access and use rights where ownership is with the state (or contested) Ⅲ Equitable share of wood and NWFPs Ⅲ Competitive forest sector Ⅲ Use of appropriate incentives in forest management Ⅲ Efficient system of revenue collection for wood and NWFPs Ⅲ Taxes, levies and charges based on ensuring normal pro�ts Ⅲ Efficient system of public expenditures for forestry Ⅲ Public expenditure tracking system operational in the sector C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 111 ANNEX 2: SOUTHEAST ASIAN COUNTRY STATUS AND TRENDS A2.1 Indonesia is designated for forestry use. e state owns 91% of for- est land and issues concession rights to private compa- nies and organizations for forestry operations. A2.1.1. Forests and Forest Management Currently, the members of the APHI manage an area Indonesia has vast forest resources accompanied by a of 35.5 million hectares and largely de�ne the poten- high rate of forest use. As detailed in Table A2.1, forests tial of the area for timber production on forest land. cover 52% of the land area, but less than 40% of the area However, the Indonesian government has had a policy of TABLE A2.1: Indonesia Forests and Forestry Data Forests and Forestry Data Population Total 227.3 million, density 125/km2, growth 1.2%/year Land area 181.2 million ha Total forest area 94.4 million ha (52.0% forest cover) Designated Function of Forests Productive (wood, �ber, fuel, NWFPs) 50.0 million ha (53%) Protective (soil, water, etc.) 22.7 million ha (24%) Conservation of biodiversity 15.1 million ha (16%) Social services 0.0 million ha (0%) Multiple use 0.0 million ha (0%) Other 0.0 million ha (0%) Unknown/unspeci�ed 6.6 million ha (7%) Forest Characteristics Primary forest 47.2 million ha (50%) Other naturally regenerating forests 43.6 million ha (46%) Planted forests 3.5 million ha ( 4%) Forest ownership Public 91%, private 9% Forest Cover Trends 1990 118.5 million ha 2000 99.4 million ha (Ϫ1.8% decrease 1990–2000) 2005 97.9 million ha (Ϫ0.3% decrease 2000–2005) 2010 94.4 million ha (Ϫ0.7% decrease 2005–2010) Wood Removals 1990–2005 Industrial Roundwood (1000 m3) Fuelwood (1000 m3) 1990 25,485 144,680 2000 17,792 101,098 2005 14,428 86,396 People Employed in Public Forest Institutions 2000 14,809 2005 15,548 2008 16,803 Main international markets for timber/timber products Japan, the European Union, the United States, China Rati�cation of international conventions/agreements CBD, UNFCCC, Kyoto Protocol, UNCCD, ITTA, CITES, RAMSAR, World Heritage Convention, NLBI of UNFF Sources: CIA – the World Factbook: https://www.cia.gov/library/publications/the-world-factbook FAO (2010a). 112 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE A2.1: Forest Area and Deforestation Rate in Indonesia 120,000 1 Annual Change Rate in Forest Area Forest Area (in 1,000 hectares) 3,672 3,699 0.5 100,000 3,549 0 80,000 47,236 -0.5 49,270 -0.31 60,000 47,750 -1 (%) -0.71 -1.5 40,000 -1.75 -2 20,000 43,647 46,467 46,408 -2.5 0 -3 2000 2005 2010 Other Naturally Regenerated Forest Primary Forest Area Planted Forest Area Annual Change Rate in Forest Area Source: FAO (2010a) decreasing the number of concessions and of focusing on A2.1.2 Forest Products, Marketing and Trade1 concessionaires that are active in timber production and processing. e number of concessions decreased from Logs produced in Indonesia originate from natural forests, 324 to 308 between the years 2007 and 2008 (Ministry industrial plantations, other legal permits and conversion of Forestry, 2009a). areas. e total timber production in 2006 was 21.8 mil- lion m3, 5.6 million m3 of which originated from natu- e primary forest area in Indonesia is decreasing ral forests; 11.5 million m3 from industrial plantations; despite efforts to combat unauthorized harvesting and 0.3 million m3 from state-owned forestry company Perum forest clearance. Figure A2.1 summarizes forest area Perhutani plantation forests; 3.4 million m3 from conver- and deforestation in Indonesia, 2000 to 2010. sion area (Indonesian forest conversion areas [IPK]) and 1 million m3 from other legal permits (other legal permits e annual deforestation rate was 1.8%, 1990 to 2000; in Indonesia [ISL]). 0.3% 2000 to 2005 and 0.7% 2005 to 2010. is rate implies that 0.685 million to 1 million hectares of for- Although log production from natural production forests ests are cleared every year (FAO, 2010a; Ministry of sharply decreased during the period 1994 to 2006, when Forestry, 2009a). e highest deforestation rates are production declined from 17.3 million m3 in 1994 to found on the islands of Kalimantan and Sumatra, where 5.6 million m3 in 2006, total log production only slightly the average rate of forest loss was 0.246 and 0.269 mil- declined because of an increase of log production from lion hectares respectively in 2000 to 2005 (Ministry of plantations. Kalimantan and Sumatera contributed 78% Forestry, 2009a). of Indonesia’s total log production. e main provinces for log production are East and Central Kalimantan; Timber production volumes are highest on Kalimantan, to the North, Central (Riau) and South Sumatra and where over 50% of the 308 forest concessions are located, Papua. covering 12.86 million hectares (46% of the total con- cession area). Since 1980, the Indonesian wood-processing industry has undergone rapid and major structural change as Plantation licenses are issued for 143 units covering a result of government policies. A log export ban was 7.12 million hectares (Ministry of Forestry, 2009a) but only 3.5 million hectares are classi�ed as planted forests 1. FAO, 2009. Indonesia Forestry Outlook Study, Working Paper (FAO, 2010a). e Ministry of Forestry (2009a) gives a No APFSOS II/WP/2009/13, for the Asia Paci�c Forestry Sector lower �gure of 0.33 million hectares. Outlook Study II, FAO, Bangkok, ailand. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 113 introduced in May 1980 and totally imposed in 1985; decline has been redirected to the ASEAN regional the sawnwood export tax was introduced in November market.2 1989; a prohibitive log export tax was introduced in June 1992 as a substitute for a lift on the log export ban; and Up to 1997, total export values were mainly generated the log export tax was reduced to 10% before December from plywood, veneer and sawnwood exports, but after 2000 and then reduced to zero in 2000. the 1997 economic crisis, their export shares sharply declined and gradually replaced by pulp, paper and Production of sawnwood grew from 4.8 million m3 in paperboard exports. 1980 to 7.1 million m3 in 1985, peaked at 10.4 million m3 in 1989, then sharply decreased to 1.5 million m3 in More than 90 NWFPs are traded in Indonesia, locally, 2006. Production of plywood and veneer grew rapidly nationally and internationally; however, most of their from 1 million m3 in 1980 to 8.4 million m3 in 1990, production and sales data is lacking. It was estimated reached 9.7 million m3 in 1997 and decreased to 4.8 mil- that in 2001 to 2006, total export value of NWFPs was lion m3 in 2006. Total production of pulp grew rapidly US$2.62 billion, with varnish, sap and resin account- from 0.5 million tons in 1989 to 3.1 tons in 1997 and ing for 74% and wood charcoal, 10%. Other important reached 5.7 million tons in 2006. Forest products such NWFPs included rattan, gums and resins (pine, Shorea, as woodworking timber, block board, particle board and Agathis), aromatic oils, wood charcoal, honey, silk, �sh, wood chips ranged from 0.1 million m3 to 2.3 million sago, cinnamon and fruits. m3, 1983 to 2006. e industrial roundwood equivalent to supply forest A2.1.3 Veri�cation industries rose sharply from 11.7 million m3 in 1980, to e Ministry of Forestry controls issue of concession 24.1 million m3 in 1985, peaked at 52.7 million m3 in licenses and related mandatory certi�cation of con- 2003 and then fell rapidly to 39.2 million m3 in 2006. cessionaires. e Provincial Forestry Office and the Meanwhile the supplies of industrial roundwood from District Office supervise planning and implementation logged over forests and increased harvesting from forest of forestry operations and timber transports. Following plantations affected the industry because of the species, a decentralization policy, the government has strength- size and quality. ened its control of forest use by recentralizing the decision making. Provincial and district governments e installed capacity utilization rate for the sawnwood do �eld checks on forestry and timber transports opera- industry rose from 86% in 1980 to 97% in 1989 and tions (Figure A2.2). then fell sharply to 14% in 2006. e installed capacity for the plywood industry increased from 51% in 1980 e BRIK, established in 2002, issues export licenses to 99% in 1997, before falling to 44% in 2006. ese for timber. Although BRIK is a non-governmental trends reflect an increased industrial roundwood de�- organization, all timber exporters are required to join cit for sawnwood and plywood and veneer industries as it. e license is issued based on the information on of 1997 that caused underutilization of investments in timber source, volumes and transportation documen- these industries. During this period, the installed ca- tation to monitor the legality of timber by reconciling pacity utilization rate for the pulp industry continued to the harvested and processed volumes over the supply rise from 65% in 2006 to 88% in 2006. chain. However, the credibility of BRIK veri�cation e share of Indonesia’s exports destined for EU coun- was hampered by a lack of transparency and third party tries has declined from 18% to 14% over the past decade. veri�cation (Ogle Consulting, 2008). is parallels similar reductions in Indonesia’s exports to the United States and Japan. As a whole, the absorp- 2. European Commission, 2010. Indonesia’s Trade Access to the European Union: Opportunities and Challenges. A project tion of Indonesia’s exports by these three markets have implemented by TRASNTEC & EQUINOCCIO. A report fallen from 55% in 2000, to 40% in 2009. Most of the commissioned by the European Commission. 114 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A FIGURE A2.2: Forest Veri�cation Systems in Indonesia Ministry of Forestry (MoF) ! AccreditaƟon by Independent ValuaƟon Delegated Authority to Delegated Authority to InsƟtute or Lembaga Penilai Local Government Indonesian Forest Independen (LPI) Industry RevitalizaƟon Agency (BRIK) ! ! ! Mandatory C&I for SFM Timber AdministraƟon by Export Endorsements Provincial/District Forest Officers Independent MoF AdministraƟon of Legal BRIK Endorsement ValuaƟon Working Permits, RoyalƟes and Fees based upon proof of InsƟtute/LPI Group Legal Origin (Forest ! Forest Products Transport ! Products Transport Veri�caƟon Report Permits (Surat Keterangan Permits (SKSHH) Sahnya Hasil Hutan, SKSHH), MoF EvaluaƟon Team Log Royalty (Provisi Sumber ! Daya Hutan, PSDH) and ReforestaƟon Fund (Dana Veri�caƟon Decision (Minister) Reboisasi, DR) Dispute SeƩlement Mechanism (Veri�caƟon Advisory Council) Source: Brown & Bird, 2008 e Ministry of Forestry gives �nancial support to monitor the certi�cation process and present complaints the �rst certi�cation according to the mandatory when unjusti�ed certi�cations are suspected. e Ministry scheme. It  may also allow certi�ed organizations to of Forestry issued the SVLK regulation in July 2009 and the “self-approve� annual forest management plans as part related �eld guidelines in February 2010 (Hakim, 2010). of general recognition of good management. is gives forestry companies a signi�cant cost savings. Legality veri�cation is applied to state and private forest operations, as well as to operations in timber-processing A2.1.4 National Legal Veri�cation System or plants. It covers round log production and processed Standar Veri�kasi Legalitas Kayu (SVLK) timber products for domestic and export markets. e Ministry of Forestry strongly supports the implemen- e EU cooperation on FLEGT supported the Ministry tation of SVLK in the �eld through information rais- of Forestry in developing a timber traceability and timber ing and a mandatory legality-certi�cation process. legality assurance system (SVLK). e central elements e mandatory certi�cation is a tool to get evidence of SVLK are de�ned by the Ministerial Regulation3 and of legal compliance and also to screen out complying Director General of Forests Production Development’s concessionaires and allocate concession areas to them Regulations.4 SVLK has been developed in a multi- (Ministry of Forestry, 2009b). SVLK includes two op- stakeholder process. Civil society organizations may tions for certi�cates: (i) compliance to SFM (PHL); and (ii) Veri�cation of timber legality (TL). 3. P.38/Menhut-II/2009 stipulating institutional and operational framework for assessment of performance and veri�cation of timber e Ministry of Forestry has appointed national third legality, and independent monitoring. party veri�cation bodies to assess compliance with the 4. P.6/IV-Set/2009 stipulating standards and guidelines for veri�cation of timber legality and performance in sustainability forest management or legality requirements. A total production forest management. of 10 veri�cation bodies do forest management audits, C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 115 and �ve bodies carry out legality veri�cations. e ver- Ⅲ More speci�c guidance on control and monitoring i�cation bodies must also have accreditation from the procedures National Accreditation committee (KAN) (Hakim, Ⅲ Consistent VLC regardless of existing certi�cation 2010). If a concession receives a certi�cate on SFM status (PHL), this also provides the evidence for legal com- Ⅲ Development of procedures for FLEGT licensing pliance. On the other hand, if a concessionaire fails to Ⅲ Development of independent procedures for mon- meet the PHL requirements, a legality certi�cation is itoring SVLK implementation and delivery required. e objective is that all wood industries in the supply chain will have a legality certi�cate. Over the past two years the SVLK has been improved in multi-stakeholder meetings to ensure better compliance e scale of the audit results on PHL certi�cation reads with EU requirements for TLAS, including strength- “bad – fair – good – very good.� In the �rst round, some ening the CoC mechanisms, improving complaint and concessions failed to meet the requirements, but cur- dispute settlement mechanisms and offering group cer- rently most have reached the level “fair� (Brown and ti�cation schemes. All recommendations were adopted Bird, 2008; Ministry of Forestry, 2009a). For legality and will make the SVLK more robust and facilitate veri�cation, the outcome is either “compliance� or “non- implementation among smallholders and complex busi- compliance.� e certi�cate is valid for three years with ness entities. A task force has been established to pre- annual surveillance audits (Hakim, 2010). e large ma- pare an implementation strategy for the SVLK and to jority of the concessions in natural forests and planted identify areas of support to the whole forestry industry. forests have been rated as fair in their performance e SVLK, a basis for the FLEGT VPA that Indonesia (Ministry of Forestry, 2009a). For a timber industry that signed with the European Union in May 2011, has been has a legality certi�cate and uses certi�ed raw material, praised for the transparent multi-stakeholder develop- self-veri�cation is adequate evidence of legal compliance. ment, the robust monitoring process and the inclusion Despite the intention to have mandatory certi�cation as a of a continuous improvement mechanism.5 e VPA precondition for a concession license, only 25% of natural negotiation took seven years and is renewable for con- forest concessions (6.5 million hectares) have passed the secutive periods of �ve years. mandatory certi�cation (Ministry of Forestry, 2009a). e SVLK draws upon Indonesia’s laws and regulations Compliance with the European Union on forestry, trade, environment, agriculture and land e EU-Indonesia FLEGT VPA experts’ meeting ownership, as well as international treaties signed and held in September 2009 discussed the compatibility of rati�ed by Indonesia. Indonesia’s legality de�nition is the Indonesian National Timber Legality Assurance framed around key principles covering essential aspects System (SVLK) with the EU expectations for TLAS. of forest production and processing, depending on dif- e meeting concluded that the SVLK addressed the ferent forest contexts that include: de�nition of legal timber, control of the supply chain and control and independent monitoring, which covers Ⅲ State natural and plantation forests where principles the EU expectations apart from provisions for FLEGT cover (i) the legal status, area and right to utilize the licensing. However, the experts suggested improve- forest; (ii) compliance with the legal requirements ments to the SVLK (Ministry of Forestry, 2009b): for harvesting; and (iii) compliance with the envi- ronmental and social aspects related to harvesting Ⅲ Strengthening description of control structures Ⅲ Privately owned forest; the principles cover owner- and responsibilities in private and state forest ship of the timber as it relates to the land area, the management logs and the trading of logs, and this can be cross Ⅲ Speci�cations on implementation of regulations checked for traceability on environmental and labor protection at the provincial and district levels in different types of 5. Tropical Forest Trust news, 11 October 2011: http://www.tft- industry in the supply chain forests.org/ 116 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Ⅲ Principles that regulate logging from non-forest develop a FSC National Standard for Indonesia in line zones that may or may not lead to forest conversion with the FSC Principles and Criteria and International Ⅲ General legality standard covering the supply chain Generic Indicators under development. e aim is for management of timber from the forest through completion and implementation in 2014. processing units to the point of export Various NGOs and donor organizations have supported For each principle criteria, indicators and veri�ers are voluntary certi�cation in Indonesia with the purpose de�ned to demonstrate compliance, together with veri�- of promoting FSC certi�cation among the concession cation guidelines describing the method and the appraisal holders. In contrast to the concession licenses cover- norm to be used. ese are closely linked to the criteria and ing 26.16 million hectares of natural forests in 2008 indicators for SFM, which apply to all log production from (Ministry of Forestry, 2009a), the share of certi�ed for- concessions and cover production, social and ecological ests is still very limited. According to Indonesia forest aspects. Conformity assessment bodies will audit operators data reported to FRA 2010, only 3% (1.4 million ha) of annually for compliance with provisions of the SVLK and natural production forests and 18% (0.6 million ha) of also act as outsourced licensing authorities for shipments. forest plantations are certi�ed under the LEI or FSC schemes, as detailed in Table A2.2. Indonesia started implementing the Indonesia-EU VPA and will test pilot licensing of products to the European e area of certi�ed forests varies in time with issuance Union in 2012, with full implementation in time for and suspension of certi�cates. Currently three FMUs have entry to force of the EUTR in March 2013. e SVLK received LEI certi�cates for management of natural forests is being recognized by Indonesia’s REDD-plus program and three for the management of planted forests each cov- as potentially contributing as an effective instrument ering about 0.5 million hectares7 in total. Fourteen FMUs toward good forest governance.6 e VPA is the �rst in have received an FSC forest management certi�cate cov- Asia and will govern forest products trade estimated to be ering in total 0.9 million hectares of both natural and worth US$1 billion/year. Once the VPA is operational, planted forests.8 e sizes of individual FMUs range from Indonesian authorities will permit the export only of a couple hundred of hectares to 217,000 hectares each. timber licensed under the SVLK standards and EU cus- toms authorities will prevent any unlicensed Indonesian Of the 2 million hectares of certi�ed forests (4% of pro- forest products from entering the European Union. duction forest area), 1.4 million hectares (70%) are nat- ural forest concessions and 0.6 million hectares (30%) are planted forests. In the breakdown of forest manage- A2.1.5 Certi�cation ment certi�cation, the private sector has been issued 1.9  million hectares (95%), the state 0.07 million hect- In addition to the mandatory veri�cation systems under ares (4%) and private or community groups 0.03 million the authority of the Ministry of Forestry, private compa- hectares (1%), which is in opposite proportion to forest nies and community-based forestry organizations have ownership in Indonesia (public 91%, private 9%). applied for voluntary forest management and CoC cer- ti�cates. e LEI developed a national voluntary forest Table A2.3 highlights controlled wood use in Indonesia. certi�cation scheme to provide evidence of SFM. e LEI scheme has different standards for the manage- Controlled wood standards help forest management ment of natural forests, plantation forests and commu- enterprises demonstrate compliance with legal harvest- nity forests. So far, the scheme has not been endorsed by ing but not implementation of all applicable national and any of the major international forest certi�cation frame- international laws. FSC controlled wood can be sup- works (FSC or PEFC), although harmonization toward plied to CoC certi�ed operations for mixing with FSC FSC requirements is under evaluation and dialogue. e Standard Development Group is in discussions to 7. WWF: http://www.lei.or.id accessed 28.4.2011 6. EU FLEGT News, July-August 2011. 8. http://info.fsc.org accessed 28.4.2011 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 117 TABLE A2.2: Certi�ed Forests in Indonesia Forest Certi�cation Scheme Area (ha) No Type of Forest Ownership LEI 502,000 ? Natural forests Private 540,000 ? Planted forests Private 25,000 ? Community forests Community group LEI 1,067,000 FSC SmartWood Rainforest Alliance 560,864 4 Natural Private 1,038 3 Plantation Private Soil Association Woodmark 38,043 2 Plantation State 1,005 1 Plantation Private group SGS Qualifor 33,047 1 Plantation State 90,956 1 Natural Private CU Certi�cations 212,880 2 Natural Private FSC Sub-total 937,833 14 Total 2,004,833 (4%) 14+ Source: http://info.fsc.org/ March 2012; Authors’ compilation certi�ed materials in production of FSC mixed wood All the major international certi�cation bodies, which products. Compliance with controlled wood standards having the accreditation to do third party certi�cation allows forest management enterprises to demonstrate best under the FSC or other certi�cation frameworks, are efforts to avoid the trade in illegally harvested timber and well established in Indonesia. e voluntary forest and implement responsible sourcing policies. At this stage, the CoC certi�cation standards implemented in the coun- controlled wood standards are 100% private owned and try are presented in Table A2.5. 100% on planted forests (FSC database, March 2012). Table 3.4 highlights FSC and PEFC CoC use in A2.1.6 Forestry Institutions, Policy, Legislation Indonesia. and Law Enforcement e number of CoC certi�cates has risen sharply to Indonesia is faced with some signi�cant policy chal- 209, of which FSC are 195 and PEFC 14 by March lenges in the forest sector (Wells, 2008a). Forest deg- 2012. Additionally, two FMUs and four pulp and paper radation and deforestation has led to depletion of companies have passed the LEI CoC certi�cation. e accessible timber resources and international pressure LEI is implementing programs to increase certi�cation, to combat unauthorized logging has encouraged gov- especially in plantation forestry (FSC, 2011 and LEI, ernment to take action. e government has identi�ed 2011). e signi�cant increase in CoC certi�cates is forestry as one of the three priority sectors of economic an indication that companies are responding to market development, together with �sheries and agriculture. demands for uncontroversial sources of timber. Current emphasis is on industrial and community based TABLE A2.3: Forest Managers Complying with FSC Controlled Wood Standards in Indonesia FSC Controlled Wood Certi�cation Body Area (ha) No Type of Forest Ownership Soil Association Woodmark 281,038 1 Plantation Private Source: http://info.fsc.org/ March 2012; author’s compilation. 118 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.4: FSC and PEFC CoC Summary for Indonesia FSC PEFC Total Certi�cation Body No No No % TT 59 59 28 SGS Qualifor 45 10 55 26 SmartWood Rainforest Alliance 54 54 26 LGA InterCert GMbH (IC) 22 1 23 11 SCS 7 7 3 BV Certi�cation – Eurocertifor 2 2 4 2 DNV Certi�cation AB 3 3 2 KPMG Forest Certi�cation Services Inc. (KF) 1 1 0.4 CU Certi�cations 1 1 0.4 SQS 1 1 0.4 SKH 1 1 0.4 Total 195 14 209 100 Source: http://info.fsc.org/ March 2012; http://register.pefc.cz/. March 2012; author’s compilation plantation forestry aimed to meet the timber supply gap in annual allowable cut as the resource base dwindled, otherwise fed by illegal logging. improved law enforcement and increased market com- petition from Malaysia and China. However, this leaves According to Wells (2008a) the importance of industrial a legacy of substantial overcapacity in the timber pro- forestry sector to economic growth and revenue regen- cessing industry which increases the pressure on illegal eration declined in the 2000s as a result of reduction logging. Severe poverty is common in forest areas, which TABLE A2.5: Forest and CoC Certi�cation Standards Implemented in Indonesia Standard Scheme Owner Forest Management FSC Forest Management SmartWood Rainforest Alliance Interim Standard for Assessing SmartWood Rainforest Alliance Forest Management in Indonesia (FM-32-Indonesia) (2008) SCS Draft Interim Standard for Natural Forest and Plantation Forest SCS Management Certi�cation in Indonesia V1-0 (2009) LEI LEI standard 5000-1 System for Sustainable Natural Production LEI Forests Management LEI standard 5000-2 Sustainable Plantation Forest Management system Chain of Custody FSC CoC FSC CoC standard for companies supplying and manufacturing FSC FSC certi�ed products (FSC STD 40-004) FSC standard for company evaluation of FSC controlled wood (FSC STD 40-005) FSC standard for forest management enterprises supplying non FSC certi�ed controlled wood (FSC STD 300-10) Sourcing reclaimed material (FSC STD 40-007) Multi site CoC certi�cation (FSC STD 40-003 V1-0) PEFC CoC CoC of Forest Based Products – Requirements (2005) PEFC Council Source: Authors’ compilation C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 119 also contributes to unauthorized forest use. National gov- 31.2 million hectares, TPTII/SILIN system from ernment has restricted the rights of district governments 0.3 to 0.6 million hectares, pulpwood plantations to issue industrial logging licenses in a recentralization from 2.6 to 3.3 million hectares, community timber process. Most categories of licenses remain the authority plantation from 1.6 to 3.2 million hectares, timber of Ministry of Forestry. plantation from 1.5 to 1.7 million hectares and non-forested areas 10.7 to 13.2 million hectares e government banned export of logs from 1 January Ⅲ Protection forest: Primary forest, secondary forest, 2011 and is committed to a two-year moratorium on and non-forested areas are, respectively, 13.3 mil- new permits for forest conversion in primary natural lion hectares, 10.5 million hectares and 5.6 million forests and peat land forests (Gingold et al., 2011). e hectares moratorium is one of the preconditions of the US$ 1 bil- Ⅲ Conservation forest: Primary forest, secondary for- lion REDD-plus agreement with the government and est and non-forest areas are, respectively, 10.1 mil- Norway. e agreement foresees systematic monitoring lion hectares, 5.5 million hectares and 3.9 million of any breaches and thus may improve the compliance to hectares already existing regulations limiting logging in primary Ⅲ Convertible production forests: primary forest, sec- natural forests (Satriastanti, 2010). ondary forest, non-forested areas are respectively 5.3 million hectares, 5.3 million hectares and Land tenure rights are contested in Indonesia. Only 10% of 12.2 million hectares the National Forest Estate has been fully gazetted in line with stipulated procedures. Proprietary claims of forests e annual production and consumption growth of ply- remain unclear, which presents signi�cant challenges to wood, block board, sawnwood and pulp will increase license holders planning to invest in the area. Current for- by 10% to 15%, 28% to 34%, 17% to 23% and 7% to est law (41/1999) does not recognize the areas of traditional 8%, respectively. Moreover, the plywood, veneer, block communities (Hutan Adat) as private forest (Hutan Hak), board and sawnwood industries face a log de�cit until but merely as one category of the National Forest Estate. 2013. e installed capacity of the pulp industry could e national law and adat law differ from each other in increase. many respects; thus, conflicts often arise between the local adat community and companies holding a license, because To curb illegal logging, capacity building and insti- the government issues permits to companies on land that tutional strengthening to carry out law enforcement, the community considers theirs. Companies, for their part, amending national laws and regulations to strengthen feel that they hold a proper land use right under the license law enforcement and prosecuting those behind major granted to them. As a consequence, signi�cant areas of forest harvesting, processing, transporting and trade National Forest Estate are disputed by local people. crimes are priorities of the government. Promotion of transparency, independence and accountability, greater participation with key stakeholder groups, conflict reso- A2.1.7 Forests and Forestry toward 2020 lution and compensation are also priorities identi�ed. According to the Indonesian Forestry Outlook Study, 2009,9 the objectives for management of Indonesian for- A2.1.8 Potential for Certi�cation, Veri�cation and est resources toward 2020 are: NTLAs/VPAs Ⅲ Production forest: Primary forest ranging from 8.5 e future potential to expand voluntary certi�cation in to 8.6 million hectares, secondary forest from 31 to Indonesia depends on the one hand on the interest of pri- vate or state-owned companies to apply for certi�cates. 9. FAO, 2009. Indonesia Forestry Outlook Study. Working Paper On the other, it will depend on making certi�cation more No. APFSOS II/WP/2009/13, Asia Paci�c Forestry Sector Outlook Study II, prepared by the Centre for Forestry Planning and Statistics, accessible to small-scale producers, who face substantial Ministry of Forestry, Indonesia, for FAO, Bangkok, ailand. �nancial and procedural obstacles. e theoretical limit 120 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A is around 35.5 million hectares, which is the forest area evidence of either sustainable management or legal managed by members of the APHI. compliance according to the scope applied in audits. e SVLK certi�cate is recognized in the European Union e share of certi�ed concessions in natural forests will as evidence of legal compliance, and the major national most likely increase steadily to 10%, assuming that every procurement policies along with major client organiza- tenth current concession holder will apply for a certi�- tions in Europe or the United States. e open issue cate.10 is would increase the certi�ed forest area up to is whether the SVLK certi�cate is adequate for speci�c 2.6 million hectares from the current 2.0 million hectares. client groups or �nancing bodies demanding both legal, sustainable timber production and certi�cates issued For forest plantations, the expansion of certi�cation is by internationally recognized accredited certi�cation more feasible, and the companies producing timber or bodies. Currently only 25% of forest concessions have timber products to environmentally sensitive markets passed the SVLK legality or sustainability certi�cation can readily apply for a certi�cate. A general precondi- done by national veri�cation bodies. is low �gure tion for the expansion is that the plantation forests must indicates that the priority will be on promoting SVLK not be established on converted lands. e area of forest legality veri�cation in the remaining 20 million hect- plantations (currently 7% of production forest or 3.5% ares of active concession areas. of forest area) is small in contrast to the forestry land, and only 30% of the current forest plantation area is cer- An option the companies have in striving for compli- ti�ed. If the current forest plantation owners apply for ance with legality and sustainability requirements in a certi�cate, the area would increase from the current Indonesia is to enroll in a stepwise forest certi�cation 0.6 million hectares to 3.5 million hectares. process that is run most often by FSC accredited CBs. Such an approach builds the resources and competences Current licenses for industrial forest plantations have to meet the SVLK legality requirements and to achieve been issued for about 10 million hectares, but only an internationally recognized certi�cate for SFM. e one third of these have been planted to date (Ministry market incentives for voluntary sustainability certi�ca- of Forestry, 2009a). Potential remains to expand for- tion, often exclusively FSC certi�cation, include better est certi�cation in new plantings by an additional access to markets and premiums for certi�ed timber. 3 to 4  million hectares in the future based on the Additional incentives could be provided through �scal assumption that the majority of the existing 3.5 mil- incentives, ranging from simpli�ed auditing proce- lion hectares of forest plantations and 10% of new dures to reductions in timber royalty rates for compa- forest plantations (not being converted from natural nies that have a FSC or LEI SFM certi�cate (Jarvis and forests), will be certi�ed. Currently, plantation wood Jacobson, 2006). is used mainly for pulp production in Indonesia, with limited but gradually increased demand for certi�ed It will also be important to lower the barriers of entry for origin. If paper-producing companies and related in- smallholders to avoid the risk for further reducing their ternational markets increase the demand for products access to forestland and of barring them from access to of sustainable origin, companies will gain more interest environmentally sensitive markets. e main barrier in voluntary certi�cation. of entry is cost, followed by onerous requirements for management plans and recordkeeping, overly complex Government requirements on mandatory certi�ca- or irrelevant procedures, limited institutional capac- tion and the future EU FLEGT licensing procedures ity to assist small-scale landowners, competition from require a strong commitment from timber-producing cheaper plantation wood, lack of a guaranteed price and timber-processing organizations in Indonesia to premium to offset costs, and an imposition of “commu- provide evidence on legal compliance. e conformity nity� on diverse and disconnected groups (e.g., Forest to the national SVLK certi�cation standard provides Trends, 2003, 2004 and 2005). Streamlined certi�ca- tion standards and lower certi�cation costs can help 10. e calculated average for a concession area is 85,000 ha. improve access to smallholders or groups of farmers as C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 121 offered, for example, by the FSC’s SLIMF certi�cation A2.2 Malaysia (FSC, 2009). Another important caveat to bear in mind is that the A2.2.1 Forests and Forest Management capacity of certi�cation bodies in Indonesia is still low. Capacity has been increasing over recent years, but is Malaysia enjoys one of the highest percentages of forested likely to be insufficient to accommodate the potential land among developing countries, although to date it has expansion in certi�cation. In particular, capacity build- faced severe deforestation. In reporting to FRA 2010, the ing efforts should focus on (i) reaching out to potential Ministry of Natural Resources and Environment and the clients to inform them about procedures, (ii) improving Department of Forestry, Malaysia, estimated that the total the processing of certi�cation requests and (iii) ensuring forest area was 20.5 million hectares (62% of the total land effective and independent audits. area). Key forest data are presented in Table A2.6. TABLE A2.6: Malaysia Forests and Forestry Data Forests and forestry data Population Total 27.0 million, density 82/km2, growth 1.7%/year Land area 32.9 million ha Total forest area 20.5 million ha (62% forest cover) Designated Function of Forests Productive (wood, �ber, fuel, NWFPs) 12.7 million ha (62%) Protective (soil, water, etc.) 2.7 million ha (13%) Conservation of biodiversity 2.0 million ha (10%) Social services 0 million ha (0%) Multiple use 3.1 million ha (15%) Other 0 million ha (0%) Unknown/unspeci�ed 0 million ha (0%) Forest Characteristics Primary forest 3.8 million ha (19%) Other naturally regenerating forests 14.8 million ha (72%) Planted forests 1.8 million ha (9%) Forest ownership Public 98%, private 2% Forest cover trends 1990 22.4 million ha 2000 21.6 million ha (Ϫ0.4% decrease 1990–2000) 2005 20.9 million ha (Ϫ0.7% decrease 2000–2005) 2010 20.5 million ha (Ϫ0.4% decrease 2005–2010) Wood Removals 1990–2005 Industrial roundwood (1000 m3) Fuelwood (1000 m3) 1990 48,428 4,613 2000 21,946 3,831 2005 26,706 3,557 People Employed in Public Forest Institutions 2000 11,000 2005 8,400 2008 8,600 Main international markets for timber/timber products China, Singapore, Japan, Taiwan, EU, Middle East Rati�cation of international conventions/agreements CBD, UNFCCC, Kyoto Protocol, UNCCD, ITTA, CITES, RAMSAR, World Heritage Convention, NLBI of UNFF Sources: CIA – the World Factbook: https://www.cia.gov/library/publications/the-world-factbook, FAO (2010a). 122 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Planted forests account for 9% of forest area. e FIGURE A2.3: Forest Area and Deforestation Rate in Malaysia State of Sarawak is the most forested state followed by 25,000 -0.2 Peninsular Malaysia, then State of Sabah. Forest Area (in 1,000 hectares) Annual Change Rate in Forest 1,659 1,573 1,807 -0.3 20,000 3,820 3,820 3,820 -0.36 Forested land gazetted as Permanent Forest Estate 15,000 -0.4 Area (%) -0.42 (PFEs or PRFs)11 under the National Forestry Act -0.5 10,000 16,112 1984, is estimated at 14.3 million hectares; outside the 15,497 14,829 -0.6 PRFs, 1.8 million hectares are gazetted as National 5,000 -0.7 -0.66 Parks and Wildlife Sanctuaries under various legis- 0 -0.8 lations. ese 16.12 million hectares combined are 2000 2005 2010 forests to be maintained in perpetuity by law. is Other Naturally Regenerated Forest Primary Forest Area Planted Forest Area Annual Change Rate in Forest Area is a fundamental pillar of Malaysia’s commitment to SFM. Within the PRF 3.11 million hectares (22%) Source: FAO (2010a). are designated as protected forest, while the remain- ing 11.18 million hectares (78%) constitute production forest, where commercial harvesting of timber on a the plywood/veneer industry was 10.3 million m3, or predetermined rotational cycle is permitted (Malaysian 92.6% installed capacity. Most surplus installed capac- Timber Council, 2007). ese data varies from those ity existed on Peninsular Malaysia. reported to FAO for FRA 2010. e production of industrial roundwood peaked at Deforestation rates in the country have been at record- 50 million m3 in 1990 and decreased to 28 million m3 high levels in past decades. Intensive logging is the in 2005. Government policies promoting valued added main cause of forest degradation. Today, forest area in products resulted in increased production between Malaysia is decreasing by 70,000 to 80,000 hectares/ 1985 and 2005 for wood-based panels and paper and year (0.42%), as detailed in Figure A2.3. e defores- paperboard from 1.4 million m3 to 7.1 million m3 and tation rates are highest on the Island of Borneo in the 0.1 million tons to 1.0 million tons, respectively. During States of Sarawak and Sabah. the same period, fuelwood declined from 7.6 million m3 to 3.1 million m3. Export of logs decreased by 71% By law, forest clearance is allowed according to set rules from 20.1 million m3 in 1985 to 5.8 million m3 in 1995. on lands not categorized as PFE/PRF. e deforesta- Wood-based panel exports increased from 0.8  mil- tion rates thus reflect market demands for bioenergy, lion m3 in 1985 to 6.6 million m3 in 2005, through agricultural and forest products and reflect demographic investment in new technologies, competitive pricing and economic development pressure in each state. and links with secondary and tertiary processing. In 2005, Malaysia exported 0.3 million tons of paper and paperboard. A2.2.2 Forest Products, Marketing and Trade12 e annual production of industrial roundwood in e installed capacity of the forest industries in Malaysia Malaysia is estimated to be 29.2 million m 3 for 2011 was estimated at 30.9 million m3 in 2005, of which 19.8 to 2015 and 32.5 million m 3 for 2016 to 2020. e million m3 were in sawmills and 11.2 million m3 in State of Sarawak is projected to increase annual in- plywood/veneer mills. e industrial roundwood con- dustrial roundwood production of 13.5 million m 3 sumption by sawmills in 2005 was 9.4 million m3, or in 2006 to 2010, to 25 million m 3 in 2016 to 2020, 47% of their installed capacity, and the equivalent for through their aggressive forest plantation develop- ment program. In Peninsular Malaysia and the State 11. Referred to also as PRF. of Sabah, which depend heavily on production from 12. FAO, 2009. Malaysia Forestry Outlook Study. Working Paper No. APFSOS II/2009/02, Asia Paci�c Forestry Sector Outlook PFE/PRFs, a decline in industrial roundwood pro- Study II, FAO, Bangkok, ailand. duction is estimated as a result of more stringent C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 123 enforcement of annual allowable cuts and social and delivered through audits of the forest management environmental covenants. system. A range of them include: Ⅲ Mandatory SFM audits of license holders by state A2.2.3 Veri�cation authority Ⅲ Mandatory SFM audit of state authorities by the In Peninsular Malaysia and in the State of Sabah, the federal government (Peninsular Malaysia and the government has a central role in the control of forestry State of Sabah) and timber processing. In the State of Sarawak, con- Ⅲ Audits by accredited certi�cation bodies against cessionaires bear a greater responsibility for demon- ISO standards (e.g., ISO 9001 on quality manage- strating legal compliance. Common principles for all ment systems) voluntarily adopted by federal and these areas are that use of forest products is allowed state forest authorities only under license, because forest products belong to Ⅲ Audits by accredited certi�cation bodies against the state. Although Malaysia has less illegal logging SFM and CoC standards adopted by state for- than, for example, Indonesia, this still accounts for 14% est authorities and individual licensees. e SFM to 25% of timber production. Evidence suggests that a standards may include (e.g., Malaysian Criteria large part of that production relates to illegalities con- and Indicators for Natural Forests and for planta- ducted by licensed companies within their own licensed tion forests13 or interim FSC standards). harvesting areas (Lawson and MacFaul, 2010). e audit methods in the �rst two bullets are used by Considerable differences exist among the states in authorities in law enforcement, whereas the third and forest control and monitoring procedures. ese dif- fourth bullets belong to voluntary veri�cation proce- ferences have an impact on policies, licensing and dures. In the State of Sabah, voluntary certi�cation is enforcement procedures (Wells, 2008b; Lounasvuori linked to law enforcement procedures; in Peninsular et al, 2009). In general, the control procedures for Malaysia and the State of Sarawak they provide addi- PFEs/PRFs are more comprehensive than those de- tional evidence for compliance that authorities may take signed for alienated or state lands where land conver- into account. sion is allowed. In the State of Sabah and Peninsular Malaysia, the Federal Forestry Department audits the In Malaysia, voluntary and mandatory audits comple- monitoring procedures of state-level enforcement, but ment each other in the state-level monitoring frame- in the State of Sarawak the monitoring is outsourced to work. e Federal Forestry Department performs the private state-owned company SFC, which controls annual SFM audits of state FMUs using MTCC pro- planning and monitoring procedures through different cedures, and these mandatory and voluntary audits are business units. mutually reinforcing (Wells, 2008b). Malaysia has introduced quality management systems Peninsular Malaysia in line with the ISO 9001 standard to state-level for- e states in Peninsular Malaysia have adopted the est administration. Initially, the country proposed that National Forestry Act (1984), which outlines the reg- certi�ed quality management covering the administra- ulations for forest management. Legal compliance is tive procedures of state forestry departments would pro- monitored by District Forest Offices. e monitoring vide adequate assurance of viable forest management to includes �eld veri�cation by forest rangers before, dur- the international markets. is turned out to be a false ing and after harvesting. Regular inspections are made assumption that led to the development of mandatory at roadsides and timber log yards at mills. Peninsular and voluntary veri�cation systems and combinations of Malaysia has adopted a public noti�cation system by both. According to Wells (2008b), composite and mul- tiagency structures responsible for monitoring make 13. MC&I for natural and plantation forests are endorsed by Malaysia an interesting case. Veri�cation is generally the PEFC. 124 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A which citizens may inform the authorities about anyone accreditation body and against an international suspected of illegal logging (Wells, 2008b). Suspects accreditation standard. will be investigated by forest officers. State of Sabah According to Wells (2008b), the Peninsular Malaysian In the State of Sabah forestry operations are regulated veri�cation system has the following strengths: through the Forest Enactment (1968/1992) and Forest Rules (1969). In 1997, the State of Sabah introduced Ⅲ Mandatory and voluntary audits of SFM are mutu- long, 100-year SFM License agreements (SFMLA) ally supportive because both are conducted against for an individual FMU. e long licensing period with the same standard MC&I. increased investment and management responsibilities Ⅲ Voluntary CoC certi�cation provides critical over- shifts the focus of SFM compliance to the licensees, sight of mill processing, where mandatory systems rather than the state forest management authorities, as otherwise rely on self-reporting and recovery rates is the case in Peninsular Malaysia (Wells, 2008b). by mill operators. Ⅲ Audits against ISO 9001:2000 quality manage- e Forestry Department in the State of Sabah has ment standard in state forestry departments ensure strengthened enforcement procedures by establishing an consistency in administrative procedures, their Enforcement and Investigation Division in 2002 that documentation and monitoring. cooperates with the Anti-Illegal Logging Unit of the Chief Minister’s Office, as well as with the police and e following areas of concern over the veri�cation- army (Wells, 2008b). e new arrangements in enforce- related activities are: ment have proved to be effective and led to a signi�cant increase in convictions for illegal logging. Ⅲ Mandatory monitoring relies on the CoC veri- �cation suppliers’ self-declaration claiming that e Forestry Department of the State of Sabah carries non-certi�ed raw-material batches do not contain out mandatory audits against a performance standard. timber from controversial sources. Legality as de- e audits aim to verify compliance with the normative �ned in the FLEGT process should further expand level of forest management and upgrade it to the level the claim to cover not only the origin of timber but required in FSC certi�cation, which is the ultimate pol- also the legality of harvesting and production con- icy target of the state forestry department. e director ditions thereof. of the forestry department issues a compliance certi�- Ⅲ e voluntary certi�cation systems have so far ap- cate to a licensee based on the report of the state forestry plied only to forestry procedures in PFEs. e audit team. Mandatory audits focus on the licensees with MC&I (2002) standard for natural forests does not a long-term interest and investment in the concession apply to lands where conversion is allowed (alienated area. is approach gives the forestry department greater or state land). ese forests cannot be certi�ed against power to sanction forest managers, and the long licensing the standard. State regulations are also more general period raises the desire of the licensee to avoid sanctions for these land categories, and compliance to them that hamper the pro�table management of forests. does not deliver evidence of the level of sustainabil- ity. Legal compliance may be easier to achieve. e In case of non-compliance, corrective action requests are Malaysian Criteria and Indicators for Forest Man- issued. For long-term, severe non-compliance, a request to agement (Forest Plantations), 2008) standard also suspend the license may be brought to the State Executive applies to planted forest under these land categories. Committee. Withdrawal of long-term licenses based on Ⅲ Independence in auditing and issuance, suspension non-conforming forest management is extremely rare. and withdrawal of certi�cates has improved since It is not very common for state-run audits to be comple- 2008, when MTCC adopted the PEFC require- mented by mandatory audits by independent third parties, ment stating that certi�cation bodies shall have although in some cases the forest industry has requested an accreditation from an internationally approved this (Brown and Bird, 2008). C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 125 In the State of Sabah, the forestry department aims industry in the state. It has outsourced the monitor- to improve forest management to the level required by ing responsibility of the volumes of domestic timber FSC and puts an emphasis on long-term development in to the government-owned company Harwood Timber management practices and capacities. Sdn. Bhd. Harwood also stores timber imported from Indonesia before it is allowed to enter the Malaysian e following areas of concern over the veri�cation- markets. Harwood reports to MPRM and to STIDC related activities are identi�ed (Wells, 2008b): and SFC on the log movements in the state, as well as on the timber licensee’s compliance with established Ⅲ Tracking of timber to the stump and related CoC quotas. Mills also report to STIDC, which assesses systems are not fully documented in the supply throughput against SFC and Harwood production �g- chain, which weakens the link between adminis- ures, as well as against STIDC export permits for logs tration and harvest control. and sawn timber (Wells, 2008b). Enforcement is imple- Ⅲ Transparency of audit procedures and compliance mented through spot checks during transport, in mills decisions could be improved. e role of indepen- and on individual consignments. e forest department dent auditors in the veri�cation system is limited. has the power to prosecute, but STIDC can order mills to stop their activities if, without a registration, they e Forestry Department has a certi�ed ISO 9001 qual- have committed an offence (Brown et al, 2008). ity management system that guides its operations. e system is limited to procedures in royalty collection and to preparation of forest management plans, which are A2.2.4 Malaysian Timber Legality important elements of legality veri�cation. e certi�cate Assurance System provides the assurance that the Forestry Department in the State of Sabah will duly perform its tasks according Malaysia and the European Union commenced formal to prescribed procedures. Wells (2008b) concludes that negotiations from September 2006 on the development because of the narrow scope of the quality management of a VPA under the EU FLEGT Action Plan. In this system in the Forestry Department, the quality and forest context, Malaysia has developed a TLAS to provide an management system audits do not reinforce each other. assurance that all logs, sawn timber, veneer and plywood licensed for export to the European Union under the VPA State of Sarawak are produced legally as de�ned in the TLAS and that all In the State of Sarawak, the legal basis in forestry opera- timber products of unknown or illegal origin are excluded. tions is stated in Forest Ordinance 1954/1999. Forest policy setting, regulation, monitoring and enforcement are under In October 2008, an independent technical evaluation of the overall authority of the State of Sarawak Minister for the TLAS was performed to test legality of timber and Planning and Resource Management (MPRM). As men- timber products licensed for export to the EU under the tioned earlier, the Forest Department has outsourced VPA and identi�ed weaknesses in implementation pro- monitoring to the private state-owned company SFC to cedures and capacity-building needs for implementation increase efficiency. SFC has separate business units, of (Lounasvuori et al, 2009). e evaluation concluded which the Sustainable Forestry and Compliance Business that the TLAS control and implementation procedures Unit (SF&C) is responsible for harvest planning and mon- were generally of a good standard, but the social and itoring and the Security and Asset Protection Business environmental issues were inadequately addressed or Unit (SAPU) is responsible for enforcement. e forest absent. Issues for further development included: department focuses on policy, regulations and licensing. Ⅲ Native and customary rights addressed the right e State of Sarawak is entitled to export 40% of the to collect forest produce but gave no guidance on harvesting quota, and 60% must be allocated to domes- issues of land occupation rights. tic processing within the State of Sarawak. e STIDC Ⅲ Workers’ safety and health were addressed, but no is a statutory body responsible for promoting the timber clear indication was given as to how compliance 126 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A is determined and no requirement provided that trade zones provide a pathway for timber with incomplete links compliance with export licensing. information on origin. Malaysian regulations on imports Ⅲ Environmental legislation was included and re- do not promptly take into consideration the changes in quired companies to make environmental impact regulations of exporting countries (e.g., Indonesian ban assessments or take actions that mitigated environ- on export logs), creating a situation in which the demand mental degradation, but the circumstances practic- may encourage unauthorized exports. es to be followed were not clearly de�ned. e TLAS, as described in 2008, veri�es the existence In addition, NGOs considered that the TLAS inad- of timber import licenses for logs and custom declara- equately address the rights of indigenous peoples and tion forms for sawnwood, plywood and veneer. It does not land tenure rights, especially when the forest licensing describe how the different authorities, MTIB/STIDC, procedures and forestry legislation failed to take the customs and the state forestry departments inspect the indigenous peoples into account. Reflecting the state- imported logs and processed timber products (Lounasvuori level legislation, TLAS set different requirements for dif- et al., 2009) to gain reliable evidence on legality. ferent states and did not make a consistent link between the legislation implemented in the forestry and timber A2.2.6 Certi�cation industry and the export licenses, which decreases the value of an export license in providing proof of legality. Malaysia has been active in developing voluntary certi- �cation. e Malaysian Timber Certi�cation Council, e TLAS has since undergone further revisions and made up of the key stakeholder groups, was formed in improvement through joint expert meetings, working 1998 to develop and operate the MTCS. e scheme groups and public consultations, the latest of which took has standards and procedures for certi�cation of natural place in July 2012. forests and plantations and procedures for CoC veri�ca- tion. e certi�cation scheme for natural forests was en- dorsed by the PEFC in May 2009, and the MTCC has A2.2.5 Control of Timber Imports to Malaysia In general, imported round logs need to have an import BOX A2.1 license issued by the MTIB and a customs declaration. In Summary of Forest Control in Malaysia the State of Sarawak, the license is issued by STIDC. e Ⅲ e forest control system enjoys strong governmental origin of timber needs to be recognized in “good faith,� support, which is important to revenue collection and but Malaysian embassies in the export countries that international reputation. Success of the public infor- mant system on observed suspected illegal loggings issue the certi�cate of origin do not have comprehensive indicates a general support for legal compliance. information to assess, for example, the legal compliance of Ⅲ During past years the control and penalty systems the timber. No certi�cate of origin is required for small- have improved (e.g., in the states of Peninsular dimension sawn timber and other processed products to Malaysia). demonstrate that the imported product is legally sourced Ⅲ EU VPA will consolidate the regulations in the dif- in the country of export (Lounasvuori et al, 2009). ferent stages of supply chain (licensing, planning, harvesting, transport, administration, etc.) under one de�nition of legality. Malaysia has free trade zones (e.g., in the State of Sarawak Ⅲ e TLAS objective to ensure that all operators that are bordering Kalimantan, Indonesia). Small-dimension issued a license to operate (forest, mill, export, import) timber may enter the country through these areas with a complies with legislation as de�ned in the TLAS. transit removal pass, and information concerning origin Ⅲ e TLAS needs to be further developed to (i) take is not requested. e STIDC licensing body for timber into consideration the concerns of civil society (e.g., for indigenous people’s rights and land tenure issues) and imports in the State of Sarawak has restricted the imports (ii) improve the linkage of legal compliance in harvest- of sawn timber to �ve designated points of entry, which ing and processing to the export licenses. improves the controlling possibilities (Wells, 2008b). Free C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 127 BOX A2.2 Drivers for Voluntary Forest Certi�cation Timber-based companies in Malaysia expect that certi�cation will at least maintain their market shares and keep them com- petitive, especially in the environmentally sensitive markets of Europe and North America, as well as increase their access to these markets. For the larger companies in Malaysia that have operations in other countries, it will also be part of their CSR and demonstrate improved corporate governance and transparency in their timber trade. For the state governments in Malaysia, it is envisaged that the information generated through certi�cation will assist them in communicating the status of SFM more effectively to the public; in enhancing policies and strategies for SFM so as to meet the requirements of certi�ca- tion; in focusing research efforts where knowledge is still lacking and de�cient, especially the changes in biological diversity and water quality of streams of the production forests after forest harvesting and their long-term effects on the integrity of the forest ecosystem; and in identifying those areas in special need of international assistance and cooperation. e state governments in Malaysia also expect that through effective certi�cation, illegal logging will further be controlled and reduced, because illegal forest activities undermine respect for the rule of law and of government and are frequently associated with corruption, which often threatens the livelihoods and the social and economic security of local communi- ties and forest-dependent people. In addition, because virtually all the forest lands in Malaysia are owned by the state governments, it is imperative for these governments to be involved in certi�cation, as they are in a better position to balance the views of the different parties involved and ensure greater accountability to the public and greater transparency in the certi�cation schemes used. eir active involvement also could provide an additional channel for interested parties to present their interests to certi�cation bodies and the relevant authorities involved in certi�cation processes in Malaysia, as they are held accountable for the livelihood and well-being of their people. rough certi�cation, the indigenous people and local communities who are dependent on the forest for their livelihoods expect that their traditional use rights or legal or customary tenure of forest lands will be respected. is includes their rights to manage their own land unless they delegate such rights with free and informed consent to other interested parties. applied for the endorsement for the certi�cation stan- endowed by the Ministry of Plantation Industries and dard for sustainable management of plantation forests. Commodities. e condition for the PEFC endorse- ment was to revise the authorities and tasks in auditing e PEFC endorsement process brought changes to and issuance of a certi�cate to meet the international the MTCS scheme, and the MTCC gave a transition standards set for independent third party certi�cation. period for the already certi�ed FMUs to adopt the By February 2011, all MTCC certi�ed FMUs gained scheme revisions. At that time, the MTCS had areas compliance with the PEFC endorsed MTCS scheme certi�ed according to the internationally endorsed through independent and internationally recognized MTCS-PEFC procedures as well as areas certi�ed by audit procedures.14 the earlier MTCS procedures. Initially, the division of powers between the forest e MTCS-PEFC standard for natural forests is appli- authorities and independent certi�cation bodies was cable only to PRFs. e standard for plantation forests, not well de�ned in the voluntary certi�cation systems. still under the PEFC endorsement process, is applicable Current independent audit procedures should deliver to PRFs but also to forests on “state land,� which is a impartial statements on compliance. rough incor- land category gazetted for land development where for- porating both audit approaches in state-level monitor- est conversion for other uses is also allowed. ing, the forest departments can reduce mandatory ad hoc audits without risking the reliability of monitor- Before the PEFC endorsement in 2009, the audit- ing. Compliance to PEFC or FSC requirements also ing and certi�cation process was controlled by the MTCC, which was partly �nanced by the export levies 14. http://www.pefc.org 128 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A provides assurance that the certi�cation procedures are three out of the seven FSC certi�cates are issued to impartial and meet the international standards. Before state forest enterprises in Peninsular Malaysia. e the PEFC endorsement, the MTCS certi�cation pro- State of Sabah has one MTCS-PEFC certi�cate and cess was strongly controlled by the MTCC, which partly one FSC certi�cate for natural forests and one FSC represented the interest of the industry. erefore, the certi�cate for plantations. Two FMUs in Peninsular audits did not meet the independent, third party veri�- Malaysia, a total area of 0.12 million hectares, have cation requirements. both MTCS-PEFC and FSC forest management certi�cate. e forest management and CoC certi�cates in Malaysia are summarized in Table A2.7. At March 2012, 40% of production forests of the Malaysian PFEs had been certi�ed by an internation- e total area of certi�ed forests is 5.1 million hectares, ally approved certi�cation scheme. e certi�cation rate of which 4.6 million hectares of natural forests are is only 3% in plantation forests. us, potential exists under internationally endorsed MTCS-PEFC certi�- to increase forest certi�cation, especially in the States cation and 0.5 million hectares are under international of Sabah and Sarawak, but also in the four uncerti�ed FSC certi�cation. Natural forests account for 5 mil- states in Peninsular Malaysia. e Malaysian govern- lion hectares (99%) of forests certi�ed. e share of ment is allocating budget funding for the certi�cation certi�ed forest plantations is 46,443 hectares (Ͻ1%). of PRFs in Peninsular Malaysia, where each certi�cate Currently the eight MTCS-PEFC certi�cates and covers all PRFs in the state. TABLE A2.7: Forest and CoC Certi�cation in Malaysia Forest Management Certi�cation Body Certi�cates Type of Forest Ownership CoC Certi�cates Area (ha) No No % FSC SCS 400,169 3 3 natural State 29 9 46, 433 3 3 plantation Private SGS Qualifor 55,139 1 Natural State 104 31 SmartWood Rainforest Alliance 11 3 SACoC 7 2 SQS 5 1 DNV 5 1 IC-CoC 1 – TT-CoC 1 – Sub-total FSC 501,751 7 163 49 MTCS-PEFC SGS Qualifor 2,711,657 4 Natural State 112 33 SIRM QAS 1,877,164 4 Natural State 52 16 Moody International 7 2 Japan Gas Appliances Inspection 1 – Association (JGAIA) SCS 1 – Sub-total MTCS-PEFC 4,588,821 8 173 51 Total 5,090,572 (40%) 15 336 100 Source: http://www.fsc-info.org; February 2012 data; and http://register.pefc.cz/search1.asp; February 2011. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 129 TABLE A2.8: Forest Managers Complying with FSC Controlled Wood Standards in Malaysia FSC Controlled Wood Certi�cation Body Area (ha) No Type of forest Ownership SmartWood Rainforest Alliance 107,053 1 Natural Private SCS 5,616 1 Plantation Private Total FSC Controlled Wood 112,669 2 Source: http://info.fsc.org/ March 2012; author’s compilation. e interest in FSC controlled wood shows an elemen- Indicators in 2013, with the aim of implementation tary level of entry toward achieving legality of harvesting, in 2014. an interim step toward Forest Certi�cation. As detailed in Table A2.8, natural forests account for 107,053 hect- e government is also promoting the establishment of ares (95%) and forest plantations 5,616 hectares (5%) of forest plantations. It encourages the private sector, with controlled wood standards. Private companies account tax exemptions and other �nancial arrangements, to for 100% of controlled wood standards. establish plantations on alienated lands, such as on aban- doned agricultural land and “state land.� Restrictions on e forest management standards used in forest certi�- certifying plantations established on lands cleared from cation are listed in Table A2.9. natural vegetation limits the expansion of certi�ed for- est plantations. However, the potential exists to have e FSC approved Standards Development Group plantations on degraded lands or former agricultural of Forest Sustainability Malaysia commenced devel- lands that will be eligible for certi�cation. opment of the FSC National Forest Management Standards for Malaysia in 2011. e process is due to e Malaysian timber industry exports timber prod- complete a FSC Standard in line with the new FSC ucts to a broad range of countries in Europe and Asia, Principles and Criteria and International Generic and the interest in CoC certi�cation has been high. TABLE A2.9: Forest Certi�cation Standards Implemented in Malaysia Standard Scheme Owner Forest Management FSC FCP Interim Standard For Forest Management Certi�cation in Malaysia Under FSC SCS Version 4-1 (2010) SGS Qualifor. Forest Management Generic Standard. State of Sabah, Malaysia (2010) SGS PEFC –MTCS Malaysian Criteria and Indicators for Forest Management Certi�cation (MC&I [2002]) MTCC MTCS15 MC&I for Forest Management Certi�cation (Forest Plantations) MTCC Chain of Custody FSC CoC FSC CoC standard for companies supplying and manufacturing FSC certi�ed products FSC (FSC STD 40-004) Standard for company evaluation of FSC controlled wood (FSC STD 40-005) FSC standard for forest management enterprises supplying non–FSC certi�ed controlled wood (FSC STD 300-10) Sourcing reclaimed material (FSC STD 40-007) Multisite site CoC certi�cation (FSC STD 40-003 V1-0) PEFC CoC of Forest Based Products – Requirements (2005) PEFC Source: Authors’ compilation. 15. MTCC has had PEFC endorsement for forest plantation standards since 2011. 130 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.10: Voluntary Legality Veri�cation systems implemented in Malaysia. Scheme Standard Owner SmartWood Rainforest Alliance SmartWood Rainforest Alliance Standard for VLO in the State of SmartWood Rainforest Alliance Sabah, Malaysia: SW document code VER-06 (2010) SmartWood Rainforest Alliance Standard for VLC in the State of Sabah, Malaysia GFS Global Forestry Services Inc. Legal Veri�cation Services. The GFS generic requirements to de�ne legal compliance with national regulations include the requirements for legal origin including the following elements (2009): (i) Forest Concession & Use Rights, (ii) Traceability & Identi�cation of Material, (iii) Legal Requirements of Operation and (iv) Harvest Planning Source: Authors’ compilation. Currently 173 timber companies have the PEFC CoC Malaysia’s timber industry is the country’s fourth- certi�cate16 and 163 have the corresponding FSC CoC largest export earner. Because of the robust competition certi�cate17 (FSC Certi�cate Database). e high num- in neighboring markets, it is interested in increasing ber of CoC certi�cates is an indication of the interest to its market share in the premium-priced, but sensitive maintain market share in forest products and in procur- European markets. e timber-processing industry ing certi�ed raw materials. relies on timber imports (e.g., from Indonesia, Papua New Guinea and Myanmar). Malaysia has an over In addition to the forest and CoC certi�cation, Malaysian capacity in timber processing facilities, and the de- forestry companies have applied for VLO and legal com- pendence of imports will increase with the declining pliance against the standards detailed in Table A2.10. domestic timber production (Wells, 2008b). e gov- ernment wishes to liberalize imports (Lounasvuori et  al, 2009) and avoids unnecessary regulations that A2.2.7 Forestry Institutions, Policy, Legislation would hamper this. e government policy is to support and Law Enforcement value added production that would have better access to the premium markets in Asia and Europe. In contrast to Indonesia, Malaysia is a federal state in which the 13 states in Peninsular Malaysia and the Since the early 1990s, the country, especially the States of Sabah and Sarawak have different jurisdic- states in Peninsular Malaysia, has taken actions to tions. In Peninsular Malaysia, the forestry legislation tackle illegal logging. Recently civil society (e.g., between the eight timber-producing states18 is fairly Traffic Southeast Asia, Environmental Investigation uniform, but in the States of Sabah and Sarawak, the Agreement) has raised concerns about the legality of forestry sector is governed under different regulations imported timber. e government has developed vari- and procedures. e National Forestry Council (NFC) ous veri�cation procedures to assess and demonstrate coordinates forest policy and outlines the �ve-year cut- legality of timber, and in 2006, Malaysia started for- ting volumes for states and regions. It has a guiding role mal negotiations with the European Union on VPA only that leaves the legal authority to states and regions. within the framework of FLEGT. e timber prod- ucts covered by the VPA negotiations are round logs, 16. http://www.pefc.org, December 2011. sawn timber, veneer and plywood, but not the targeted 17. Global FSC Certi�cates: Type and Distribution, March 2012: secondary product moldings, flooring and furniture http://www.fsc-info.org, Global FSC Certi�cates: Type and (Lounasvuori et al, 2009). Distribution, March 2012. 18. e eight timber-producing states in Peninsular Malaysia are Pahang, Selangor, Terengganu, Johor, Kedah, Perak, Negeri Malaysia is also investing in the expansion of forest Sembilan and Kelantan. plantations outside the PFE on lands designated for C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 131 conversion to other land uses. e government provides state maintains 47% of land area as forest reserves with tax exemptions and soft loans to plantation projects. the long-term goal of 50%. is policy aims to increase the domestic timber sup- ply, but it may also raise the deforestation rates, espe- Under the ird Industrial Master Plan 2006–2020, cially on lands outside PFEs. e current estimates for relevant priorities for forests and forestry include: planted forests range from 0.6 to 1.8 million hectares (3% to 9% of the total forest area) (Ministry of Forestry, Ⅲ Promote efficient and effective management of 2010; FAO, 2010a). forest resources and forest plantations, including more intensive use of agricultural wastes, bamboo, e Ministry of Forestry supports national certi�cation rattan and kenaf and seeks out international recognition for its national Ⅲ Develop regional production and supply chains approaches. e objective is to have large-scale certi- where domestic manufacturers will be encouraged �cation that would provide compliance to the market to outsource raw materials and other semi-�nished demands for legality. e government has supported components through outward investments in the development of certi�cation and veri�cation sys- resource-rich countries tems through forestry organizations that would be in Ⅲ Expand market access through intensi�ed market- line with its national interests. ing and promotion of a green image of the industry through SFM Malaysia’s initiative on legality certi�cation began in Ⅲ Develop and promote the growth potential in uti- 2004 when the Ministry of Plantation Industries and lizing lesser promoted species, NWFPs and wood Commodities was engaged in informal discussions with waste materials and producing higher value added the European Union for a FLEGT VPA between them. wood products Formal negotiations began in September, 2006. Since Ⅲ Expand production of own design and brand then, Malaysia, with support from Germany, has es- furniture through joint ventures between local tablished a Protem Secretariat to coordinate negotia- furniture manufacturers with established manu- tions and implementation, an EU-Malaysia Technical facturers and international design houses in devel- Working Group to address technical issues, a National oped markets Steering Committee to coordinate national activi- Ⅲ Enhance R&D and technology development, ties, and three Malaysian Working Groups to address especially in diversifying the use of panel products, (i) Legal Drafting and General Provisions; (ii) TLAS; improving production technology to minimize and (iii) Market Bene�ts and Capacity Building; in wood waste and in using new resources, such as oil close consultation with key stakeholders. palm �ber and kenaf for production of composites and biocomposites Due to state and regional differences, a TLAS was being Ⅲ Increase supply of highly skilled workforce to considered to cover Peninsular Malaysia and the States enable the industry to move up the value chain of Sabah and Sarawak; including PRF, state land and Ⅲ Strengthen the institutional support and improve alienated land; include the full CoC from forest, har- the delivery system related to the industry vesting, forest industries processing and forest products trade; and take all key stakeholder groups into account, including social, cultural and environmental. A2.2.9 Potential for Certi�cation, Veri�cation and NTLAs/VPAs A2.2.8 Forests and Forestry toward 2020 Potential exists to certify an additional 6.9 million hectares of natural production forests within the PRF e forest cover reported to FRA 2010 is 62.3 million and thus increase the area of certi�ed natural forests hectares, with a Ϫ0.4% loss of forest cover during 2005 by 140%. is �gure is based on the uncerti�ed share to 2010. e target set by the government is that each of PFEs classi�ed as production forests. e natural 132 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A forests of Peninsular Malaysia are largely already certi- A2.3 Vietnam �ed or will be certi�ed in the near future with govern- ment �nancing. A2.3.1 Forests and Forest Management e certi�cation rate is very low in the States of Sabah and Sarawak. Several concessionaires in these states In Vietnam, the forest resources are limited, although have started the FSC certi�cation process, but to date, the country has a strong timber-processing industry. only a few have been issued a certi�cate. Forest certi�- Demand is strong for high-quality timber originating cation would have the greatest signi�cance in the State from natural forests. e area of forest plantations has of Sarawak, where harvesting rights are given to pri- increased, but the plantations have not yet reached high vate concessionaires and the regulatory framework is yield levels and plantation wood cannot substitute for the most liberal in Malaysia. e State of Sarawak, with the demand for tropical hardwoods that are imported its still abundant forest resources, has become the focal to a large extent from Lao PDR and other neighbor- state for timber production, with 6 million hectares of ing countries and to a minor extent from over 40 other natural forests gazetted for forestry use. countries. Table A2.11 details highlights reported by Vietnam for FRA 2010. In terms of VLO, an area of 11.80 million hectares of forest land remains that could be potentially veri�ed for Harvesting of natural forests is limited to annual legality of timber, because these areas would include quotas of 0.2 to 0.3 million m 3/year from an annual 2.30 million hectares of state land forests that are ear- allowable harvesting quota 3.7 million m 3/year issued marked for non-permanent forestry uses. by the MARD, which assigns allocations to prov- inces. e national timber production strategy relies Malaysia is challenged by outstanding issues related on plantation wood, and the country has promoted to applying a legally binding agreement nation-wide forest plantation establishment, especially on small- (particularly in the State of Sarawak) and engaging holdings. In Vietnam, all forest land is owned by the in stakeholder consultation in transparent processes.19 government, which issues land use rights for produc- e European Union requirements for review of the tion use to state forest enterprises, private companies, TLAS, the approval of the new EUTR and Indonesia Peoples’ Committees, communities and individual signing a VPA with the European Union has cre- households. Use rights can be obtained through land ated concerns in Malaysia that the timber industry allocation or land lease contracts, normally guaran- will lose exports to the these countries unless is- teed for 50 years. sues are resolved. Even the logging industry in the State of Sarawak, which was adamant about not Plantation forests provide the core stock of indus- signing a VPA with the European Union, is chang- trial wood, and, being small, their production is con- ing its’ stance. A  VPA cannot be concluded with sumed by the wood chip industry. According to Land the European Union until, particularly, the State Law (2003), planted production forests may be estab- of Sarawak addresses native customary rights and lished only on bare land; if established elsewhere, they forestry sector transparency issues. e Malaysian should be treated as protection forests. e government government has been challenged to adopt a more in- strives to increase plantation development; the strategy clusive participatory, multi-stakeholder process and to is to increase the domestic wood supply by promoting seriously address governance in the State of Sarawak. both large-scale concentrated plantations and small- Negotiations to conclude a VPA with the European scale private plantations among individual farmer Union has some way to go. households. According to Lawson and MacFound (2010), the control 19. EU Forest Watch FLEGT-VPA Special Issue, November 2011: of domestic plantation production is complex and appears http://www.fern.org to be limited in contrast to natural forest sourcing. Forest C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 133 TABLE A2.11: Vietnam Forests and Forestry Data Forests and Forestry Data Population Total 87.1 million, density 281/km2, growth 1.1%/year Land area 31.0 million ha Total forest area 13.8 million ha (44% forest cover) Designated Function of Forests Productive (wood, �ber, fuel, NWFPs) 6.5 million ha (47%) Protective (soil, water, etc.) 5.1 million ha (37%) Conservation of biodiversity 2.2 million ha (16%) Social services 0 million ha (0%) Multiple use 0 million ha (0%) Other 0 million ha (0%) Unknown/unspeci�ed 0 million ha (0%) Forest Characteristics Primary forest 0.1 million ha (1%) Other naturally regenerating forests 10.2 million ha (74%) Planted forests 3.5 million ha (25%) Forest ownership Public 72%, private 24%, other 4% Forest Cover Trends 1990 9.4 million ha 2000 11.7 million ha (2.3% increase 1990–2000) 2005 13.1 million ha (2.2% increase 2000–2005) 2010 13.8 million ha (1.1% increase 2005–2010) Wood Removals 1990–2005 Industrial roundwood (1,000 m3) Fuelwood (1,000 m3) 1990 3,446 26,534 2000 2,376 26,685 2005 2,703 26,240 People Employed in Public Forest Institutions 2000 Na 2005 Na 2008 Na Main international markets for timber/timber products European Union, United States, Japan Rati�cation of international conventions/agreements CBD, UNFCCC, Kyoto Protocol, UNCCD, CITES, RAMSAR, World Heritage Convention, NLBI of UNFF Sources: CIA – the World Factbook: https://www.cia.gov/library/publications/the-world-factbook, FAO (2010a). companies need to receive a certi�cate from the commu- According to the Vietnam Forestry Development Strategy nity providing evidence of their right to the land. ey 2006–2020 (2007), the forest area and quality have been must also receive an “Inland transportation license� that continuously decreasing over the years. e forest cover the local authority issues, which is sufficient for removal declined from 43% to 27% during the past 60 years. from the site of harvesting. However, different provinces However, since 1990 the forest area has returned to 44% have different regulations (e.g., some are more focused on as a result of afforestation and restoration (except in the environmental protection). Central Highlands and the South-East region). Although the forest area is increasing, the quality and biodiversity of Plantation wood is mainly used for woodchips and the natural forests in many locations have been continu- paper pulp and manufacture of reconstituted boards and ously degraded. Figure A2.4 summarizes forest area and furniture for export (Proforest, 2009). reforestation rates in Vietnam 2000 to 2010. 134 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A rights, harvesting, processing, import and export, statu- FIGURE A2.4: Forest Area and Reforestation Rates in Vietnam tory fees and environmental and social regulations. e 15,000 4 3,512 planned structure is in line with the EU expectations of Annual Change Rate in Forest Forest Area (in 1,000 hectares) 2,794 2,050 3 the legality de�nition. 85 80 10,000 187 Area (%) 2.28 2.21 2 Vietnam has developed procedures to control the le- 9,488 10,198 10,205 5,000 gality of imported timber. Custom authorities require 1 1.08 log lists, invoices and landing bills, and they check 0 0 the log codes (or hammer marks). However, the trade 2000 2005 2010 regulations do not ensure an efficient legality control Other Naturally Regenerated Forest Primary Forest Area Planted Forest Area Annual Change Rate in Forest Area of imported timber. e current enforcement mecha- nisms are accessible to authorities, but private sector Source: FAO (2010a). timber processors or traders do not have the mandate to inquire into the legal compliance of the timber. e existing mechanisms include the following regulations and guidelines in use: A2.3.2 Forest Products, Marketing and Trade Ⅲ Guidelines for veri�cation of legality of timber e Vietnamese export-based wood furniture manu- origin (Government Regulation No. 44, 2006). facturing industry has expanded rapidly in recent is document, produced by the government, also years, becoming one of the largest furniture export- includes a de�nition of legality that can in prin- ers in the world. Currently more than 2,000 wood- ciple set a baseline for VPA negotiations with the processing and 450 wood export companies operate European Union. in the country. For 80% of its raw material needs, Ⅲ Veri�cation of harvested timber (Government the industry depends on imports from other coun- Decision No. 40, 2005). tries (Forest Trends and Department for International Ⅲ Veri�cation of transported timber (Government Development, 2010). Decision No. 59, 2005). e forest industries sector in Vietnam depends heavily ese documents, along with the regulated procedures on log and wood imports from a range of countries for to conform to the set harvesting quotas, the supervi- reprocessing in country, that cause difficulties in prov- sion of harvesting planning, implementation and post- ing compliance with legality and sustainability prin- harvest activities, as well as the marking of trees and ciples, criteria, indicators and veri�ers to international logs, set a framework for law enforcement. markets. is makes Vietnam a high-risk exporter of forest products to European and North American mar- However, law enforcement controls do not systematically kets that require proof of legality and sustainability cover the different stages of the supply chain, although through the FLEGT and the Lacey Act. Vietnam real- a range of documentation requirements that currently izes the importance of monitoring and control of forest exist, such as transport documents and invoices, that product origins. could potentially form the basis for such a system. Existing control elements are also governed by different authorities, depending on the stage of the supply chain A2.3.3 Veri�cation (Proforest, 2009). However, the existing elements pro- vide a good basis for further strengthening legal assur- Legislation and procedures are in place for controlling ance veri�cation (e.g., under the FLEGT process). national timber production and targets for incorporat- ing the national regulations in a legality assurance sys- Imports of illegal timber have trebled between the years tem that would address regulations related to tenure 2000 and 2007, now estimated at 17% of total timber C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 135 imports. In past years, the share of illegal imports has de- e majority of timber products exported to the United clined, but the volumes have continued to increase because States, the European Union and Japan consist of furniture, of rapid overall growth in timer processing. Illegal imports and some retailers who buy furniture have already intro- from Indonesia have decreased but are offset by increased duced responsible purchasing policies. Such retailers in- imports from Lao PDR, Cambodia and Myanmar. clude B&Q , IKEA, Walmart, Home Depot, Castorama, Timber is also imported from Malaysia and the Republic Carrefour and ScanCom. Many of them have adopted a of Congo. Most of this imported wood is destined for re- stepwise approach to gradually eliminate timber of suspect export after processing (Lawson and MacFaul, 2010). legality and sustainability and to increase the proportion of certi�ed timber. e minimum entry level is usually e import of timber products from actual and potential that timber is from a known legal source, but certi�ca- VPA partner countries is signi�cant, which has implica- tion may be required (e.g., for products made with tropi- tions on the import controls when the VPA agreements cal hardwoods, which are perceived to have high risk). are signed in the countries exporting to Vietnam (e.g., the e number of CoC certi�cates in Vietnam is high, with Republic of Congo, Cameroon, Indonesia and, ultimately, 272  FSC CoC certi�cates (FSC Certi�cate Database), Malaysia). When Vietnam proceeds with the VPA nego- which indicates the high level of interest in meeting the tiations with the European Union, it will also make com- market demands for sustainable origin of timber. mitments to control the imports of illegal timber. e MARD of Vietnam and the EU Commission have e ability to assure markets that the source of imported made a Joint Statement on starting formal negotiations timber is legal will be a crucial issue for the Vietnamese for a FLEGT VPA and hope to conclude the negotia- timber industry, especially for the furniture industry tions by the end of 2012. Vietnam has not yet developed exporting to the United States and European Union. a timber legality standard that would set the basis for e Vietnamese government, represented by MARD, VLC (e.g., for FLEGT licenses). e country is part of has recently recognized the importance of developing the ASEAN working group on forests that has de�ned mechanisms to verify the legal source of timber imports, the guiding legality standard for member countries. thus allowing Vietnamese producers to meet the new market requirements. Concern exists among the pro- ducers that additional veri�cation will increase the tim- A2.3.4 Certi�cation ber prices and production costs, which could especially hamper the numerous small timber processing compa- Voluntary forest certi�cation is in its early stages of de- nies in the competing international markets. velopment in Vietnam. ere are �ve plantation areas certi�ed in the country covering 41,409 hectares, as According to Proforest (2009), Vietnamese exporters are detailed in Table A2.12. e certi�cate holders repre- likely to face the following two parallel sets of demands: sent state forest organizations, one large corporation and community forestry, thus providing examples of Ⅲ All exporters to the United States and European the different types of managers of forest plantations Union potentially will be requested to provide evi- in the country. All of them have received an FSC for- dence of timber legality to ensure that importers est management certi�cate. e plantations are certi- comply with legislation. ose supplying the govern- �ed against the Interim FSC standards developed by ment in Japan are likely to receive similar requests. certi�cation bodies (i.e., SGS, SmartWood Rainforest Ⅲ Some exporters, but not all, will be requested to Alliance, GFA Certi�cation and CU Certi�cation have provide evidence of timber sustainability (generally issued the certi�cates. A national FSC working group is through certi�cation). is will apply in particular developing a national forest management standard, but to exporters whose customers supply governments its work is still at an early stage. in the European Union or whose customers are private sector companies with corporate social and Vietnam is a recent participant in forest certi�cation environmental responsibility purchasing policies. and the level certi�ed remains extremely low, with 136 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.12: Forest and CoC Certi�cation in Vietnam FSC Forest Management Certi�cation Body Certi�cates Type of Forest Manager FSC CoC Certi�cates ha No No % SGS Qualifor 9,777 1 Plantation Private (foreign) 187 69 SmartWood Rainforest Alliance 10,175 1 Plantation State 46 17 GFA Certi�cation 9,761 2 Plantation Private (group) 2 1 CU Certi�cations 11,696 1 Plantation Private (group) 19 7 BV Certi�cation – – – 8 3 LGA InterCert GMbH – – – 4 1 TSUD – – – 6 2 Total 41,409 5 – – 272 100 (0.6%) Source: http://www.fsc-info.org; February 2012 data. 41,409 hectares (0.6% of designated production forests) As highlighted in Table A2.13, the interest in FSC con- FSC certi�ed, of which 100% is in forest plantations trolled wood shows an elementary level of entry toward (1% of designated planted forests are certi�ed), issued to achieving legality of harvesting, an interim step toward private sector groups 52%, private sector (foreign) 24% forest certi�cation. and the state 24%. Interest toward forest management certi�cation in Forest certi�cation covers only 0.6% of production Vietnam is high, which reflects the market demands in ex- forests (natural and planted) and 1.2% of planted port countries for certi�ed timber products. Eight forest forests. All �ve certi�ed areas are forest plantations. enterprises managing natural forests are preparing for FSC According to area certi�ed, the proportion of certi�- forest management certi�cation under an internationally cate holders is state 25%, private (foreign) 24% and �nanced project. ese projects, supported by the GTZ, private (group) 51%. WWF or government, account for 129,000 hectares of natural forests, ranging from 9,000 to 27,000 hectares e forestry strategy foresees that 30% of produced each. In planted forests, �ve forest companies plan to ap- timber in 2020 will be certi�ed, which is a challenging ply for a certi�cate. e forest area covers 50,000 hectares, target when compared to the current volumes of certi- ranging from 5,000 to 20,000 hectares. In addition, groups �ed timber (102,000 m3,20; 2.7% of annual removal). of small plantation holders are preparing for group certi�- cation with the assistance of international project funding. e number of FSC CoC certi�cates issued has almost e total area of smallholder groups is 30,000 hectares doubled during the past four years, to 272 in February (MARD, 2007). When the certi�cation of these planned 2012, of which SGS issued 69%, SmartWood Rainforest Alliance 17% and Control Union, 7%. Seven different TABLE A2.13: Forest Managers Complying with FSC international forest certi�cation bodies undertake CoC Controlled Wood Standards in Vietnam certi�cation assessments in Vietnam, and 21 certi�cates FSC Controlled Wood provide the companies with the right to deliver con- Type of Certi�cation Body Area (ha) No Forest Ownership trolled wood. At December 2011, 3 PEFC CoC certi�- GFA Consulting 16,318 1 Plantation Private cates were issued in Vietnam. Group GmbH Total FSC 16,318 1 Controlled Wood 20. Source: Data from Quy Nhon Plantation Forest Company of Source: http://info.fsc.org/; March 2012; author’s compilation Vietnam Ltd. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 137 TABLE A2.14: Forest and CoC Certi�cation Standards Implemented in Vietnam Standard Scheme Owner Forest Management FSC SW interim standard for Assessing Forest Management in Vietnam (Ver. June 1 2010) SW Rainforest Alliance FSC GFA Generic FM Standard, adapted for Socialist Republic of Vietnam, Version 1.0 GFA Consulting group FSC SGS Qualifor Forest management standard for Vietnam (2010) SGS Chain of Custody FSC Standard for CoC Certi�cation (FSC STD 40-004 V2-0) Standard for Company Evaluation of FSC Controlled Wood (FSC STD 40-005 V2-0) Standard for Multi-site Certi�cation of CoC Operations (FSC STD 40-003 V1-0) Source: Authors’ compilation. areas is completed, the production of certi�ed timber may timber production targets of 9.7 million m3/year reach 0.7 million m3/year. by 2010 and 20 to 24 million m3/year by 2020 (including 10 million m3 large timber) to meet the e forest and CoC certi�cation standards implemented raw material demand for forest products, the pulp in Vietnam are detailed in Table A2.14. processing industry and export. Ⅲ Provide small timber for pulp processing: 3.4 million A2.3.5 Forestry Institutions, Policy, Legislation m3/year by 2010, and 8.3 million m3/year by 2020. and Law Enforcement Ⅲ About 70% of the current PFAs are poor-quality natural forests and newly restored forests, where e government strategy is to further increase timber pro- no harvesting of forest products can be permitted cessing for export, aiming at increasing the value by almost in the next 5 to 10 years. ey should be zoned and threefold, up to US$ 7 billion by the year 2020. e rapid restored to improve their quality and create supply growth in timber processing capacity and exports has sources for large timber, NWFPs and environmen- substantially increased the timber demand in the current tal services in the future. decade. Domestic production cannot meet the demand because of the early stage of plantation forest development e objective for the forestry sector in Vietnam is to expand and strict quotas in harvesting natural forests. Vietnam domestic wood production signi�cantly to meet the wood has been able to keep deforestation under control during consumption of the national forest industry and to reduce the boom in the timber processing industry in the 2000s. the need for timber imports. e target is to reduce the share e legislation is quite comprehensive and up to date, and of imported wood from the current 80% of the timber supply it provides an adequate framework for forest management. to the level of 20% by 2020. e domestic timber produc- However, enforcement, monitoring and evaluation are less tion will be intensi�ed with a challenging plantation forest consistent. Annually, about 50,000 cases of forest crimes policy as described in the Vietnam Forestry Development are reported to MARD. ese relate greatly to small-scale Strategy 2006–2020. Despite the de�ned strategy to in- forestry carried out by farmers for self-consumption rather crease domestic timber production by sixfold by 2020, it is than commercial use (Proforest, 2009). evident that the timber industry in Vietnam will be strongly dependent on imported timber in the future as well. e Vietnamese government has established national plantation targets, which are set out in the Vietnam Vietnam has responded to the need to prove legality and Forestry Development Strategy 2006–2020 (2007): sustainability of timber from Vietnam by: Ⅲ Stabilize wood production from natural forests, Ⅲ Strengthening legal documentation and law plantation forests and scattered planted trees with enforcement 138 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Ⅲ Speeding up forest and CoC certi�cation processes e following relevant forecasts were detailed in the Ⅲ Awareness raising and capacity building Vietnam Outlook Study toward 202021: Ⅲ Facilitating preparation of a Vietnam TLAS Ⅲ Initiating a FLEGT VPA negotiation process with Ⅲ Domestic saw log supply to increase annually by the European Union 7% to 8% from 2.2 million m3 in 2002, to 7 million m3 in 2020 FLEGT VPA processes commenced to date include: Ⅲ Wood �ber demand to increase from 40,000 m3 in 2003 to 165,000 m3 in 2020, with an annual Ⅲ De�nition of legality on timber and timber prod- increase of 7% to 10%, with particular demand for ucts, including natural and plantation sources, both medium-density �berboard (MDF) products domestic and imported Ⅲ Particle board demand will increase annually by Ⅲ Control of supply chain 8% to 10% from 80,000 m3 to 312,000 by 2020 Ⅲ Veri�cation of timber legality Ⅲ Plywood demand to increase annually by 7% to 9%, Ⅲ FLEGT licensing growing from 11,000 tons in 2003 to 37,000 tons Ⅲ Independent third party monitoring in 2020 Ⅲ Newspaper and printing paper to increase annu- A FLEGT/VPA Steering Committee led by MARD ally by 8% to 10% from 55,000 tons in 2003 to guides a negotiation delegation led by VNForest, 190,000 tons in 2020 working within a multi-stakeholder mechanism. Ⅲ Annual increase in demand for writing and Working Groups have been established on (i) Timber printing paper to increase by 9% to 13% from Legality Definition led by the Department of 680,000 tons in 2003 Forest Utilization and (ii) TLAS led by the Forest Ⅲ Demand for hardcover paper and other paper to Protection Department. During 2011 several video increase by 60,000 tons/year from 680,000 tons in conferences provided opportunity to open discus- 2003 to 1.7 million tons in 2020 sions and the process with the European Union, dur- ing which draft reports were presented on studies NWFP products in 2010 were estimated to be rattan on (i) Legality Definition, (ii) Stakeholder Analysis and bamboo products, 120,000 tons/year; pine latex, and (iii) Timber Flows. Priorities through 2012 are 50,000 tons/year and essential oils, 700 tons/year. to continue the multi-stakeholder dialogue about the processes and complete these reports, advance By 2020 NWFP targets: preparation of the TLAS and continue negotiation of the VPA with the European Union. However, Ⅲ Value of NWFPs will reach 20% of the value of concerns exist that without clearer evidence of stake- forest products in the sector holder involvement, the VPA negotiation may be a Ⅲ NWFP turnover will increase annually by 10% to drafting process rather than an inclusive consultative 15%, reaching US$700 to 800 million/year in 2020; development. Ⅲ 1.5 million mountainous laborers will be mobilized to collect, process and trade NWFPs, accounting for 50% of the forestry labor force in 2020 A2.3.6 Forests and Forestry toward 2020 Ⅲ 15% to 20% of income from rural households will be from NWFPs Forest products exports have increased 10-fold in the last six years with Europe, the United States and Japan, Optimistic targets are also set for the long-term shift in the main destinations. e wood furniture industry is demand and pricing for the provision of forest ecosystem striving to attain annual exports of US$8 billion, in con- trast to US$1 billion in 2004. e objective is heavily 21. FSIV, 2009. Vietnam Forestry Outlook Study. Working Paper dependent on legal and sustainable supply of imported No. APSOS II/2009/09, Asia Paci�c Forestry Sector Outlook wood and pricing. Study II, 2009. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 139 services, including protection of soil and water, conser- A2.4 Thailand vation of biodiversity, management of forests as car- bon sinks and other social, cultural and environmental is section draws upon the 2009 ailand country re- services. Vietnam is committed to participation in the port to the Asia Paci�c Forestry Outlook Study, II 22 and REDD-plus and FLEGT programs. the 2010 Global Forest Resources Assessment (FAO, 2010a).23 A2.3.7 Potential for Certi�cation, Veri�cation and A2.4.1 Forests and Forest Management NTLAs/VPAs ailand had rich forest resources, but faced severe deforestation in late 1900s as a result of population e potential to increase the certi�cation of sustain- growth, increased accessibility and high demand for able management of natural forests and planted for- timber products. Commercial logging was banned in ests is signi�cant in Vietnam. One of the targets in 1989, which formally designated protection of existing Vietnam’s Forestry Strategy 2006–2020 (2007) is to forest reserves rather than development and exploita- get 30% of production forest certi�ed, which is about tion. However, the area of natural forests has continued 2.5 million ha. However, there is no action plan for this; to decline by about 90,000 hectares/year until present, therefore, this target seems too optimistic. but the increased area of planted forests has offset this. Table A2.15 summarizes key ailand forestry data re- State enterprises managing 27.3% of the produc- ported to FRA 2010. tion forests have the greatest potential to increase the certi�ed area, the theoretical reserve consisting Forest area and deforestation in ailand is summarized of 2.3 million hectares. Private companies managing in Figure A2.5. 1.3% of the forests could theoretically increase the certi�ed area by 100,000 hectares, which is 2.5 times In 1991, the Royal Forestry Department reported the the current level. Individual households manage PFE was 23.5 million hectares, much of it without 37.1% of production forests (3.2 million ha), and only forest cover. e PFE shrunk by almost 50% to 12 mil- two group certi�cations have been issued to this type lion hectares by 2001, by conversion mainly to settle- of applicant. ments and infrastructure development, 8.3 million hectares; agriculture, 1.2 million hectares; and other A large number of CoC certi�cates and increasing uses, 1.1 million hectares. market requirements from importing countries will keep the certi�cation of SFM on the agenda. Direct More than half of ai forests are managed for protec- market or �scal incentives are needed, as well as ex- tion or conservation functions; however, they remain ternal support, before state forest enterprises or private under deforestation and forest degradation pressure households take large-scale initiatives in voluntary cer- from local communities. Practically all natural for- ti�cation. In parallel, the capacity of certi�cation bod- ests are owned by the state and managed by the RFD, ies should be further strengthened to accommodate any National Park, Wildlife and Plant Conservation potential increase in the demand for SFM and CoC Department (DNP) or Department of Marine and certi�cates. Coastal Resources (DMC). Privately owned forests are mostly forest plantations, managed for productive e recent launching of FLEGT-VPA negotiations with the European Union will shift the focus and re- sources from voluntary certi�cation to the develop- 22. FAO, 2009. ailand Forestry Outlook Study. Working Paper No APFSOSII/WP/2009/22, Working Paper Series, Asia-Paci�c ment of national legality veri�cation systems, which Forestry Sector Outlook Study II, FAO, Bangkok, ailand, 2009. most likely will slow down the expansion of certi�ed 23. FAO, 2010. Global Forest Resources Assessment 2010. FAO forest area. Forestry Paper 163, FAO, Rome, Italy 2010. 140 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.15 Thailand Forests and Forestry Data Forests and forestry data Population Total 67.4 million, density 132/km2, growth 0.6%/year Land area 51.1 million ha Total forest area 19.0 million ha (37% forest cover) Designated Function of Forests Productive (wood, �ber, fuel, NWFPs) 2.6 million ha (14%) Protective (soil, water etc) 1.3 million ha (7%) Conservation of Biodiversity 8.9 million ha (46%) Social Services 0.2 million ha (1%) Multiple Use 0.0 million ha (0%) Other 0.0 million ha (0%) Unknown/Unspeci�ed 6.0 million ha (32%) Forest Characteristics Primary forest 6.7 million ha (35%) Other naturally regenerating forests 8.3 million ha (44%) Planted forests 4.0 million ha (21%) Forest ownership Public 88%, private 12% Forest Cover Trends 1990 19.5 million ha 2000 19.0 million ha (Ϫ0.3% decrease 1990–2000) 2005 18.9 million ha (Ϫ0.1% decrease 2000–2005) 2010 19.0 million ha (ϩ0.1% increase 2005–2010) Wood Removals 1990–2005 Industrial roundwood (1,000 m3) Fuelwood (1,000 m3) 1990 76 534 2000 45 6 2005 11 7 People Employed in Public Forest Institutions 2000 8,030 2005 2,338 2008 2,329 Main international markets for timber/timber Japan and China followed by Taiwan, Korea and Malaysia products Rati�cation of international conventions/ CBD, UNFCCC, Kyoto Protocol, UNCCD, ITTA, CITES, RAMSAR, World Heritage agreements Convention, NLBI of UNFF Sources: CIA – the World Factbook: https://www.cia.gov/library/publications/the-world-factbook, FAO (2010a). purposes. Trees outside forests are an important re- forests are located. Community forests can be harvested source on the landscape, particularly in the Central for subsistence household living, free of charge, includ- Region, for production of wood and NWFPs through ing fuelwood, construction wood, mushrooms, rat- agroforestry and silvo-pastoral systems. tan, bamboo, wild vegetables, flowers, fruit, nuts and medicinal plants. Some 11,400 villages are involved in community for- ests, of which about half are formally registered with e Community Forestry Bill approved in 2007 awaits RFD for usufruct rights. e majority (72%) are con- Royal Endorsement because of sensitivities relating centrated in the Northeast and North regions, where to illegal immigration, in-migration and potential for the highest incidence of poverty and areas of natural changed land-use classi�cation. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 141 particle board, wood pulp and paper and board, is sum- FIGURE A2.5 Forest Area and Deforestation Rate in Thailand marized in Table A2.16. 25,000 ailand depends heavily on importing of logs and Annual Change Rate in Forest Forest Area (in 1,000 hectares) 0.1 20,000 3,111 3,444 3,986 0.08 sawnwood from Myanmar and Lao PDR and to a lesser 15,000 degree, Cambodia. Area (%) -0.1 6,726 -0.11 10,000 6,726 6,726 -0.3 ailand exports 70% of �berboard production, 33% of -0.28 5,000 9,167 8,728 8,261 particle board production, 23% paper production and 0 -0.5 19% pulp output. Approximately 1 million tons of wood 2000 2005 2010 pulp, paper or board is imported to complement local Other Naturally Regenerated Forest Primary Forest Area supply. ailand has no systematic data collection on Planted Forest Area Annual Change Rate in Forest Area production and trade of sawnwood and processed prod- Source: FAO (2010a). ucts, so these were estimated. A2.4.2 Forest Products, Marketing and Trade Since the logging ban, the forestry sector earnings to GDP has been declining and was estimated to be e statistics on forest production have been scarce and US$120.5 million, or 0.1% of the GDP in 2003. e vary markedly, even official data. Because of the logging main international markets for forest products include, ban, there has been limited legal timber production from particularly, the Republic of Korea, China and Japan and natural forests, with most now being harvested from to a lesser extent Taiwan, Korea, Malaysia and Vietnam. eucalyptus and rubber plantations. RFD, reporting to FRA, 2010, stated that industrial roundwood produc- At least 5 million people, the approximate number of tion reduced from 179,000 m3 in 1990 to 11,000 m3 in forest dwellers in ailand, are critically dependent on 2005 and fuelwood from 534,000 m3 in 1990 to 7,000 m3 NWFPs. e most important are bamboo, rattan, lac, in 2005. ese data are likely for natural forests only. bee products and medicinal plants. For the rural poor, However, in the ailand Forestry Outlook Study for the fuelwood and NWFPs are important sources of liveli- Asia Paci�c Forestry Sector Outlook Study II, 2009, re- hoods. Poverty remains the most signi�cant underlying ported industrial roundwood production, 19 million m3/ cause of deforestation in ailand. year, primarily from privately owned forest plantations. A2.4.3 Veri�cation e production and apparent consumption of forest products in 2004, according to the APSOS II study, Legally produced timber can be sourced only from forest including sawnwood, veneer and plywood, �berboard, tree plantations, agricultural tree plantations or rubber TABLE A2.16 Production and Apparent Consumption of Wood Products, 2004 Forest Production Imports Exports Consumption Product 1,000 m3 Sawnwood 2,700–3,000 1,835 1,789 2,746–3,046 Veneer and plywood 455 176 4 627 Fiberboard 914 25 638 301 Particle board 2,600 11 867 1,744 Wood pulp (1,000 tons) 900 457 167 1,190 Paper and board 3,600 560 819 3,341 Source: APFSOS II, Thailand Forestry Outlook Study 2009. 142 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A tree plantations that are planted on private or permit- A2.4.4 Certi�cation ted degraded land. Any timber originating from natu- ral forests is illegal because of the logging ban. During ailand is part of the ASEAN framework for timber the ban, forest legislation has not been updated to tackle legality, which de�ned the general criteria and indica- the current forms of unauthorized use of natural forests tors for legal timber in 2009 and aims at a phased ap- in the country. Consequently, in recent years, the inci- proach for timber certi�cation for sustainability by dence of illegal logging in natural forests has increased. 2015. e �rst forest plantation was certi�ed in 2006. Forests and CoC certi�cates in ailand are detailed in According to the current control system, timber suppli- Table A2.17. ers and processors must be able to demonstrate the legal origin of any timber and timber product. Processors also An FSC forest management certi�cate has been is- need to keep an account of timber stocks on the site and sued to six forest plantation units covering an area to prevent any timber without the appropriate evidence of 22,494 hectares, 50% to state enterprises and of legality from being mixed into the stock. Government 50% to private (group). at is only 0.6% of the to- authorities have the mandate to perform regular checks tal area of forest plantations. Five certi�cations are in timber procurement, transport and processing sites. group certi�cations of smallholders producing rubber Evidence on legal origin also is required for imported wood or eucalyptus on small farms ranging from 1 to timber. 100 hectares. Two of the group certi�cations are or- ganized by Siam Forestry Co Ltd and one by Metro e Customs Department controls timber imports and MDF. SGS and SmartWood Rainforest Alliance exports, whereas the Royal Forest Department controls are the predominant forest certi�cation bodies and domestic timber production. e current control system SGS and BV for CoC Certi�cation. e Rainforest is paper based and it does not provide fully reliable, up- Alliance also developed a forest management stan- to-date data for tracing timber at the point of export dard for ailand in 2008, but currently no valid for- or processing. e Royal Forest Department is devel- est management certi�cates have been issued based oping a digital, bar-code based monitoring system that on the standard. will provide a better basis for reliable legality veri�ca- tion. e digital system will allow closer cooperation Also, the state enterprise FIO, which is a legal entity between the Customs Department and Royal Forest of the Royal ai Government, has been under the Department in preventing illegal timber imports and Rainforest Alliance’s SmartWood Program – SmartStep exports. ailand is making preparations and seeking a for Forest Operations – since 2008, and its teak planta- domestic consensus to start VPA negotiations with the tions in Northern ailand have been audited accord- European Union. ingly. e pre-assessment was undertaken in August TABLE A2.17 Forest and CoC Certi�cation in Thailand FSC Forest Management FSC CoC Certi�cates Certi�cation body Certi�cates Type of Forest Manager ha No No % SGS Qualifor 11,134 5 Plantation Private (group) 24 63 SmartWood Rainforest Alliance 11,360 1 Plantation State company 3 8 BV 10 26 SQS 1 3 Total 22,494 6 38 100 (0.6%) Source: http://www.fsc-info.org; February 2012 data. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 143 2007 in an area of 11,360 hectares. FIO manages However, other departments of the Ministry of Natural 86,493 hectares of teak plantations and plans ultimately Resources and Environment, Ministry of Agriculture and to achieve a forest management certi�cate for the area. Cooperatives, Ministry of Interior, Ministry of Industry, Ministry of Commerce and the National Economic and ere were no instances of FSC controlled wood in Social Development Board have some jurisdiction over ailand. forests, forest resource, forest industries or forest prod- ucts trade. ere are two state enterprises in the forestry ere are 38 FSC and 7 PEFC CoC certi�cates, which sector: FIO, which is involved in reforestation, teak plan- is low and reflects the general low level in the production tation, sawmilling and development of forest villages, of certi�ed timber. Due to the high number of reputa- and the FIO’s subsidiary ai Plywood Company Ltd, ble private timber processing and exporting companies, which produces plywood and other wood products. considerable potential exists to increase CoC certi�ca- tion in the country and the policies to strengthen the Although more than 20 laws and numerous Cabinet de- legality veri�cation will encourage companies to apply cisions have an impact on forests and forest manage- for a CoC certi�cate. ment, there are �ve main forestry acts: e certi�cation standards used in ailand are detailed Ⅲ Forest Act, B.E. 2484 (1941), concerns logging op- in Table A2.18. erations and non-wood forest products collection, transportation of timber and non-timber products and sawnwood production and forest clearing A2.4.5 Forestry Institutions, Policy, Legislation Ⅲ National Park Act, B.E. 2504 (1961) covers deter- and Law Enforcement mination of National Park land, the National Park Committee and protection and maintenance of Under the Ministry of Natural Resources and National Parks Environment, there are three departments: Ⅲ National Forest Reserve Act, B.E. 2507 (1964) in- cludes the determination of National Forest Re- Ⅲ RFD: Responsible for forests outside protected served Forest and control and maintenance of the areas National Forest Reserved Forest Ⅲ DNP: Responsible for forests within protected Ⅲ Wildlife Conservation and Protection Act, B.E. 2535 areas (1992) establishes provisions for national wildlife Ⅲ DMC: Responsible for coastal and marine re- preservation, establishment of a Protection Com- sources management, including mangrove forest mittee and identi�cation of 15 species of reserved conservation and rehabilitation wildlife TABLE A2.18 Forest Certi�cation Standards Implemented in Thailand Scheme Standards Owner Forest Management FSC SGS Qualifor. Forest management standard for Thailand AD 33-02 (2010) SGS SmartWood Rainforest Alliance Interim Standard for Assessing Forest Management in SmartWood Rainforest Alliance Thailand (FM-32 Thailand) Chain of Custody FSC CoC standard for companies supplying and manufacturing FSC certi�ed products FSC (FSC STD 40-004) Standard for company evaluation of FSC controlled wood (FSC STD 40-005) Source: http://info.fsc.org/; March 2012; authors’ compilation. 144 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Ⅲ Forest Plantation Act, B.E. 2535 (1992) covers the Ⅲ Ensure fair competition in trade and investment determination of reforestation and land registra- for national bene�t and create mechanisms for fair tion of private reforestation rights, ownership and distribution of the bene�ts of development to all exemption from royalty on forest products from segments of the population reforested areas Ⅲ Preserve natural resources and biodiversity, along with safeguarding the quality of the environment A National Forest Policy was adopted by the Cabinet in to be a secure foundation for national development 1985. Priorities included private sector investment and and livelihoods for both current and future genera- partnerships in afforestation and reforestation to supply tions and create mechanisms to safeguard national future wood for the country. However, the policy did bene�t in a fair and sustainable manner not address the root causes of deforestation (mainly out- Ⅲ Promote good governance in government admin- side the forestry sector) and poverty reduction in forest istration, the private sector and the public sector; areas and it did not explicitly involve rural communi- expand the role and capacity of local government ties. e policy swung toward conservation and a long- bodies; promote mechanisms and processes in de- term target to achieve 40% forest cover, including 25% velopment; and nurture a culture of democracy for for protection and conservation and 15% for produc- peaceful coexistence tion. However, unauthorized logging continues in all parts of the country. e legislation tackling illegal log- It is proposed to conserve natural resources and biodi- ging is not strongly enforced. Timber production is en- versity by maintaining forest cover at no less than 33% couraged in forest plantations established on degraded of the total land area, with conservation forest at no less forest lands. than 18% of the total land area. Production of industrial roundwood and fuelwood will be mainly from forest e government is not deeply involved and does not in- plantations, agroforestry and trees outside forests owned tensively control practical forest management, (e.g., for- by corporate and smallholder investors. est management planning). In this respect, monitoring and policing compliance with forestry policy and man- agement plans is weak. A2.4.7 Potential for Certi�cation, Veri�cation and NTLAs/VPAs A2.4.6 Forests and Forestry toward 2020 Signi�cant potential exists to expand voluntary forest and CoC certi�cation in ailand. Due to the logging e Tenth National Economic and Social Development ban on natural forests, interest in certi�cation would be Plan (2007–2011) highlighted relevant priorities to: focused on forest plantations. However, companies are not willing to invest in certi�cation if it is not supported Ⅲ Increase the potential of communities by linking by the government or timber processing industry. them in networks to serve as the foundation for Smallholder plantations and agroforestry production developing the economy and quality of life and to on private farms are typical in ailand, which raises conserve, rehabilitate and utilize the environment the need for group certi�cations to produce substantial and natural resources in a sustainable fashion to amounts of certi�ed timber. Such certi�cations have achieve sufficiency and reduce poverty been successfully implemented in ailand, but they Ⅲ Reform the production structure for goods and need good organization and commitment on the part of services for value creation on a foundation of the parties taking the initiative. Currently, 7,000 small- knowledge and innovation and promote linkages holders are participating in group certi�cation schemes, among production sectors to increase value added but the potential for eucalyptus plantations alone is Ⅲ Build safety nets and risk management system for 20,000 farmers. e forest industry recognizes the need �nance, banking and energy sectors, factory mar- to provide evidence of legal compliance and sustainable kets, the labor market and investment management to the international markets. In addition C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 145 to the locally produced plantation wood, legal compli- countries increased the formal and informal markets ance is urgently needed for imported timber originat- for Lao PDR timber products. Overcapacity in national ing from the natural forests of the neighboring countries timber processing, together with gaps in planning, issu- Lao PDR, Myanmar and Cambodia. ance of logging rights and enforcement also contribute to overexploitation. Forest change, including forest degrada- In summary, potential exists to increase the supply of tion (decrease in growing stock and size of trees), loss of certi�ed timber from forest plantations, but there are wildlife and plant habitats, is also a serious problem. In no possibilities to produce certi�ed timber from natural the past, shifting cultivation expansion into pioneer areas forests. To facilitate this potential expansion in certi�ed (protected or primary forests) is also an important factor of timber, the capacity of ailand’s certi�cation bodies forest degradation (Vesa, 2010; Lao Agricultural, 2010). should be further strengthened to ensure efficient and effective processing and auditing procedures. Commercial logging activities have been mainly con- centrated in central and southern areas in Lao PDR, ailand is struggling with requirements for de�ning and timber harvesting is based on annual logging quo- legality and preparing a TLAS, so progress has been tas. e main sources of timber are: slow. However, a study for understanding timber flows in ailand and their control by ailand’s timber track- Ⅲ Commercial harvesting in the PFAs ing systems is being undertaken as a preliminary step on: Ⅲ Land clearing for new hydropower project reservoirs Ⅲ New mining areas Ⅲ Rubberwood products Ⅲ Pulp and paper species (primarily Eucalyptus species) Currently, and in the near future, only a small share of Ⅲ Products processed from imported timber from a timber is harvested on PFAs, the majority coming from non-VPA country in the Mekong region (e.g., Lao areas where forests are cleared for other land uses. PFAs PDR or Cambodia) are administrative areas and forest management planning Ⅲ Products processed from another country (e.g., units that are declared by the government. Currently Malaysia) there are 51 PFAs in the country, covering a total area of 3.1 million hectares, but only a few have a management plan, which limits commercial logging on the areas. A2.5 LAO PDR Forest clearing estimates include hydropower projects, 9,800 hectares/year (0.1%); mining, 10,000 hectares/ year (0.1%); and foreign investments, in industrial plan- A2.5.1 Forests and Forest Management tations (eucalyptus and rubber) and other crops such as sugar cane, cassava and tea (c.f. Vesa, 2010). Figure A2.6 Lao PDR is well endowed with valuable, productive and highlights forest area and deforestation rate reported by ecologically unique forests in contrast to its neighboring Lao PDR to FRA 2010. countries. Eighty percent of the population relies heav- ily on the forest for timber, food, fuel, medicines and e 2009 Lao PDR report to FAO Country Outlook spiritual protection. Key forestry data are summarized report on Lao PDR states the legality of Lao PDR ex- in Table A2.19. ports, in accordance with the Forestry Law24: e forest cover has decreased despite an official logging Ⅲ Logging is allowed only in PFAs that have an ap- ban. e main causes of deforestation are forest clearing for proved management plan agricultural purposes and other land clearing (e.g., mining industry expansion, hydropower projects). High demand 24. Forest Law PM Decree 59, MAF Reg. 0204 and PM Order 30 for wood and NWFPs in the wood-de�cient neighbor- on the Enhancement of Forest and Timber Business Management ing countries and the logging bans in some neighboring (2007–2008). 146 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.19 Lao PDR Forests and Forestry Data Forests and Forestry Data Population Total 6.2 million, density 27/km2, growth 1.9%/year Land area 23.1 million ha Total forest area 15.8 million ha (68% forest cover) Designated Function of Forests Productive (wood, �ber, fuel, NWFPs) 3.6 million ha (23%) Protective (soil, water etc) 9.2 million ha (58%) Conservation of biodiversity 3.0 million ha (19%) Social services 0.0 million ha (0%) Multiple use 0.0 million ha (0%) Other 0.0 million ha (0%) Unknown/unspeci�ed 0.0 million ha (0%) Forest Characteristics Primary forest 1.5 million ha (9%) Other naturally regenerating forests 14.0 million ha (89%) Planted forests 0.2 million ha (1%) Forest ownership Public 100%, private 0% Forest Cover Trends 1990 17.3 million ha 2000 16.5 million ha (Ϫ0.5% decrease 1990–2000) 2005 16.1 million ha (Ϫ0.5% decrease 2000–2005) 2010 15.8 million ha (Ϫ0.5% decrease 2005–2010) Wood Removals 1990–2005 Industrial roundwood (1,000 m3) Fuelwood (1,000 m3) 1990 477 6,488 2000 682 6,742 2005 292 6,825 People Employed in Public Forest Institutions 2000 Na 2005 Na 2008 Na Main international markets for timber/timber products ASEAN states, China, Japan, South Korea, Taiwan, Hong Kong, Australia and United States Rati�cation of international conventions/agreements CBD, UNFCCC, Kyoto Protocol, UNCCD, CITES, RAMSAR, World Heritage Convention, NLBI of UNFF Sources: CIA – the World Factbook: https://www.cia.gov/library/publications/the-world-factbook, FAO (2010a). Ⅲ Forest management must involve local communi- plan in line with the current legislation; villagers are ties in planning and operations meaningfully involved in forestry and given their le- Ⅲ Export of roundwood, sawnwood and “semi-�n- gally guaranteed share of bene�ts in the sites where ished products� is prohibited, as is the harvesting the SUFORD project is working; and nearly all the of a “select list of species� exports of Lao PDR timber are in the form of round- wood or sawnwood. us, the government is facing the Before logging operations the contractors or com- challenge to strengthen the administrative procedures panies must receive permission from state authori- to the level that can provide the basis for legal compli- ties. However, only a few PFAs have a management ance (FAO, 2010b9). C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 147 and related fees establish a considerable source of in- FIGURE A2.6 Forest Area and Deforestation Rate in Lao PDR come for the state budget. It is reported that in 2005, approximately 11% of total tax revenues and 25% of ex- 20,000 -0.4 port revenues in Lao PDR came from timber royalties Annual Change Rate in Forest Forest Area (in 1,000 hectares) 15,000 -0.42 (Global Development Solutions, 2005; and Lao PDR, 99 224 224 -0.44 2005). It was reported by the Asian Development Bank Area (%) 10,000 1,490 1,490 1,490 (ADB, 2000) that weak law enforcement capacity con- -0.46 9,000 -0.46 tributing to illegal and poorly regulated logging caused 5,000 9,000 9,000 -0.48 government annual losses of US$20 million. -0.48 -0.49 0 -0.5 2000 2005 2010 Total installed wood processing capacity was esti- Other Naturally Regenerated Forest Primary Forest Area Planted Forest Area Annual Change Rate in Forest Area mated at 3 to 3.4 million m3 in 2003 to 2008, which Source: FAO (2010a). far exceeded the annual allowed cuts approved by the government of 150,000 to 640,000 m3 during the pe- riod. In 2001 and 2002, wood products exports were valued at US$67 to 75 million, but increased in 2005 Forest plantations have been increasingly promoted in and 2006 to US$97 million. e forest industry is con- government policy to reduce the pressures on natural sidered generally inefficient, resulting in low recovery forests, as well as to augment local wood availability and rates and generating low-value products produced from meet processing capacity requirements. Major plantation small to medium-size mills. e bulk of exports are un- species are Tectona (Teak), Eucalyptus, Acacia, Jatropha, processed, basic sawnwood and planks, with additional Hevea (Rubber) and Aquilaria (Agarwood). Forest plan- minor quantities further processed into strip parquet tations do not yet produce timber for export markets, flooring, furniture and various secondary products. and it is questionable whether the plantation timber can replace the demand for valuable native species in Constraints to the development of the forest industries the future. e area of forest plantation has increased sector are the variable annual allowable cuts, low access by 53% since the year 2005, from 146,000 hectares to to �nance, poorly skilled labor and lack of technology. 224,000 hectares (FAO, 2010a); however, the produc- e private sector has formed the Lao Wood Processing tivity and yields are often low. e forest plantations are Association to facilitate the allocation of government typically 20- to 30-hectare plots owned by farmers or timber quotas, upgrade technology, improve skills, in- entrepreneurs (47.5%). Smallholders have about 30% of crease market cooperation and promote exclusive use of the tree plantations, but their plots are smaller (1.8 ha). legal logs among members. e association is also col- Companies own about 10% of the plantation forest area lecting CoC certi�cation information in relation to pro- and their average plantation size is 200 hectares. cessing and export of certi�ed wood. Community forestry strongly focuses on production for- Current energy use is dominated by household con- ests and bene�t sharing in timber wealth. Village for- sumption of traditional fuels, wood and charcoal, which estry as a method of joint forest management was trialed account for 90% of energy consumption in rural areas. by the Forest Management and Conservation Project (FOMACOP) and now adapted in the SUFORD Most NWFPs are for subsistence use, although some project. go to local markets and even international markets. For most rural poor households, NWFPs remain the most A2.5.2 Forest Products, Marketing and Trade important forest products. UNDP (2001) estimated that NWFPs accounted, on average, for 40% of total With the depletion of the resources in the neighbor- household income. Key NWFPs include food (game, ing countries, Lao PDR has become a major supplier �sh, bamboo shoots, fruits, greens, honey), �ber (khem of tropical timber from natural forests. Timber royalties grass), condiments and medicinal products (cardamom 148 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A2.20 Forest and CoC Certi�cation in Lao PDR Certi�cation Body FSC Forest Management Certi�cates Type of Forest Ownership FSC CoC Certi�cates Area (ha) No No % SW Rainforest Alliance 82,760 1 Natural State/village group 13 87 GFA Consulting GmbH 86 1 Plantation Private group BV Certi�cation 2 13 Total 82,846 (2%) 2 15 100 Source: http://www.fsc-info.org; March 2012 data. and malva nuts), inputs for chemical and perfume in- permits to harvest (e.g., construction wood from the vil- dustries (benzoin, peuak meuak, resins and leoresins, lage utility forests). kisi resin and lamxay), bamboo poles, rattan and fuel- wood (World Bank et al, 2001).25 NWFPs provide both PM Decree 59/2002 on Sustainable Management of cash and non-cash income. Production Forests sets the basic principles for estab- lishment and management of PFAs, but forest manage- Vietnam has surpassed ailand as the major import- ment planning lags behind and leads to uncontrolled ing country for timber from Lao PDR, because their forest use. e Ministry of Agriculture and Forestry furniture industry cannot source high-quality tropical and Prime Minister’s Office have the overall control on species in country. It has been concluded that Vietnam’s forest management planning. ey work in coopera- demand for Lao PDR natural forest wood products has tion with local authorities on �eld surveys and moni- a strong influence on how Lao PDR forests are managed toring. Village forestry organizations organize villagers and how forest revenues are controlled and distributed to participate in implementation of forest management (FAO, 2010b). activities based on an agreement with villagers and district FMUs. A2.5.3 Veri�cation Lao PDR does not have a legality standard that could be used to monitor legal compliance. Forest land is divided by Forest Law (2007) into pro- duction, conservation or protection forests. Timber har- vesting is allowed only in production forests. Planted forests may be established only on fallow land. Forest A2.5.4 Certi�cation land may also be allocated to villages as village con- As detailed in Table A2.20, two FSC forest manage- servation forest and village utility forests. Villages get ment certi�cates cover 82,846 hectares of village- based forest management of natural forests and one 25. World Bank et al, 2001. Lao PDR Production Forestry Policy; Status and Issues Dialogue, Vol. 1., Main Report; Vol. Annexes, FSC forest management certi�cate covers 86 hect- World Bank, Washington D.C. ares of plantation teak under a private smallholder TABLE A2.21 Forest Managers Complying with FSC Controlled Wood Standards in Lao PDR FSC Controlled Wood Certi�cation Body Area (ha) No Type of forest Ownership SW Rainforest Alliance 239,529 2 Natural State Total FSC Controlled Wood 239,529 2 Source: http://info.fsc.org/; March 2012; author’s compilation. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 149 TABLE A2.22 Forest Certi�cation Standards Implemented in Lao PDR Scheme Standard Owner Forest Management FSC SmartWood Rainforest Alliance Interim Standard for Assessing Forest Management in SW Rainforest Alliance Lao PDR. FM-32 (2008) FSC SCS Interim Standard for Forest Management Certi�cation, April 2012 SCS FSC FSC STD 01-003 SLIMF; eligibility criteria in teak plantations FCS Chain of Custody FSC CoC standard for companies supplying and manufacturing FSC certi�ed products FSC (FSC STD 40-004) FSC controlled wood FSC STD 30-010 V-20 EN Sources: http://info.fsc.org/; March 2012; authors’ compilation. group. ere are 15 CoC certi�cates. e certi�cation economic boom in the region, it appears that unsustain- has been done with the support of the World Bank– able forestry activities may be on the rise. �nanced SUFORD-project. Despite the high export volumes of timber and timber products, the number e economy of Lao PDR is dependent upon interna- of timber processing companies with CoC certi�cates tional trade and investment, with ailand as the larg- remains low. est trading partner, followed by Vietnam. China is fast becoming an investor, aid donor and the third largest Nearly 100% of forest management certi�cation in Lao trading partner. PDR is on natural forests owned by the state, under vil- lage management and supported by the SUFORD proj- e new regulations and policies related to timber log- ect. e area of forest certi�cation is less than 2% of the ging and exports aim to conserve existing natural for- production forest area. ests and shift the country toward participatory SFM. Sustainable production of timber has been a major pol- e provincial forest authorities of Saravan and icy objective of the Lao PDR government since 1975. Savannakhet have been granted FSC controlled wood e Ministry of Agriculture and Forestry has taken status as an elementary entry point to legal harvesting various steps in bringing the remaining forests under as a preliminary step toward certi�cation. sustainable management. In 2005, the government ap- proved the Forest Strategy for the Year 2020 of Lao e forest and CoC certi�cation standards used in Lao PDR that guides the development of forestry sector in PDR are detailed in Table A2.22. line with overall national plans and strategies for socio- economic development and environmental conservation (Lao PDR, 2005). A2.5.5 Forestry Institutions, Policy, Legislation and Law Enforcement Tree planting has been a national priority since the 1980s. e annual targets for tree planting are set in Lao PDR development goals have taken precedence national socioeconomic development plans. e govern- over environmental protection, particularly in relation ment provides incentives, including allocation or lease of to revenue-generating activities such as mining, hydro- land for tree planting, property rights on planted trees, power generation and logging. e direct impacts of land tax exemptions for registered plantations and free economic development on forests include deforestation distribution of seedlings to farmers and organizations. and land conversion, as well forest depletion from poorly A reforestation fee being levied on logs and NWFPs regulated legal and illegal logging. With the recent harvested from natural forests is also used in seedling 150 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A and plantation development. e government is also co- prevent unauthorized activities; and protection of wa- operating with several donor organizations on tree plan- tersheds. e targets include: tation promotion (Forestry Strategy, 2005). Forest land is owned by the state, but companies or households may Ⅲ Improving the quality of forest resources by natu- gain ownership of the planted trees. ral regeneration and tree planting for protection and livelihood support e donor-funded project framework on SUFORD was Ⅲ Providing sustainable flow of forest products for established to assist the government to put the country’s domestic consumption and household income PFAs under participatory SFM. Forest management generation plans developed for each sub-forest management area de- Ⅲ Preserving species and habitats scribe the annual allowable cut, harvesting coupe, HCVF Ⅲ Conserving environmental values in relation to management, regeneration, etc., which are necessary for soil, water and climate management. Key issues include strengthening of forest inspection and ensuring the control over the supply chain Positive changes in forestry could be toward sustain- from forests to the mill gate and the point of export. able development in 2020 that include the SUFORD model of village-based forest management at the na- e Forestry Law (2007) was amended to reflect the tional level, increased payments for environmental ser- following priorities: vices, improved awareness of the values of forests and forestry by officials and the public and implementation Ⅲ Prevention and control of �res and restriction of of REDD-plus, particularly in reducing deforestation shifting cultivation and illegal logging and forest degradation. Ⅲ Forest regeneration and forest plantations Ⅲ Regulation of the allowable extent of natural forest Toward 2020, it is anticipated that the annual allowable conversion and forest land-use cut will be approximately 1 million m3. Plantation sup- Ⅲ Provision for a Department of Forest Inspection plies will increasingly complement the declining sup- plies from natural forests, but signi�cant new invest- In 2011 a new Ministry of Environment was established ments are necessary. with responsibility for protection and conservation for- ests. e National Assembly will undertake another A2.5.7 Potential for Certi�cation, Veri�cation and review of the Forestry Law (2007) to further clarify NTLAs/VPAs roles and responsibilities. e Department of Forestry will be responsible for production forests and forestry Some resistance by state forest industries to certi�cation inspection. has occurred, and communities tend to be daunted by the high costs and perceived low bene�ts of certi�ca- Lao PDR is part of the ASEAN working group on for- tion. Alternative strategies under consideration include ests that promotes a legality de�nition and forest certi- the WWF-GFTN and TNC Responsible Asia Forest �cation in the region. and Trade (RAFT) initiatives, which offer market ac- cess for legal and certi�ed wood. In 2009, the project A2.5.6 Forests and Forestry toward 2020 GFTN-Lao PDR was launched. In the Forestry Strategy 2020, the government focus is GFTN-Lao PDR is the Lao PDR chapter of GFTN, on land-use planning, village-based natural resources WWF’s initiative to eliminate illegal logging and im- management and sustainable harvesting; rationaliza- prove the management of valuable and threatened tion of the wood processing industry; collaboration forests. GFTN-Lao PDR is the �rst GFTN office op- with domestic and international players in forest planta- erating under a collaborative partnership program with tion development; law enforcement and participation to TFT. e strategic approach of this partnership is to C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 151 develop a favorable environment for certi�cation of nat- oversee two working groups on (i) timber legality; and ural and planted forests to: (ii) NTLAS. e next major step is to decide whether or when to enter into formal negotiations for a VPA with Ⅲ Support international companies with strong cor- the European Union.26 porate policy on sustainability to create good ex- amples for SFM and plantation development in e government target is to increase interest in CoC Lao PDR certi�cation among the timber processing companies Ⅲ Facilitate CoC certi�cation of committed process- and to reach the level of 10 certi�cates in the near fu- ing companies and link them to certi�ed supply ture. Other investors establishing forest plantations in bases in Lao PDR the country are also interested in certifying their planta- Ⅲ Provide a set of services and bene�ts (i.e., market tion forest management. links) to participants of the GFTN/TFT program in Lao PDR to enhance economic bene�ts from Despite the ambitious target in the number of certi�- certi�cation cates, the potential to expand the certi�ed forest area Ⅲ Promote improved forest management practices in natural forests in the near future is slight because of among small forest owners and community forests the limited resources in forest administration and the Ⅲ Explore and implement strategies to lower costs of challenges in establishing the PFAs in line with the certi�cation prevailing legislation. e area of forest plantations is still small, and despite the high interest in them, it is Legal timber has gained momentum in markets in re- foreseen that their area will expand only gradually. In cent years, particularly in Europe and North America, the long run, certi�cation of individual PFAs in Lao and more consuming countries have green procurement PDR is possible, and this would have considerable policies that demand legality as a minimum require- impact on the supply of certi�ed timber from natural ment. China and Vietnam have expressed their interest tropical forests. in VPAs, and because they are major trading partners with Lao PDR, timber legality issues are likely to be Rough estimates for the expansion of certi�ed forest ar- prioritized in the near future. eas during the next �ve years would be two PFAs with a total area of 100,000 to 150,000 hectares and forest Lao PDR has been involved with the FLEGT pro- plantation areas of below 10,000 hectares. gram since 2009 and is in transition with the establish- 26. MAF, Department of Forest Inspection presentation to ment of a FLEGT steering committee and the leader of ASEAN-EU-FLEGT Asia, Sub-regional Training Workshop on the Department of Forest Inspection as Focal Point to TLAS, Kota Kinabalu, State of Sabah, Malaysia, 25–27 October 2011. 152 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A ANNEX 3: COMPATIBILITY OF NATIONAL LEGALITY STANDARDS AND VOLUNTARY CERTIFICATION SCHEMES WITH ASEAN TIMBER LEGALITY CRITERIA Legality Criteria Comply Criterion 1. The forest management enterprise holds the legal right to operate and to harvest timber at the designated forest area. Indonesian SVLK Management unit has a legal permit to operate and to harvest timber at the Yes designated forest area. Ⅲ No requirements on the validity of the process to obtain the license to operate Malaysian TLAS State authority issues the harvest licenses. Licensee is required to demarcate Yes the license area and to register the property mark. Ⅲ No requirements on the validity of the process to obtain the license to operate SmartWood Rainforest Alliance The legal status of the forest management unit shall be clearly de�ned and Yes Standard for VLO, Malaysia boundaries delineated. The forest management enterprise shall prove that it has validly obtained the legal right to operate and to harvest timber from within the de�ned forest management unit. SmartWood Rainforest Alliance The legal status of the forest management unit shall be clearly de�ned and Yes Standard for VLC, Malaysia boundaries delineated. The forest management enterprise shall prove that it has validly obtained the legal right to operate and to harvest timber from within the de�ned forest management unit. LEI STANDARD 5000-1 The legal right to operate and the delineation of the forest management unit Yes are required. Malaysian MC&I 2002 PEFC Availability of documentation of legal status, and established forest use rights Yes of the land or forest resources within the relevant national and regional legal frameworks. Forest managers should support legally recognized mechanisms for resolving land claims. SGS QUALIFOR Standard, Clear, long-term tenure and forest use rights to the land (e.g., land title, Yes Malaysia customary rights or lease agreements) shall be demonstrated. Ⅲ No requirements on the validity of the process to obtain the license to operate, the legal status of land title? Criterion 2. The forest management enterprise holds approved authorization for its harvesting operations, based on an approved cut. Indonesian SVLK A legal work plan is required to gain a harvest permit. Yes Malaysian TLAS An approved harvesting plan is required. Yes SmartWood Rainforest Alliance The forest management enterprise shall have received the necessary approval Yes Standard for VLO, Malaysia for the basic and fundamental planning requirements legislated as necessary to enable forest management and shall adhere to fundamental planning and operational requirements and production restrictions and quotas within the permitted harvest rights. SmartWood Rainforest Alliance The forest management enterprise shall have received the necessary approval Yes Standard for VLC, Malaysia for the basic and fundamental planning requirements legislated as necessary to enable forest management and shall adhere to fundamental planning and operational requirements and production restrictions and quotas within the permitted harvest rights. LEI STANDARD 5000-1 A legally approved harvesting plan is required. Yes C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 153 Legality Criteria Comply Malaysian MC&I 2002 PEFC Forest managers are knowledgeable of the relevant national and local Yes laws and the regulatory framework. Availability of legal provisions for the establishment and protection of the PRF for Peninsular Malaysia and forest management areas for the States of Sabah and Sarawak. Forest Management Plan (Peninsular Malaysia, Long -Term Timber License Agreement (State of Sarawak) Record of violations and actions taken to address them Different regulations in Peninsular and the States of Sabah and Sarawak Ⅲ Timber license and forest management plan include the approved cut and are officially approved only for enterprises that have authorization to harvesting. The MTCS standard for native forests requires awareness on legislation. SGS QUALIFOR Standard, A detailed management plan is required. The rate of harvest of forest products Yes Malaysia shall not exceed levels, which can be permanently sustained. Ⅲ Management plan includes the approved cut and are officially approved only for enterprises that have authorization to harvesting. Ⅲ Standard as such does not require official approval; depends on the status and content of the plan in the country Criterion 3. The forest management enterprise ful�lls CITES compliance and the requirements of relevant environmental laws and regulations. Indonesian SVLK The management unit is required to obtain the environmental impact Yes assessment (EIA). Negative environmental impacts related to felling have to be mitigated. The EIA document has to be legally approved. Ⅲ EIA is required by the legislation that also de�nes its content. Malaysian TLAS The licensee has to determine if timber harvesting in the approved area Yes constitutes a prescribed activity. EIA and proposed mitigation measures have to be undertaken if required by the Department of Environment. The environmental management is based on environmental legislation. SmartWood Rainforest Alliance Ⅲ CITES not referred to No Standard for VLO, Malaysia SmartWood Rainforest Alliance The forest management enterprise shall demonstrate compliance with all Partly Standard for VLC, Malaysia local and national laws relating to the environmental obligations of a forest management operation. Ⅲ CITES compliance not addressed. LEI STANDARD 5000-1 Forest management activities’ impacts on forest structure, plant species, soil Yes and water Ⅲ Requires identi�cation of impacts, measures to avoid adverse impacts as required by legislation and to monitor the compliance level not included in the standard Ⅲ Scope of environmental impacts is broad Malaysian MC&I 2002 PEFC Forest managers are aware of all binding international agreements, such as Yes CITES, core ILO Conventions, ITTA, and Convention on Biological Diversity. Forest management shall respect all national and local laws and administrative requirements. Records and availability of up-to-date relevant national and local laws, regulations and policies, among others Record of violations and actions taken to address them Different regulations in Peninsular Malaysia and States of Sabah and Sarawak SGS QUALIFOR Standard, Assessment of environmental impacts and implementation; species protection, Yes Malaysia erosion control, minimizing mechanical disturbance and water resources protection; pest management, waste management, use of biological control agents and the use of exotic species; forest conversion to plantations or non- forest land uses shall not occur. CITES compliance required, as well as compliance with all national and local laws and requirements. (continued ) 154 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A Legality Criteria Comply Criterion 4. The forest management enterprise ful�lls the requirements of relevant social laws and regulations. Rights of local Rights of indigenous Worker safety and communities people health, labor rights Indonesian SVLK Commitment for the – Safety and welfare of Partly welfare of the local workers is guaranteed. community required. Ⅲ Linkage to Ⅲ Linkage to normative normative regulations weak, regulations weak; scope unspeci�ed scope unspeci�ed Malaysian TLAS – Free use of forest Safety and welfare of No products by indigenous workers is guaranteed. local communities people on the land Ⅲ Linkage to areas lawfully occupied normative by them regulations weak, scope unspeci�ed SmartWood Rainforest Alliance – – – No Standard for VLO, Malaysia SmartWood Rainforest Alliance Taking into account – Compliance with laws Partly Standard for VLC, Malaysia legally recognized covering health and Ⅲ Indigenous people customary user rights, safety issues and labor not addressed conflict mitigation laws mechanisms LEI STANDARD 5000-1 Commitment for the – Health and safety Partly welfare of the local regulations Ⅲ Indigenous people community implemented, as well not addressed; Compensation for the as other rights of does not address use of the community’s employees user rights traditional knowledge Malaysian MC&I 2002 PEFC Different regulations in Peninsular Malaysia and the States of Sabah and Sarawak Provisions and Availability of Health and safety issues Yes measures within appropriate and right to organize Ⅲ Certi�cation based relevant national mechanisms and addressed in legal on legislation, and regional legal compensation for the requirements veri�es compliance frameworks should be commercial utilization Provisions for workers taken to prevent loss of traditional forest- to freely organize into or damage affecting related knowledge and union of their own the local people’s legal practices of indigenous choice in accordance or customary rights, people in accordance with ILO Convention property, resources, or with existing legislation No. 87. their livelihoods. or by mutual agreement (Note limitations in Recognition in public sector in the legislation of native right to bargain.) courts and customary rights. SGS QUALIFOR Standard, Management planning Control of forest Forest management Yes Malaysia based on social management by should meet or exceed Broadest and most impacts evaluations; indigenous people all applicable laws and system oriented; speci�es mechanisms for on their lands; their regulations covering requirement, may exceed resolving grievances resources or tenure health and safety of national regulations and for providing fair rights shall not be employees and their compensation in the threatened; sites of families and the rights case of loss or damage special signi�cance of the workers to shall be identi�ed; and organize and negotiate indigenous peoples with the employer shall be compensated for the application of their traditional knowledge regarding forests C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 155 Legality Criteria Comply Criterion 5. The forest management enterprise has paid all statutory charges directly related to timber harvesting and timber trade. Indonesian SVLK The management unit has paid government retribution requirement related Partly to timber harvesting. Ⅲ Transport-, processing-, trade-related fees not covered Malaysian TLAS The licensee has paid the royalties and fees directly related to harvesting. Partly Ⅲ Transport-, processing-, trade-related fees not covered SmartWood Rainforest Alliance The forest management enterprise shall ful�ll all obligatory taxes, fees and/or Partly Standard for VLO, Malaysia royalty payments associated with maintaining the legal right to harvest and permitted harvesting volumes. Ⅲ Transport-, processing-, trade-related fees not covered SmartWood Rainforest Alliance The forest management enterprise shall ful�ll all obligatory taxes, fees and/or Partly Standard for VLC, Malaysia royalty payments associated with maintaining the legal right to harvest and permitted harvesting volumes. Ⅲ Transport-, processing-, trade-related fees not speci�cally covered LEI STANDARD 5000-1 – No Malaysian MC&I 2002 PEFC All applicable and legally prescribed fees, royalties, taxes, and other charges Yes shall be paid. Availability of current list of all legally prescribed fees, royalties, taxes, and other charges. SGS QUALIFOR Standard, All applicable and legally prescribed fees, royalties, taxes and other charges Partly Malaysia shall be paid. Ⅲ Transport-, processing-, trade-related fees not covered Criterion 6. The forest management enterprise implements a traceability system that allows for the tracking of all logs from the forest gate to the relevant harvesting sites. Note: Does not address transport and processing. Indonesian SVLK The management unit guarantees that all transported logs have physical Yes markings/identity and legal documents to trace them back to the stumps. Covers only logs in forest transport Malaysian TLAS The movement of log from harvesting site to the forest gate is controlled. Yes Covers only logs in forest transport SmartWood Rainforest Alliance Documented control of the CoC of forest products from the point of harvest up Yes Standard for VLO, Malaysia to the forest gate and between handling steps Covers CoC only in forest SmartWood Rainforest Alliance Documented control of the CoC of forest products from the point of harvest Yes Standard for VLC, Malaysia up to the forest gate and between handling steps By de�nition covers CoC only in forest; should extend to �nal product LEI STANDARD 5000-1 Validity of timber tracking system in the forest Yes Covers only logs in forest transport Malaysian PEFC scheme Production, transport and sales of labeled products must be in compliance Yes with PEFC international CoC standard. SGS QUALIFOR Standard, Documentation shall be provided by the forest manager to enable Yes Malaysia monitoring and certifying organizations to trace each forest product from its Covers processing and origin, a process known as the “CoC.� transport Sources: Authors’ compilation. 156 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A ANNEX 4: BANKING SECTOR KNOW YOUR CLIENT CRITERIA/GUIDELINES A4.1 International Finance A4.1.4 Performance Standards on Environmental and Social Sustainability Corporation (IFC) e Performance Standards on Environmental and Social Sustainability provide clients guidance on how A4.1.1 Sustainability Framework to identify risks and impacts and are designed to help e IFC Sustainability Framework reflects their commit- avoid, mitigate and manage risks and impacts as a way ment to sustainable development and is an integral part of doing business in a sustainable way. e eight perfor- of their approach to risk management. e framework mance standards that clients must meet are detailed in is made up with a comprehensive set of policy, techni- Table A4.1. cal and general guidelines, including the 2012 Policy on Environmental and Social Sustainability, Performance Performance Standard 1 establishes the importance of Standards and Guidance Notes on Environmental and (i) integrated assessment to identify the environmental Social Sustainability, Environmental Health and Safety and social impacts, risks and opportunities of projects; Guidelines and Exclusion List Guidelines. (ii) effective community engagement through disclosure of project-related information and consultation with lo- cal communities on matters that directly affect them; A4.1.2 Policy on Environmental and Social and (iii) the client’s management of environmental and Sustainability social performance throughout the life of the project. Performance Standards 2 to 8 establish objectives and Central to IFC’s Environmental and Social requirements to avoid, minimize, and, where residual Sustainability Policy is the provision of investment and impacts remain, to compensate/offset for risks and im- advisory activities with the intent to “do no harm� to pacts to workers, affected communities and the environ- people and the environment, to enhance the sustain- ment. Where environmental or social risks and impacts ability of private sector operations and the markets they are identi�ed, the client is required to manage them work in and to achieve positive development outcomes. ere is a commitment to ensure that the costs of eco- nomic development do not fall disproportionately on TABLE A4.1 IFC Performance Standards on Social and those who are poor or vulnerable, the environment is Environmental Sustainability not degraded in the process and the renewable resources Performance Standard Content are managed sustainably. A central pillar to achieving Standard this is regular client engagement with stakeholders to 1 Assessment and Management of Environmental and Social Risks and Impacts minimize risks and impacts to people, communities and 2 Labor and Working Conditions environment. Additionally, IFC encourages sector-wide 3 Resourced Efficiency and Pollution Prevention market transformations that are consistent with sustain- 4 Community Health, Safety and Security able development objectives. 5 Land Acquisition and Involuntary Resettlement 6 Biodiversity Conservation and Sustainable A4.1.3 Access to Information Policy Management of Living Natural Resources 7 Indigenous Peoples IFC’s Access to Information Policy reflects their com- 8 Cultural Heritage mitment to transparency and good governance on Source: IFC Performance Standards on Environmental and Social its operations and outlines their institutional disclo- Sustainability: http://www1.ifc.org/wps/wcm/connect/115482804a0 255db96fbf fd1a5d13d27/PS_English_ 2012_Full-Document. sure obligations regarding its investment and advisory pdf?MOD=AJPERES services. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 157 through its environmental and social management sys- A4.1.6 Environmental, Health and Safety tem, consistent with Performance Standard 1. Guidelines Applicable in the Forestry Sector Speci�c EHS guidelines exist for (i) forest harvesting A4.1.5 Environmental, Health and Safety operations (managed natural and plantation forests), Guidelines (EHS Guidelines) (ii) sawmilling and manufactured wood products, (iii) board and particle-based products and (iv) pulp and pa- e EHS Guidelines contain the technical performance per mills. Each Guideline is formatted according to: levels and measures that are normally acceptable to IFC and are generally considered to be achievable in new facil- Ⅲ Industry-speci�c impacts and management recom- ities at reasonable costs by existing technology. For IFC- mendations �nanced projects, application of the EHS Guidelines to Ⅲ Performance indicators and monitoring existing facilities may involve the establishment of site- Ⅲ References and additional sources speci�c targets with an appropriate timetable for achiev- Ⅲ General description of industry activities ing them. e components and sub-components of the EHS Guidelines are detailed in Table A4.2. e guidelines are based upon principles of legality and sustainability. TABLE A4.2 IFC/World Bank Group, EHS Guidelines (2007) A4.1.7 Exclusion List 1. Environmental 1.1 Air Emissions and Ambient Air Quality 1.2 Energy Conservation e Exclusion List, as detailed in Table A4.3 de�nes the 1.3 Wastewater and Ambient Water Quality types of project that the IFC does not �nance. 1.4 Water Conservation 1.5 Hazardous Materials Management 1.6 Waste Management TABLE A4.3 IFC Exclusion List 1.7 Noise No. Excluded projects 1.8 Contaminated Land 1 Production or trade in any product or activity deemed 2. Occupational 2.1 General Facility Design and Operation illegal under host country laws or regulations or Health and Safety international conventions and agreements, or subject to 2.2 Communication and Training international bans, such as pharmaceuticals, pesticides/ 2.3 Physical Hazards herbicides, ozone depleting substances, PCBs, wildlife or 2.4 Chemical Hazards products regulated under CITES. 2.5 Biological Hazards 2 Production or trade in weapons and munitions. 2.6 Radiological Hazards 3 Production or trade in alcoholic beverages (excluding 2.7 Personal Protective Equipment (PPE) beer and wine). 2.8 Special Hazard Environments 4 Production or trade in tobacco. 2.9 Monitoring 5 Gambling, casinos and equivalent enterprises. 3. Community 3.1 Water Quality and Availability 6 Production or trade in radioactive materials. This does Health and Safety 3.2 Structural Safety of Project Infrastructure not apply to the purchase of medical equipment, quality control (measurement) equipment or any equipment in 3.3 Life and Fire Safety (L&FS) which IFC considers the radioactive source to be trivial 3.4 Traffic Safety and/or adequately shielded. 3.5 Transport of Hazardous Materials 7 Production or trade in unbonded asbestos �bers. This does 3.6 Disease Prevention not apply to purchase and use of bonded asbestos cement sheeting in which the asbestos content is less than 20%. 3.7 Emergency Preparedness and Response 8 Drift net �shing in the marine environment using nets in 4. Construction and 4.1 Environment excess of 2.5 km in length. Decommissioning 4.2 Occupational Health and Safety Source: http://www1.ifc.org/wps/wcm/connect/topics_ext_content 4.3 Community Health and Safety / i f c _ e x t e r n a l _ c o r p o r a t e _ s i t e / i f c1s u s t a i n a b i l i t y/ Source: http://www.ifc.org/ifcext/sustainability.nsf/Content/EHSGuide sustainability1framework/ifc1exclusion1list/ifcexclusionlist (Sourced: lines (Sourced: 24 February 2011). 30 March 2011) 158 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A4.4 IFC Client Additional Exclusion List TABLE A4.5 The Equator Principles Additional Exclusions for the Clients of the IFC Principle Standard Content 1 Production or activities involving harmful or 1 (Project) Review and Categorization exploitative forms of forced labor/harmful child labor. 2 Social and Environmental Assessment 2 Commercial logging operations for use in primary 3 Applicable Social and Environmental Standards tropical moist forest. 4 Action Plan and Management System 3 Production or trade in wood or other forestry products other than from sustainably managed 5 Consultation (of Affected Communities) and forests. Disclosure Source: http://www.ifc.org/ifcext/sustainability.nsf/Content/ 6 [Establishment of] Grievance Mechanism IFCExclusionList (Sourced: 30 March 2011). 7 Independent (Social or Environmental Expert) Review 8 Covenants 9 Independent Monitoring and Reporting In addition, all �nancial intermediaries must apply the 10 EPFI Reporting (Publicly) exclusions, as detailed in Table A4.4, in addition to the Source: http://www.equator-principles.com/documents/Equator_ IFC’s Exclusion List: Principles.pdf (Sourced: 24 February 2011). A4.2 Equator Principles e Equator Principles serve as a common baseline and framework for each �nancial institution to adopt its own The Equator Principles were launched by 10 finan- internal social and environmental policies, standards and cial institutions 27 in Washington D.C. on 4 June procedures related to their project �nancing activities. 2003 as a global banking industry credit risk man- In March 2012, 74 banking groups had become EPFIs agement framework for determining, assessing and globally, with only Sumitomo Mitsui of Japan from Asia. managing environmental and social risk in proj- ect finance transactions. The Equator Principles EPFIs commit to not lending to projects in which the were based on the IFC Performance Standards for borrower will not, or is unable, to comply with their re- Social and Environmental Sustainability (2006) spective social and environmental policies and proce- and the World Bank Group’s Environmental, dures based upon the Equator Principles. Although the Health and Safety Guidelines (2007). The Equator Equator Principles are not intended to be applied ret- Principles Association Steering Committee has roactively, EPFIs will apply them to all project �nanc- amended the Equator Principles consistent with the ing covering expansion or upgrade of an existing facility IFC Performance Standards (2012) that took ef- where changes in scale or scope may create signi�cant fect for Equator Principles Association Members on environmental and/or social impacts, or signi�cantly 1 January 2012. The Equator Principles are adopted change the nature or degree of an existing impact. voluntarily by financial institutions as a minimum EPFIs are required to report annually on compliance standard for due diligence to support responsible with the Equator Principles in their lending portfolios. risk decision making for projects in which capital costs exceed US$10 million. Table A4.5 indicates the e Equator Principles have greatly increased the at- Equator Principles standard content. tention and focus of �nancial institutions and their cli- ents on social/community standards and responsibility, including standards for indigenous peoples, labor stan- dards, and consultation with locally affected communi- 27. Foundation signatories to the Equator Principles: ABN AMRO ties within the project �nance market. ey have also Bank, N.V., Barclays plc, Citi, Crédit Lyonnais, Credit Suisse First Boston, HVB Group, Rabobank Group, e Royal Bank of promoted convergence around common environmental Scotland, WestLB AG and Westpac Banking Corporation. and social standards. Multilateral development banks C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 159 and export credit agencies through the Organization A4.3.2 Safeguard Policy Statement (SPS) for Economic Co-operation and Development (OECD) Common Approaches are increasingly drawing on the e ADB’s SPS, approved by the Board of Directors in same standards as the Equator Principles. July 2009, supersedes ADB’s Involuntary Resettlement Policy (1995), Policy on Indigenous Peoples (1998) and Environment Policy (2002) and brings them into a con- solidated policy framework of environmental and social A4.3 Asian Development Bank safeguards that aim to balance economic growth, food security, poverty alleviation and social and environmental (ADB) sustainability. e SPS objectives are to avoid, minimize and mitigate adverse ADB-supported project impacts on A4.3.1 ADB’s Strategy 2020 the environment and affected people and to help borrow- ers strengthen their safeguards and develop capacity to e Asia Paci�c region, the most populated and fastest- manage environmental and social risks. e SPS is ap- growing region in the world, is undergoing dramatic so- plied to all ADB-supported projects reviewed by ADB’s cial and environmental changes. Concerns have grown management after 20 January 2010. ADB works with about the long-term sustainability of development in borrowers to put policy principles and requirements into many Asian countries. Rapid industrialization and ur- practice through project review and supervision and ca- banization, coupled with increased demand for natural pacity development support. e SPS also provides a resources, are triggering changes in land use and human platform for participation by affected people and other settlement, declining water quality and quantity, loss of stakeholders in project design and implementation. biodiversity, deforestation and deserti�cation, elevated pollution and negative impacts on human health. High ADB’s SPS sets out the policy objectives, scope, triggers population densities and rising demand for land for ur- and principles for safeguards on the environment, invol- ban development and infrastructure have increased the untary resettlement and indigenous peoples, as detailed risks associated with involuntary resettlement of people in Table A4.6. and the adverse impacts on such vulnerable groups as the poor and indigenous peoples. Environmental Categories A project’s category is determined by its most envi- ADB’s Strategy 2020 advocates arresting deforestation ronmentally sensitive component, including direct, as an approach to reduce greenhouse gas emissions, with indirect, cumulative and induced impacts in the proj- the sustainable management of lands, forests and other ect’s area of influence. Each proposed project is scruti- natural resources also supporting local livelihoods, nized as to its type, location, scale and sensitivity and strengthening resilience to climate change, maintaining the magnitude of its potential environmental impacts. clean water supplies and protecting biological diversity. Projects categories are: ADB is supporting the region’s SFM and conservation efforts, as well as agricultural land use improvements, Ⅲ Category A: Signi�cant adverse environmental im- to promote carbon conservation and sequestration and pacts are irreversible, diverse or unprecedented. achieve other local and global bene�ts. ese impacts may affect an area larger than the sites or facilities subject to physical works. An en- e ADB is active in the Mekong Basin and Indonesia vironmental impact assessment is required. programming support in collaboration with other mul- Ⅲ Category B: Potential adverse environmental im- tilateral and bilateral programs such as the Climate pacts are less adverse than those of category A Investment Fund’s FIP (Indonesia is a pilot country), projects. ese impacts are site-speci�c; few, if any, the World Bank’s FCPF, the UN-REDD Program and are irreversible, and in most cases mitigation mea- the Global Environment Facility’s Sustainable Forest sures can be designed. An initial environmental Management Program. examination is required. 160 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A4.6 ADB Safeguard Policy Statements on Environment, Involuntary Resettlement and Indigenous Peoples Safeguard Objective Scope, Triggers and Requirements Environment To ensure environmental soundness and If project likely to have potential environmental risks and impacts. sustainability of projects and support Requirements: integration of environmental considerations into project decision making process Involuntary To avoid involuntary resettlement wherever Physical displacement (relocation, loss of residential land or shelter) resettlement possible, minimize involuntary resettlement and economic displacement (loss of land, assets, access to assets, by exploring project and design alternatives, income or means of livelihoods) as a result of (i) involuntary acquisition enhance or restore livelihoods of all displaced of land or (ii) involuntary restrictions on land use or access to legally persons in real terms relative to pre-project designated parks and protected areas. It covers them whether such levels and improve the standards of living losses and involuntary restrictions are full or partial, permanent or of the displaced poor and other vulnerable temporary. groups. Indigenous Design and implement projects in a way that Indigenous peoples safeguards triggered if project directly or peoples fosters full respect for indigenous peoples’ indirectly affects dignity, human rights, livelihood systems or culture identity, dignity, human rights, livelihood of indigenous peoples or affects territories or natural or cultural systems and cultural uniqueness as de�ned resources that indigenous peoples own, use, occupy or claim as an by the indigenous peoples themselves so ancestral domain or asset. The term indigenous peoples is used in a that they (i) receive culturally appropriate generic sense to refer to a distinct, vulnerable, social and cultural social and economic bene�ts, (ii) do not suffer group possessing the following characteristics: (i) self-identi�cation adverse impacts as a result of projects and (iii) as members of a distinct indigenous cultural group and recognition can participate actively in projects that affect of this identity by others; (ii) collective attachment to geographically them. distinct habitats or ancestral territories in the project area and to the natural resources in these habitats and territories; (iii) customary cultural, economic, social or political institutions that are separate from those of the dominant society and culture; and (iv) a distinct language, often different from the official language of the country or region. In considering these characteristics, national legislation, customary law and any international conventions to which the country is a party will be taken into account. A group that has lost collective attachment to geographically distinct habitats or ancestral territories in the project area because of forced severance remains eligible for coverage under this policy. Source: ADB’s Safeguard Policy Statement (ADB, 2009). Ⅲ Category C: Minimal or no adverse environmental Indigenous Peoples impacts. No environmental assessment is required, All projects are screened to determine whether they although environmental implications need to be have potential impacts on indigenous peoples. Where reviewed. indigenous peoples impacts are involved, an indigenous Ⅲ Category FI: Involves investment of ADB funds to, peoples plan is prepared that is commensurate with the or through, a �nancial intermediary. degree of impacts. ese are determined by evaluating the magnitude of the impact on the indigenous peoples’ customary rights of use and access to land and natural Involuntary Resettlement resources; socioeconomic status; cultural and communal All projects are screened to determine whether they in- integrity; health, education, livelihood systems, and so- volve involuntary resettlement. Where involuntary re- cial security status; or indigenous knowledge; and vul- settlement is involved, a resettlement plan is prepared nerability of the affected indigenous peoples. that is commensurate with the extent and degree of the impacts. e degree of impacts is determined by the Safeguard Requirements scope of physical and economic displacement and vul- Table A4.7 details the safeguard requirements based nerability of the affected persons. upon different levels of potential impacts. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 161 TABLE A4.7 Safeguard Requirements Involuntary Resettlement Category Risk Rating Environmental Safeguards Indigenous Peoples Safeguards Safeguards Category A (potential Comply with safeguard Comply with safeguard Comply with safeguard signi�cant impacts) requirement 1 of the ADB requirement 2 of the ADB requirement 3 of the ADB Safeguard Policy Statement, Safeguard Policy Statement, Safeguard Policy Statement, including environmental impact including resettlement plan including indigenous peoples plan assessment preparation and preparation and submission, and preparation and national laws submission, and national laws national laws Category B (less Comply with national laws and Comply with national laws and Comply with national laws and signi�cant impacts) ADB’s Prohibited Investment ADB’s Prohibited Investment ADB’s Prohibited Investment Activities List Activities List Activities List Category C (minimal or Comply with national laws and Comply with national laws and Comply with national laws and no impacts) ADB’s Prohibited Investment ADB’s Prohibited Investment ADB’s Prohibited Investment Activities List Activities List Activities List Source: ADB. 2009. ADB Safeguard Policy Statement. ADB Investment through Financial Intermediaries as a category C project and need not apply any other For projects involving investment of ADB funds to, or speci�c requirements. All other �nancial intermediaries through, �nancial intermediaries, ADB conducts safe- are required to have in place or establish an appropriate guard due diligence to assess the potential environmental environmental and social management system (ESMS) and social impacts and risks associated with the �nancial commensurate with the nature and risks of the �nancial intermediaries‘ existing and likely future portfolio and its intermediaries’ likely future portfolio to maintain as part commitment and capacity in social and environmental of the its overall management system. management. All �nancial intermediaries are to ensure that their investments are in compliance with applicable national laws and regulations and apply the ADB’s pro- A4.3.3 Prohibited Investment Activities List hibited investment activities list to sub-projects �nanced by ADB. Where the �nancial intermediaries’ invest- e ADB’s Prohibited Investment Activities List is de- ments have minimal or no adverse environmental or so- tailed in Table A4.8 for activities that do not qualify for cial risks, the �nancial intermediaries’ project are treated Asian Development Bank �nancing: TABLE A4.8 ADB Prohibited Investment Activities No. Excluded activity 1 Production or activities involving harmful or exploitative forms of forced or child labor 2 Production of, or trade in, any product or activity deemed illegal under host country laws or regulations or international conventions and agreements, or, subject to international phase-outs or bans 3 Production of, or trade in, weapons and munitions, including paramilitary materials 4 Production of, or trade in, alcoholic beverages, excluding beer and wine 5 Production of, or trade in, tobacco 6 Gambling, casinos, and equivalent enterprises 7 Production of, or trade in, radioactive materials, including nuclear reactors and associated components 8 Production of, trade in, or use of unbonded asbestos �bers 9 Commercial logging or purchase of logging equipment to use in primary tropical moist forests or old-growth forests 10 Marine and coastal �shing practices harmful to vulnerable species and damaging to marine biodiversity and habitats Source: Annex 1 in http://www2.adb.org/Documents/RRPs/PRC/45907/45907-001-prc-oth-05.pdf (Sourced: 25 February 2011). 162 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A A4.4 Hong Kong Shanghai sustainability standards that represent international good practice. e policy prohibits illegal logging and Banking Corporation (HSBC) forestry in highly sensitive areas and supports clients whose operations are independently certi�ed as legal and sustainable. Table A4.9 summarizes the key criteria A4.4.1 Forest Land and Forest Products of their Forest Land and Forest Products Sector Policy. Sector Policy In 2008, the HSBC (an EPFI foundation member, 2003) A4.4.2 Certi�cation Standard released its revised Forest Land and Forest Products Sector Policy, 28 which is consistent with the Equator HSBC recognizes that national and international certi- Principles and provides guidance on their legality and �cation schemes provide varying degrees of assurance on legality and sustainability and use third party technical 28. HSBC Forest Land and Forest Products Sector Policy: http:// www.hsbc.com/1/PA_esf-ca-app-content/content/assets/csr/080905_ experts and commissioned studies to determine the forest_land_and_forest_products_sector_policy_summary.pdf extent to which a scheme meets the HSBC standard. TABLE A4.9 HSBC Forest Land and Forest Products Sector Policy (2008) Policies HSBC Criteria Prohibitions No �nances Illegal logging directly Operations in UNESCO World Heritage Sites supporting: Operations in wetlands on the RAMSAR list Restrictions Policy guidelines High Conservation Value Forest (HCVF): In countries with high incidence of illegal logging, biodiversity potentially: high- or social conflict, independent con�rmation is required to demonstrate that their non-certi�ed impact business operations do not negatively impact HCVF. sector: Plantations: Plantations converted from natural forests are not �nanced, unless independently certi�ed or con�rmed as not adversely impacting HCVF. Clearance of forest land by burning is not supported. Pulp and Paper: HSBC does not �nance manufacture of pulp and paper where raw material supplies are not certi�ed in accordance with their policy. Biofuels: Cautious approach to �nancing biofuels, ensuring that wider sustainability impacts are taken into account. Palm Oil and Soy: As for plantations above. Preference for clients investing in palm oil to be certi�ed under the Roundtable on Sustainable Palm Oil certi�cation scheme. For other agri-commodities, actively support multi-stakeholder initiatives to establish principles of sustainability. Peat : Cautious approach to business proposals on peatlands considering potential negative local impacts on biodiversity, communities and carbon emissions. Legality Logging and Permits, quotas and concession areas harvesting Local laws on taxation and corruption activities must respect: Protected species (including CITES) Legal rights of communities Areas de�ned as HCVFs, only consider low-impact operations on HCVF Sustainability In addition to Minimize harm to ecosystems meeting legality Maintain forest productivity criteria, activities must: Maintain forest ecosystem health and vitality Safeguard traditional or customary rights of forest communities (including protection of the rights of indigenous peoples, maintenance of community relations, bene�ts for local communities, protection of workers’ rights and dispute resolution mechanisms) Balance economic, social and environmental interests Source: HSBC Forest Land and Forest Products Sector Policy: http://www.hsbc.com/1/PA_esf-ca-app-content/content/assets/csr/080905_ forest_land_and_forest_products_sector_policy_summary.pdf C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 163 Clients are considered fully compliant with their policy to demonstrate to access SCB �nancial services worldwide. when client activities are 70% certi�ed as sustainable and e position statement follows the IFC Environmental, there is evidence that the remainder is legal, in line with Health and Safety sector guidelines on forestry and plan- best practice certi�cation procedures. HSBC is commit- tation crop production (2007) and complements and rein- ted to work with and encourage clients toward certi�- forces their commitment to the Equator Principles. cation and support stepwise approaches by supporting clients that are “near-compliant� if on a credible path For purposes of the Position Statement, the forestry sec- to meeting the HSBC Forest Land and Forest Products tor includes (i) upstream production companies (logging in Sector Policy. Five years is the required time for clients natural and plantation forests, including forestry equipment to demonstrate material progress toward certi�cation. and forest conversion) and (ii) downstream users (milling of logs for pulp, paper, sawnwood, plywood or veneer). HSBC requires clients to obtain independent certi�ca- tion to their standard, to demonstrate that their forest e SCB has a speci�c Position Statement on Forestry operations and forest products are legal and sustainable. and Palm Oil, outlined in Table A4.10. eir standard is based upon the principles and criteria of the FSC certi�cation scheme and their commitment to the Equator Principles. A4.5.3 Time-Bound Action Plan Due to different political, social, cultural, environmen- HSBC supports clients to seek certi�cation and to adopt tal and economic contexts, SCB (or independent tech- best practices on management of sustainability impacts. nical specialist where necessary) will work with clients ey recognize the technical advice of the Global Forest who do not currently meet these standards to develop a and Trade Network, Proforest, Rainforest Alliance and time-bound action plan for compliance and to monitor Tropical Forest Trust. the client’s progress. A4.5 Standard Chartered Bank A4.6 Citibank (SCB) A4.6.1 Environmental and Social Risk A4.5.1 Commitment to Sustainable Development Management and Sustainable Forestry Policy Sector Standard SCB, a founding member of the Equator Principles and EPFI since 2003, is an active �nancial institution in e Citibank Group (an EPFI since 2003) does not en- Asia, Africa and the Middle East. ey have an aspira- gage in business with companies in violation of local or tion as a “force for good� in serving their clients, while national laws regarding illegal logging. Citi’s ESRM actively engaging with them and their stakeholders to- includes a Sustainable Forestry Policy Sector Standard, ward undertaking sustainable business practices. �rst developed in 2004 under an Anti-Illegal Logging Initiative. e approach was re�ned and expanded in A4.5.2 Position Statement on Forestry and Palm Oil 2006 so that Forest Products Obligors (clients with log- ging or primary processing of timber as their material In recognition that the forestry and oil palm sectors are business) were subject to risk management standards not always conducted in accordance with sustainability based on the sensitivity and location of operations, principles, standards and practices, the SCB, prepared a as detailed in Table A4.11. e Sustainable Forestry Forestry and Palm Oil Position Statement to detail the Policy Sector Standard refers to a list of “high-risk� standards and practices that new and existing clients have countries that have a higher rate of illegal logging than 164 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A4.10 Position Statement on Forestry and Palm Oil Requirement area Criteria SCB will not provide Commercial logging Primary tropical moist forests �nancial services for: operations or purchase HCVFs29 of logging equipment to be used in: Critical natural habitats Logging operations that are in violation of local or national laws in respect of illegal logging Logging operations that include CITES listed species a) Companies that directly purchase, trade or process timber from the above-mentioned sources b) Companies that engage in illegal logging and the uncontrolled and/or illegal use of �re in their forestry or plantation operations c) Conversion of primary tropical moist forest or HCVF to plantation use SCB encourages new Forest stewardship Manage forests certi�ed by FSC or equivalent standard. and existing clients to: practices Demonstrate a credible path toward operating managed forests that are certi�ed by FSC or equivalent standard. Process or trade in products that are FSC certi�ed or have equivalent certi�cation (with appropriate CoC or equivalent documentation). Timber plantations Undertake environmental and social impact assessments for all new plantations. SBC will �nance plantation projects on previously cleared forest land, only after 5 years have passed and only if no direct link to the original deforestation can be demonstrated. Sources: http://www.standardchartered.com/_documents/Forestry_and_Palm_Oil_Position_Statement.pdf (Sourced: 15 May 2012). 29. Unless the Precautionary Principle is applied and conservation-based management plans, which deliver preservation or enhancement of the high conservation values, are implemented. other countries. Forest Product Obliors (FPOs) op- A4.7 Bank of America: erating in these “high risk� countries must develop a plan to achieve independent certi�cation by a scheme e Bank of America (an EPFI since 2004) has acceptable to Citi within an agreed timeframe (e.g., Global Corporate Investment Bank Policies applied 3–5 years). Citi’s Sustainable Forestry Policy Sector to new business from 15 May 2004 and for exist- Standards are based on the IFC Performance Standards ing contracts at the time of renewal. e Bank of and relevant technical guidelines of the IFC EHS America believes responsible environmental steward- Guidelines. Citi’s partners in implementing and moni- ship is an integral component of doing sustainable toring the Sustainable Forestry Policy Sector Standard business – minimizing waste and consumption, ad- are the Ecologic Development Fund, World Resources dressing climate change and preserving biodiversity. Institute’s Global Forest Watch Program, Rainforest e bank has three pillars to their global corporate Alliance’s SmartWood Program and WWF. investment bank policy in forestry, including (i) Forest Practices, (ii) Forest Certi�cation and (iii) Paper A4.6.2 Risk Management in the Forestry Sector Procurement. Table A4.11 outlines the Citibank ESRM Sustainable Forestry Policy Sector Standards for risk management A4.7.1 Forest Practices in the forestry sector. Table A4.12 details the forest practices policies that ap- ere is no minimum dollar threshold amount for this ply to new businesses from 15 May 15 2004 and for ex- Sector Standard. isting contracts at their time of renewal. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 165 TABLE A4.11 Citibank ESRM Sustainable Forestry Policy Sector Standards for Risk Management in Forestry FPO ESRM Risk Levels Citi Required Risk Management Actions LEVEL 1: Applies to all ESRM covered Ⅲ Compliance with this policy is undertaken on an annual basis via FPO risk assessment process, FPOs in Citi CMB’s30 portfolio (all including an annual interview with the client. The process con�rms that the customer is in clients involved in logging or primary compliance with local and national forestry and environmental laws to prevent illegal logging. processing of timber) LEVEL 2: Applies to FPOs who are Ⅲ FPO subject to standard compliance with law representation. undertaking commercial logging of Ⅲ The FPO presents Citi with a plan to achieve independent certi�cation within a timeframe timber (from lands under their control) (e.g., 3–5 years) to be agreed upon between Citibank and the client. This time-bound action or primary processing of timber in plan must be presented to Citi within a reasonable timeframe (e.g., within 6 months of “high-risk� countries. 31 Note: FPOs the transaction’s close). Intermediary milestones must be met to continue the �nancing required to achieve CoC certi�cation relationship between Citi and client. of their operations Ⅲ The relationship manager should provide the ESRM Director, or designate, a status update on the client’s progress in achieving the action plan’s milestones during each annual review. LEVEL 3: For FPOs where a signi�cant Ⅲ FPO subject to standard compliance with law representation threshold of concern has been raised Ⅲ FPO presents Citi with a plan to achieve FSC certi�cation within a timeframe to be agreed about the legality of their operations upon between Citi and the customer. The signi�cant threshold of concern must be evidenced by credible and objective third party information, as determined by Citi. Intermediary milestones would be required to continue the �nancing relationship between Citi and the customer. Development of a time-bound action plan, and the monitoring of progress of the action plan, would be conducted by a credible external party consistent with IFC Performance Standard 6 requirements. In these cases, if a customer refuses to embark on developing an action plan toward FSC certi�cation, Citi would embark on steps to consider exiting the relationship. The ESRM Director, or designate, will be noti�ed and review these transactions. LEVEL 4: Operation signi�cantly Ⅲ This is a precluded activity under Citi’s ESRM Policy. Even if such activity is allowable under convert/degrade critical habitat law, Citi will not execute such transactions. Source: http://www.citigroup.com/citi/environment/data/forestry.pdf (Sourced: 27 February 2011). 30. Citi Markets & Banking. 31. FPOs involved in primary processing of timber will be required to achieve a CoC certi�cation of their operations. Citibank has compiled a “high-risk� countries list based on data from a variety of third party sources, such as the World Bank and the WWF. A4.7.2 Forest Certi�cation Policy market for certi�ed forest wood and �ber and to acceler- ate acceptance of the certi�cation process. BoA requires forest products suppliers to document the sustainability of their wood and �ber sources and obtain third party certi�cation in accordance with an accept- A4.7.3 Paper Procurement Policy able forest certi�cation standard. ey recognizes that different certi�cation schemes have different standards, BoA’s paper procurement policies seek to maintain the so their policy is to have wood and �ber supplies certi�ed ecological health of forests through source reduction and by credible, independent and widely accepted standards, recycling, sustainable forest practices and protection of such as the FSC, SFI and CSA.32 BoA strives to le- endangered forests. e bank will apply the policies as ver their program through the supply chain to create a detailed in Table A4.13 to all new agreements to purchase paper products from 1 April 2005 and for existing agree- ments at the time of renewal. e bank also encourages third party suppliers of goods and services to employ 32. Bank of America Forest Certi�cation Policy: http://webmedia. bankofamerica.com/environment/pdf/Forest_Certi�cation.pdf sound environmental business practices. BoA’s Paper (Sourced 21 May 2012). Procurement Policy is summarized in Table A4.13. 166 C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A TABLE A4.12 Bank of America Global Corporate Investment Bank Policy on Forest Practices: Policy Bank of America Forest Practices Policies Legality The Bank will not �nance companies or projects that collude with, or knowingly purchase timber from, illegal logging operations. Due diligence will include company representation as to its practices and monitoring for illegal logging. Sustainability The bank will partner with existing environmental alliances to evaluate the value of various forestry certi�cation programs as a means to both reduce risk and further encourage recognized best practices in sustainable forestry. Critical habitats Due diligence measures will be exercised to ensure that lending proceeds are not used to �nance commercial operations in resource extraction or clearing of primary tropical moist forests. Ⅲ Primary forests in temperate or boreal forest regions that are not managed using sustainable forestry practices as veri�ed by an independent third party audit Ⅲ HCVFs unless under approved conservation plans veri�ed by an independent, third party, audit with necessary permits granted by applicable governmental/regulatory authorities Ⅲ Additionally, lending proceeds will not go to logging operations in intact forests as de�ned by World Resource Institute (WRI) mapping as it is developed (Bank of America will assist in funding the development of WRI mapping). In all cases the borrower must remain in compliance with applicable laws and regulations governing timber harvesting. Reforestation The Bank will �nance tree plantations on previously cleared forest land if the clearing and/or degradation of the land was conducted in accordance with applicable laws and regulations. Exceptions are allowed only after 5 years have passed and only if no direct link to the original deforestation can be demonstrated. Indigenous The Bank respects the rights of indigenous communities whose livelihoods or cultural integrity could be adversely communities affected. Due diligence procedures for projects in primary temperate/boreal or HCVFs will weigh the impact of credit decisions on the indigenous peoples that could be affected. The bank will not �nance the operations unless it is determined that indigenous peoples affected by projects in these sensitive areas, whether directly or by induced impact, have the opportunity and, if needed, culturally appropriate representation, and have access to the information to engage in informed participation. The Bank will not �nance operations in areas where indigenous land claims are not settled. Uncontrolled �re The Bank will not �nance companies that do not have an explicit policy against the uncontrolled and/or illegal use of �re in their forestry or plantation operations. Due diligence will include company policy and monitoring. International The Bank will not �nance companies or projects that contravene relevant binding international environmental commitments agreement to which the member country concerned is a party to or that violate local, state or national environmental, labor or social laws. Due diligence will include company policy and monitoring. Source: Bank of America Policy on Forestry Practices: http://webmedia.bankofamerica.com/environment/pdf/Forest_Lending_Policy.pdf (Sourced: 21 May 2012). A4.8 Kasikorn Bank e risk management principles of the Kasikorn Bank e Kasikorn Group (not an EPFI) has no detailed en- were very traditionally based on �nancial management, vironmental or social safeguards or standards. ere is a without apparent speci�c environmental and social di- very basic frame for a CSR Policy Guideline, as detailed mensions to sustainable business development. e code in A4.14, without elaboration on the measurable indica- of conduct was aimed at the employees of the bank, tors or procedures for implementation of the guidelines. rather than clients or customers. C E R T I F I C AT I O N , V E R I F I C AT I O N A N D G O V E R N A N C E I N F O R E S T R Y I N S O U T H E A S T A S I A 167 TABLE A4.13 Bank of America Policy on Paper Procurement Policy Component The Bank of America Policy Source reduction and Ⅲ Minimize volume, by weight, of paper product purchases, where cost, quality and general business recycling needs allow, by adopting procurement best practices Ⅲ Maximize purchase of paper products containing post-consumer recycled content, where cost, quality and feature requirements allow (target was 90% of paper purchases to contain minimum of 20% post- consumer recycling by 2006) Ⅲ Will recycle paper in internal operations and from external sources Ⅲ Will encourage suppliers of goods and services to use recycled paper products and to implement and adhere to environmentally bene�cial policies and practices Sustainable forest practices Ⅲ Will not do business with companies that collude with, or purchase wood products from, illegal logging operations Ⅲ Encourage suppliers of paper products to the bank to comply with applicable laws and regulations governing timber harvesting and ensure their third party suppliers also comply Ⅲ Avoid aligning with suppliers engaged in conversion of HCVFs or natural forest ecosystems to tree farms of plantations. Promote retention of HCVFs and natural ecosystems Ⅲ Require suppliers of paper products required to possess independent third party certi�cation of sustainable forestry practices for all forests they own or manage Ⅲ Require suppliers of paper products to have procurement procedures in place to monitor compliance with legal and policy requirements. Suppliers will need to warrant that: Ⅲ All wood �ber sourced from third party suppliers to be harvested using sustainable harvest practices (veri�ed by audit system documentation and capacity building in supply chains) to ensure a minimum of 90% of wood �ber from a crew with at least one member trained in sustainable harvest practices Ⅲ No products/inputs derived from genetically modi�ed organisms Protecting endangered forests Ⅲ Require suppliers of paper products to warrant that neither their products nor product inputs, whether sourced from internal or third party suppliers, were derived from harvest of: Ⅲ Primary tropical most forests Ⅲ Primary forests in temperate or boreal forest regions that are not subject to SFM as veri�ed by a third party audit Ⅲ Require suppliers of paper products to assess all land they own or operate for HCVFs refrain from harvesting wood �ber from such areas unless management activities maintain or enhance attributes that de�ne such forests, as veri�ed by independent, third party Ⅲ Requires suppliers of paper products to the bank to work with their third party suppliers to avoid sourcing any form of wood �ber harvested from HCVFs, unless management activities maintain or enhance the attributes that de�ne such forests. Suppliers are to submit a management plan with time-bound goals and report on a regular basis toward achieving objectives. Source: Bank of America, Paper Procurement Policy: http://www.bankofamerica.com/newsroom/press/pdfs/Paper_Procurement_Policy.pdf (Sourced: 21 May 2012). TABLE A4.14 Kasikorn Bank: CSR Policy Guideline Policy Requirement 1 All business units shall strictly adhere to the Statement of Business Conduct and participate in environmental preservation and social responsibility activities. 2 All employees shall act in strict compliance with the Code of Conduct, being responsible for society and environmental preservation. 3 The Bank shall pursue activities for public interests, society and the environment, with fair treatment to all stakeholders. 4 The Bank shall pay due attention to safety and occupational health in the workplace, with pleasant surroundings and basic facilities for staff members and customers. 5 The Bank shall promote environmental preservation activities. 6 The Bank shall refrain from granting credit support to any projects that violate the environmental laws of the country. Source: Kasikorn Bank CSR Policy Guidelines: http://www.kasikornbank.com/EN/SocialActivities/Pages/SocialActivities13.aspx (Sourced: 21 May 2012). Sustainable Development Department East Asia and Pacific Region THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA Telephone: 202 473 1000 Facsimile: 202 522 1666 Internet sites: www.worldbank.org/eaprural Sustainable Development Department East Asia and Paci�c Region THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA Telephone: 202 473 1000 Fasimile: 202 522 1666 Internet sites: www.worldbank.org/eaprural