Forest Product Eco-Labeling and Certification: Efficacy and Market Drivers

8/2/2019 Forest Product Eco-Labeling and Certification: Efficacy and Market Drivers

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FOREST PRODUCT ECO-LABELING AND CERTIFICATION:EFFICACY AND MARKET DRIVERS

IGEL Report

April 2012


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This research was conducted with assistance from a Wharton Global Initiatives Research Programs Grant.

With leadership from the business school, IGEL brings a unique business orientation and top intellectual/research capacity to bear

on some of the most important long-term environmental challenges facing the future of humanity today.

Using Wharton and Penn's entrepreneurial natures, IGEL is working to beomce the preeminent academic institution dedicated to

the rigorous study of business and global sustainability. We work with our corporate sponsors, our faculty, academic networks and

our students to solve the most pressing environmental issues facing businesses and the world.

For more information on IGEL and to see more of our research, please head tohttp://environment.wharton.upenn.edu.

Report written and designed by Caroline DAngelo with additional research and writing provided by Dakota Dobyns and Doug Miller.

IGEL wishes to thank those who were interviewed for this report,

especially Beth Gingold, David Kiser, Etienne McManus-White and Dave Stangis.
http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/http://environment.wharton.upenn.edu/


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CONTENTS

Contents .......................................................................................................................................................... ............................................................................ 2

Acronyms .................................................................................................................................................................................................................................... 2

Executive Summary ..................................................................................................................................................................................................................... 0

Introduction and Impetus for the Report ................................................................................................................................................................ .................... 0

Forest certification ...................................................................................................................................................................................................................... 1

Certification in developing countries ....................................................... ................................................................................................................................... 3

Market Drivers: developing countries .................................................................................................................................................................................... 4

Examples from Southeast Asia .................................................................................................................................................................................................... 5

Indonesia .................................................................................................................................................................................................... ....................... 5

Malaysia ....................................................................................................................... ..................................................................................................... 6

Conclusions and recommendations ..................................................................................................................................................................... ....................... 7

Works cited ................................................................................................................................................................................................................................. 8

ACRONYMS

NGO..Non-governmental organization

FSC.Forest Stewardship Council

GEN..Global Ecolabelling Network

GTFNWorld Wildlife Funds Global Forest and Trade Network

LEILembaga Ekolabel Indonesia (Indonesia Ecolabeling Institute)

LEED..Leadership in Energy and Environmental Design

REDD+.Reducing Emissions through Avoided Deforestation and Degradation

SFI..Sustainable Forestry Initiative

WRIWorld Resources Institute (WRI)

POTICOPalm Oil, Timber, Carbon Offset program of the WRI


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EXECUTIVE SUMMARY

This paper examines the current state of eco-labeling and

certification market drivers in developed and developing

countries for forest products from developing countries,

using Southeast Asia as a focus of study. It synthesizes the

literature on market drivers for certification in SoutheastAsia using information from a review of the available

literature on forestry eco-labels and certification, analyses of

two eco-label databases maintained by EcoLabel.org and

BASF, and interviews with companies and eco-labeling

initiatives. Starting with an overview of the current state of

forest certification, the paper evaluates issues in eco-labeling

from the consumer demand side from both the developed

and developing countries. The paper then uses case studies

from Malaysia and Indonesia to illustrate the complexity in

forest certification success, and evaluate the current market.

Indonesias dramatic deforestation rates from peatland

burning, palm oil plantations, illegal harvesting and

development, have secured it a position within the list of top

global carbon emitters. The paper then concludes with

recommendations for how certification can expand on both

the consumer and the producer side to make forest eco-

labeling and certification more successful.

INTRODUCTION AND IMPETUS FOR THE REPORT

eforestation is problematic in environmental, economic, and

social terms. It is a resource management problem on a

global scale with global repercussions.

Forests are the planets biodiversity reserves. One hectare of

tropical forest may contain up to 750 species of tree and

millions of other species of insects, fungi, bacteria, reptiles

and mammals. Within this biodiversity are possibilities for

new medicines, new products and new scientific

understanding. Forests are also reserves for carbon,

consuming and storing this greenhouse gas in their soils,

bark and leaves. Preserving and regenerating forests may bethe cheapest method for mitigating climate change, which is

one impetus for the United Nations REDD+ program. They

also provide income, food and shelter for millions around

the world. Forests provide parts of the supply chain for a

wide diversity of industries such as palm oil, wood, coffee,

and more. Due to supply chain demands, population growth,

development, corruption and inadequate planning, they are

rapidly disappearing. Without forests and the income-

generating activities they provide to humans, millions of

people will be displaced. Illegal logging, rampant in many

countries, is a loss of needed government tax revenue,

forest-dwelling peoples autonomy and a threat to legitimate

forestry businesses. This is a loss on a devastating scale, one

that is expensive both in species and habitat loss, but also

potential medicines, and climate change and pollutionmitigation.

The environmental impacts of deforestation consist of but

are not limited to soil erosion and degradation, diminished

water quality, loss of natural habitat, biodiversity loss, and

destruction of carbon sinks. The detrimental impacts on

local economies and communities associated with poor

natural resource including forest management and how

such impacts historically have undermined numerous

societies is demonstrated by Jared Diamond in his work

Collapse (Diamond 2006). It is necessary to address the

impacts of global supply chains that drive deforestation and

therefore contribute to the environmental change thatthreatens environments, economies, and societies in

variation locations across the planet. One mechanism for

addressing supply chain comes from the United Nations

Reducing Emissions from Deforestation and Degradation

(REDD+) program, which uses funding from carbon credits

to ensure forests are unharmed or managed sustainably.

This program may drastically change the forest economics in

Indonesia and provide new business opportunities in

managing, selling and establishing carbon credit land for

carbon markets (Busch et. al 2012).

Credible ecolabeling and certification programs aim to

increase sustainable management of resources. These

management, audit and oversight systems often attempt to

stymy environmental harm wreaked from market failures

and management and governance problems.1 Over the last

20 years, ecolabeling and certification programs have

rapidly expanded, with a presence

in nearly every sector and type of

product. With the expansion, there

is debate: do ecolabeling and

certification actually lead to more

sustainable supply chains? Are the

costs of ecolabeling and

certification recouped throughprice premiums or consumer

loyalty? Is consumer awareness of environmental

1such as corruption, a lack of governmental enforcement and regulation and gaps

in integrated management, and so forth.

2Certification and eco-labeling are linked concepts: certified operations are

allowed to use an eco-label and access particular markets (like Leadership in

Energy and Environmental Design - LEED). According to ISO 14021 labeling

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sustainability issues growing? There is certainly a long way

to go - certified forestry products may only account for as

little as four percent of the international forestry trade (The

Nature Conservancy 2011).

Academic studies, non-governmental organization reports

and corporate case studies have argued on both sides of allof these questions. Despite the debate, the fact remains that

many companies, development agencies and NGOs view

ecolabeling and certification as methods to reach new

consumers and price points, fix market failures that favor

cheap and unsustainable resource harvesting and/or

manage their supply chains.

This papers analysis of eco-labeling and certification

contributes to a larger body of work that seeks effective

market- and governance-based methods to stem global

deforestation and work towards sustainable resource

management. The issue of deforestation also presents a

challenge due to discounting: the present is weighed moreheavily than the future. As such, the perceived costs of

changing forest management practices now are greater than

doing so at some future time. There is thus little incentive for

immediate action to improve forest management practices.

Eco-labels and certifications for forest products are an

intriguing area of research since they may help provide an

incentive for environmentally sound practices. Today,

Southeast Asia has the highest relative rate of deforestation

in the world (Sodhi et. al 2004). By using two examples from

this region, Indonesia and Malaysia, this paper offers

insights for more sustainable forest management that could

be applied elsewhere.

IGEL is interested in studying these issues to provide insight

and tools to assist businesses in becoming more sustainable,

profitable and efficient. Ultimately, given the right incentives

and the abolishment of perverse incentives, reforestation

and avoiding deforestation and degradation are business

opportunities.

FOREST CERTIFICATION

orest certification emerged in 1992 at the United Nations

Conference on Environment and Development in an attempt

to slow crippling deforestation rates in tropical countries.

The goal was to provide a consumer-driven mechanism to

alleviate the market failure that favors cheap, often-illegally

harvested, unsustainable wood. Deforestation not only has a

toll on the environment, watersheds and forest-dwelling

peoples: it also accounts for up to 20 percent of greenhouse

gas emissions (IPCC 2007). Currently about 10 percent of

global forests are certified (Suryani et. al 2011; FAO 2010).

Only a small amount of these certified forests are in tropical

countries, however, for reasons explored later in this paper.

There are approximately 60 forest certification programs2

worldwide, of which some are international, some national

and some are sector- or company-based (The Nature

Conservancy 2011). The most well-known international

forest programs are the Forest Stewardship Council (FSC)

and Program for the Endorsement of Forest Certifications

(PEFC). Indonesia and Malaysia have their own in-country

forest certification schemes, which have created

relationships with FSC and PEFC relatively. Additionally,

there are more than a hundred eco-labeling schemes3

globally that label downstream forest products. These

product eco-labels either build on forest certifications or

incorporate sustainable forestry ideals into their

information, such as Cradle-to-Cradle, Leadership in Energyand Environmental Design (LEED), and the Hong Kong

Flooring Scheme, to name a few. This diversity of

downstream forest eco-labels reflects the diversity of the

portfolio. The forest product portfolio includes items with

multiple price points and uses that target different markets,

which means that a certification scheme in forest products

has to be far reaching. The variety causes issues with

sufficient branding and market building, oversight and

consumers willingness to pay.

Growth in use of forest certification and forest product eco-

labels have expanded as consumers and companies demand

more transparency and accountability about products4.

Other market drivers include policy directives, such as the

2009 US Executive Order 13514, which requires that federal

agencies purchase environmentally-preferable products.

NGOs provide yet another driver through attempting to

build a robust market for certified products through

education, lobbying and marketing. One such example is the

World Wildlife Funds Global Forest and Trade Network

(GTFN), which works with corporations and within

2

Certification and eco-labeling are linked concepts: certified operations areallowed to use an eco-label and access particular markets (like Leadership in

Energy and Environmental Design - LEED). According to ISO 14021 labeling

guidelines, eco-labels should be independently verified and have measurable

goals. Only eco-labels with this standard are within the scope of this paper. There

are also hundreds of essentially meaningless eco-labels without standards on the

market.

3Author survey using Eco-label.org, BASF, and literature. The author would like to

thank Eco-label.org and BASF for allowing IGEL access to their databases.

4Interview with US Forest Stewardship Council, Etienne McManus-White, 2011

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developing countries to provide access to markets for

certified forest products. Additional outreach through

websites and curricula is being done by forestry and paper

companies, certifying bodies, NGOs with certification

systems like GreenBlue, and others. NGOs and certifying

bodies are also endeavoring to bolster each others products,

like Cradle-to-Cradle and LEED which require relevanthighest scoring products to use only FSC certified wood.

Companies such as International Paper, Habsro, Wilsonart,

Home Depot, Lowes, Georgia-Pacific, and Kimberly-Clark

are also driving the use of certified forestry products, seeing

it as a way to improve image, respond to consumer demand

and reduce supply chain risk from illegal wood or

unfavorable NGO campaigns (Scientific Certification Systems

2011).

There is still much to be done, however. Aguilar and Vlotsky

(2008) found that certification was not a major factor in

purchasing decisions for U.S. companies surveyed. Some

corporations, like Home Depot, have removed most of itstropical wood from its supply chain, leaving them with only

limited ability to create demand for sustainably managed

tropical forest products (Home Depot 2010). Additionally,

cerfitication programs must be managed well.

Counterproductively, unqualified demand for certified

products from tropical forests may actually further

rainforest destruction. Forest Trends, a watchdog NGO,

actually indicated that demand for certified wood from

developed countries was furthering deforestation using

Malaysias lax certification scheme (Ozinga 2004).

Furthermore, a study by Cashore et. al (2005) shows that as

companies become more aware of certification options, they

take pursue more economical certification options rather

than those that are environmentally-rigorous.

Companies have responded to demand and perceived

market benefits by increasing green product offerings5.

Corporate interest in transparency has driven more

investment in supply chain tracking and labeling. The best

labeling schemes follow radical transparency, which involves

tracking the various impacts of an item from creation to

disposal and then providing information about these

impacts to consumers in an understandable manner

(Goleman 2010). Transparency transforms the perception

shoppers hold about the ecological impact of products theypurchase and provides consumers with a tool for making

sustainable choices (Goleman 2010). Further, by

5A study by the consulting and research firm Terrachoice found that there are 73

percent more products with green claims on the US and Canadian market in 2010

than 2009 (Terrachoice 2010). The deforestation-relevant building/construction

and office industries saw the amount of products with green claims grow by more

than 100 percent each between 2009 and 2010 (Terrachoice 2010).

encouraging consumers to make more sustainable choices,

businesses adopting sustainable practices can establish a

competitive advantage, since consumers will hold a more

favorable view of a company that publishes information

about its products (Miller 2011).

However, the competitive advantage gained through

sustainabiliy extends beyond consumer choices. A study by

AT Kearney found that companies listed on the Dow Jones

Sustainability Index or the Goldman Sachs SUSTAIN Focus

list performed better during economic downturns (Mahler,et al. 2009). A 2011 MIT Sloan Management Review article

agreed, showing that companies putting sustainability at the

core of their business strategy not only perform better in

strong markets than companies half-heartedly (or not)

adopting sustainable practices, they are also more resilient

during downturns (Haanaes 2011). Another recent study

found that companies with well-established voluntary

sustainability programs out-performed those companies

with low-sustainability profiles (Knoepfl 2001; Lowitt 2011;

Eccles, Ioannou and Serafeim 2011).

Consumers have proved a fickle part of the equation for

certified forest product market demand, however. The widevariety of certifications and eco-labels has propagated

consumer confusion and distrust (Teisl et. al 2002; Aguilar &

Vlosky 2007). In practice, many eco-label designs and

phrases mean little in practice and to the consumer (e.g.

what is natural? What is all-natural? What does cage-free

eggs actually mean when compared to what the consumer

thinks it means?). The confusion is compounded by the wide

PLANTATIONS

Tree plantations are planted forests usually consisting of palm oil,

pine or other fast-growing trees for wood, eucalyptus, banana

and teak. Usually a stand of trees in a plantation are all the same

age and owners cut out all underbrush (see picture), which means

that plantation forests do not provide as much diversity in

habitats or species as virgin or natural forests. Plantation forests

are controversial within the certification space. In Southeast Asia

in particular, virgin rainforest has been cleared to create

plantation forests. FSC does not certify plantations created after

1994 for this reason.


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variety in standards and rigor of the certifications and eco-

labels. FSC, for example, conducts longer and more extensive

audits than SFI, bringing along community experts and

biologists to examine the many facets of sustainable forestry

management (Sawatsky & Rycroft 2011). Consumers are

further confused by the media-portrayed war between SFI

and FSC. Meanwhile, FSC is promoted by LEED andcompanies are increasingly favoring FSC over SFI, due to

FSCs reputation as a more rigorous certification system

(Gunther 2011).

The competition and eco-label flooding of the market helps

explain mixed study results on willingness to pay and price

premiums for certified forest products in developed

countries. The wide variety of products that are made with

forest materials also contributes. One study found that more

than one third of US consumers would pay a price premium

for environmentally-friendly products, but others studies

have found conflicting results according to geographic

location, differences in how products are labeled and howexpensive the product is (Rodgers and Bowden 2010;

Aguilar & Cai 2010; Golden et. al 2010). For example,

higher-priced luxury and high-quality products made of

certified wood are more consistently garnering price

premiums (Auld et. al 2008). On the other hand, Fauvergne

and Lister (2010) found that the cost of certification is not

recouped in price premiums. There is a limit to willingness

to pay studies however. Comparing willingness to pay for

greener products to actual purchasing behavior reveals a

gap between stated and revealed preference, even for the

greenest customers (Fauvergne & Lister 2010).

Companies and eco-labeling organizations are still devising

best practices to reach a wary public. It was shown in an

IGEL-sponsored study that an eco-label must be presented in

an understandable way by using color instead of a lot of

text on a label, for example so as to be make is easier for

consumers to make more sustainable purchasing decisions

(Miller 2011). Moreover, by providing environmental impact

information about a product in the form of color, consumers

will be given the kind of feedback on their choices that

encourages them though not force them to make more

sustainable choices (Miller 2011). Certification outfits need

to implement safeguards for their brands to help build the

market. Currently, due to supply chain complexity, only asmall fraction of certified wood reaches the marketplace

carrying a logo (Auld et. al 2008). This, in addition to the

confusion and mitigating factors described above, helps to

explain why the market has not yet realized a consistent

price premium for certified forest products in Europe and

the United States (Suryani et. al 2011; Aguilar & Cai 2010).

Further labeling practice consolidation and oversight is

needed. While labeling practices have not been litigated

much as of yet, future lawsuits may arise between

competitors, consumers and companies and governments, as

people seek to level the eco-labeling playing field. Labeling

must respond to consumers varying awareness and biases.

In the U.S. and the U.K., for example, a product that displays atropical origin increases the probability that a consumer will

not purchase it (Aguilar & Cai 2010).

CERTIFICATION IN DEVELOPING COUNTRIES

Certifications can have great social, environmental and

financial benefit for producers in developing countries. An

IMAFLORA study of FSC-certified plantations in Brazil found

that certification increased salaries and workers health and

security (Forest Stewardship Council 2009). Studies on the

SmartWood program, an accredited FSC certificationprogram run by the Rainforest Alliance, found that

certification in developing countries enhanced efficiency and

profitability while also protecting habitat and biodiversity

(Golden et. Al 2010). In some cases, certification sheds light

on just how ineffectual and unenforced some environmental

laws are. In Indonesia, one company seeking certification

had to work with the local government to create the

required government documents which previously did not

exist.(Espach 2006).

Fauvergne and Lister (2010) found, however, that voluntary

initiatives such as certification and eco-labels currently do

little to slow deforestation. Critics allege that forest

certification has largely only benefited developed countries,

where it is least needed due to generally stricter

environmental laws.6 As of 2005, only 1.5 percent of tropical

forests were certified, while approximately one third of

temperate forests were (Bennet 2008). As Figure 1 shows,

most of the worlds certified forests are in North America

and Western Europe. When good governance or

management exists, certification is relatively low-cost,

raising fears that the firms that actually undertake

certification are those that were already practicing

sustainable management. The real target of certification

schemes, however, are those firms who need much morehelp. Many of the worst logging offenders are those with the

6Even within tropical countries, when forestry laws are comparable to

certification standards, forest certification rates are higher. For this reason, some

developing countries, like Bolivia, have had more success with forest certification

than others, like Ecuador, which is less likely to enforce forest laws (Ebeling &

Yasu 2009).


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least interest in certification, as they are illegal operators

that usually only log a forest once and move on (Putz and

Nasi 2009).

While there has been a 50 percent increase in the amount of

certified forestland in tropical countries over the last five

years, this amount is not sufficient to drive significantchange in forest management (Thomas 2011). Some

developing countries and coalitions have created their own

deforestation-avoidance schemes, a move which might

increase certification rates further. The ASEAN Social

Forestry Network and Papua New Guineas Eco-Forestry

Forum have both created their own initiatives to help stop

deforestation, increase development opportunities with

climate financing and alternative products and promote

sustainable forest management.

Certification rates and scope, however, varies around the

world. South African plantation forests achieved an

approximately 80 percent FSC certification rate in the late1990s through foresters largely self-driven initiative (Ham

2004). By comparison, as of 2007, Sweden had certified 40

percent of forestlands, Chile about 10 percent, and Brazil 0.2

percent (Auld et. al 2008). The Malaysian and Indonesian

certification rates are approximately 25 percent and slightly

more than one percent, respectively.

MARKET DRIVERS: DEVELOPING COUNTRIES

oresters in developing countries largely view certification as

a market access tool, which is one reason why exporting

operations in tropical countries are more likely to pursue

certification (Auld et. al 2008). As an example, the

Patneshwari cooperative, one of only two FSC certified

forests in India, hopes certification will help them access the

international market (Kordesch 2011). Exporting operations

are under pressure to certify from multinational

corporations that pursue supply chain responsibility. The

aforementioned high certification rates in South Africa

stemmed from pressure from a majority importer of South

African wood, B&Q, requiring all of its source wood to be FSC

certified (Ham 2004). However, this export-bias places areas

with a weak access to export markets at a disadvantage incost recovery for certification. In East Africa, for example,

interest exists in forest certification but lack of access to the

export market creates barriers for the forest-owners (Owino

2003). The incentives for the internal markets are much

lower. As much as 80 percent of tropical wood is consumed

within its country of origin, where consumer willingness to

pay is limited by ability to pay (Fischer, et al. 2005). This is a

problem for developing countries, where a domestic

certified forest products market must be developed to

provide enough demand for sustainable forest products.

Indeed, the cost, time and capacity required for certification

are barriers around the world, but particularly in developing

countries.

There are approximately 14 forest-product-relatedcertification and eco-labeling schemes7 and many working

groups and centers in developing tropical countries. Perhaps

the greatest new driver of deforestation is the rapid pace of

development in the Asia-Pacific region. Though

deforestation has slowed in response to the global recession,

Chinas passage of a housing stimulus bill created a robust

market for tropical logs imports, which mostly came from

Gabon, Papua New Guinea and the Solomon Islands

(International Tropical Timber Organization 2010).

Additionally, globalization and rapid development in China,

Indonesia and Brazil has rapidly increased trade between

developing countries, many of whom have little interest in

sourcing sustainable wood in the short-term (Packer 2004).In fact, this development may only serve to drive illegal

forest harvesting.

Already, the global illegal wood market may be worth as

much as $3 billion annually and comprise as much as 8 10

percent of the global forest products trade (Contreras-

Hermosilla & Fay 2005; Paper Life Cycle 2010). In some

countries, the illegal logging rate is much higher: reports

estimate between 40 and 88 percent of logging in Indonesia

is illegal (Schmidt 2010). Perhaps not incidentally, at least

two of the three major suppliers of Chinas building boom

are noted for illegal logging. Papua New Guinea has high

rates of illegal logging and displacement of tropical forest

peoples, while illegal deforestation may be as high as 70

percent in Gabon (Packer 2004; Canby et. al 2008).

Many nations, and most importantly, China, lack or do not

enforce laws and regulations like the Lacey Act in the US,

which prohibits trade of endangered species, including trees.

This is highly problematic because as much as 70 percent of

all timber is sent through China for processing for the global

market, and much of the timber is illicit (Asia News 2006).

This governance problem could be counteracted by

certification, however forest certification schemes remain

largely unknown in China. A 2010 survey of Chinese wood

products manufacturers showed very little familiarity with

and interest in forest certifications (Chen et. al 2010).

7Author survey of literature and eco-label databases, 2011

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EXAMPLES FROM SOUTHEAST ASIA

wo examples from Southeast Asia -- Malaysia and Indonesia

-- provide insight into the complexity of the market drivers

for forest certifications in developing countries. Southeast

Asia has the highest relative rate of deforestation in the

world while also containing immense biodiversity, up to 5percent forest cover loss annually in some areas (Sodhi et. al

2004; Miettinnen et. al 2011). These cases were chosen

because Southeast Asia, and its access to Chinas expansive

market, is extremely important in pursuing biodiversity

protection and climate change mitigation goals. Malaysia and

Indonesia thus provide interesting case studies because they

both have their own certification programs and are well-

connected to the global market, yet they both have

continued illegal forest cutting (as evidenced by Figure 1)

and allegations of abuse of indigenous peoples by the

governments and timber concessionaires. There was also

literature available for willingness to pay and price

premiums in Malaysia, which is beneficial since data on

willingness to pay and price premium for certified forest

products in developing countries is very rare in the

literature.

INDONESIA

Indonesia may be the ideal place to study to understand the

impacts (or lack thereof) of eco-labeling and certification.

Indonesias environmental degradation helped to inspire the

start of global forest certifications in the early 1990s. Rapid

economic development, uncoordinated national and local

governments,and widespread

corruption have

contributed to

Indonesias

rapid forest loss.

Some estimates

say Indonesias

natural forests could be gone in 10 years (Asia News 2006).

It now retains a position as a top global contributor to

climate change from the carbon released through forest

clearing and peat burning.

Rampant illegal logging still continues accounting for up to

88 percent of deforestation by some counts (Schmidt 2010).

Government laws and regulations are chaotic and often pit

ecosystems against development (Telapak/Environmental

Investigation Agency 2009). Additionally, NGOs are nervous

about the expansion8 in Indonesia of Asia Pulp and Paper

(APP), a private company that is viewed by many to have

conspicuous connections to the government and a dubious

environmental record.

At the same time, Indonesias rapid economic growth is

attracting more investors, and for good reason -- Indonesiahas a wealth of natural resources including minerals, oil and

gas and of course, tropical forests. One indicator of its

success in the global markets is that one of the 2012

Wharton Global Alumni Forums is being held in Jakarta.9

Indonesias economic development has come at a price,

however, especially in virgin forests and the health and

success of the people and animals that inhabit them. These

management and governance problems are the ones that

certification was created to counterbalance. Is it working?

The market for certification in Indonesia appears to be

growing, however. Scientific Certification Systems (SCS), the

largest FSC certifying body in the US, recently opened asubsidiary office in Jakarta to handle FSC certifications and

carbon sequestration projects (Kordesch 2011). The Borneo

Initiative is also rapidly expanding its LEI-FSC certification

program with a goal of certifying four million hectares by

2015 (Klaussen 2010). The initiative also has funding

support for foresters interested in certification.

Indonesia also has an in-country labeling and certification

scheme which has worked to decrease

illegal deforestation and degradation for

decades. The Lembaga Ekolabel

Indonesia (LEI), or (in English) the

Indonesia Eco-labeling Institute, wasstarted in 1998 and certifies forests owners and operators

for sustainable management. The LEI label is registered

with the Global Ecolabelling Network (GEN) and follows ISO

14021 labeling guidelines.

While it currently only represents about two percent of

certified forests in Indonesia, LEI pioneered certifying

community forestry management. This grassroots method

may help drive expansion of sustainable livelihoods in rural

areas, strengthen coalitions against illegal logging and

provide economic incentives to resist forest plantations.

Meanwhile, Indonesian businesses have lobbied FSC to

8Ironically, this expansion is partly due to tariffs imposed by the EU and US on

imports of paper from China.

9The fact that one of the WGAFs is in Jakarta served as an impetus for this report.

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overturn its rule against certifying plantation forests10

displaced natural forest after 1994, citing the global need for

plantation forests to meet demand (Indonesian Pulp and

Paper Association 2004). As seen in figure 4, plantations

make up more than half of Indonesias certified forests, a

number that will certainly grow if FSC changes its rules.

Recognizing the threat from plantations11, the World

Resources Institute (WRI) has implemented project POTICO

(Palm Oil, Timber, Carbon Offset) to divert palm oil

plantations to Indonesias 20 million hectares of degraded

land, instead of clearing virgin or regenerated forests. WRI

sees community-based sustainable farming in natural forest

concessions as a method to protect them.

Norway has already offered one billion dollars to Indonesia

if it could reduce its deforestation rates under REDD+. In

response, in 2011 Indonesian President Susilo Bambang

Yudhoyono issued a two-year moratorium on new logging

concessions on 64 to 72 million hectares of land (Gingold

and Stolle 2011). While the moratorium contains some

unclear language and possible loopholes, it represents the

current governments commitment to more sustainable use

of natural resources. Some local governments in Indonesia

have embraced the idea of saving forests; the government of

East Java is attempting to go paper-less by 2012, for example(Tejo 2011).

10Plantations of palm oil, rubber, timber and cocoa are growing where previously

virgin forests existed as companies capitalize on booming demands for biofuels,

timber, rubber and as always, chocolate.

11Interview with Beth Gingold, World Resources Institute, 2011.

Thus, we are introduced to the difficulty surrounding

sustainable forestry the questions remain of how to

counteract lax enforcement of laws, whether voluntary

initiatives are enough to counterbalance globalized trade

factors and how to encourage stakeholder involvement in

forest management decisions.

MALAYSIA

Malaysia lost 13.6 percent of its forest cover in the 1990s

and only retains approximately 20 percent of its virgin

forests (FAO 2001). Up to 80 percent of this forest loss was

due to expansion of palm oil plantations (Butler 2009).

Malaysia established the PEFC-endorsed voluntary

Malaysian Timber Certification Scheme in 2001, which has

certified 4.61 million hectares, as seen in figure 2.

Accreditation by the government is required for certification

though doubts persist as to the certifications effectiveness

in encouraging sustainable forest management. The FSC has

also certified 300,000 hectares in Malaysia (World Wildlife

Fund 2011).

Meanwhile, Malaysia forestry laws purportedly support

sustainable forestry management, but their effectiveness is

limited because they are viewed as contradictory and

controversial (Ozinga 2004). Conflicts between the

government, timber companies and local communities

abound. This conflict extends to the forest certification

community as well. The FSC will not endorse the MTCS

because MTCS does not recognize indigenous rights to land.

MTCS argues that indigenous rights to forests are not

recognized in the Malaysian constitution and so forestcertification schemes do not need to recognize them either

(EnvDevMalaysia 2011). PEFC however, has a

memorandum of understanding with MTCS, and allows it to

use PEFCs logo on its

products.

The market dynamics

of Malaysias forest

sector may discourage

certification. High in-

country forest

certification costs, up

to US65 per hectare inMalaysia, serve as deterrents (Suryani et. al 2011). Suryani

et. al (2011) argues that lack of price premiums and the

expense of certification are reasons that three-quarters of

Malaysian furniture manufacturers have not sought CoC

certification. However, the story gets more complicated. One

study of actual wood prices in Malaysia found that price

premiums existed for certified roundwood destined both for

47%

51%

2%

Certified Forest Types

in Indonesia

Natural Forest Plantation Community Forests

Data Source: LEI 2011 and FAO 2009


12/14

export and import, though the export premium was

significantly higher (Kollert & Lagan 2007). Malaysia is not

self-sufficient in wood products. Surprisingly, it is actually a

net-importer of roundwood, of which 39 percent may be

illegally sourced (Greenpeace International 2005). The

import-export interplay and rapid development of demand

for wood products add additional barriers for certification.Nevertheless, that nearly 25 percent of forest area has been

certified in the last 10 years may indicate that forest

certifications will continue to expand. If the government

tightens their audits and standards, and begins enforcing

forestry laws governing forest management and trade in

illegal wood, Malaysia may become a success story.

CONCLUSIONS AND RECO MMENDATIONS

ertification is expanding in tropical areas, but not at the rates

desired or needed to stem deforestation. While certification

is still relatively insignificant, new third-party certifiers are

spurring growth in forest certifications in key countries.

Perceived market benefits have caused a proliferation of

eco-labels in developed countries. However, consumers are

confused by forest certifications and eco-labels. Part of the

problem is that the marketing strategy for eco-labels and

certifications is fragmented, confusing, competitive and in

many cases, non-existent12. The data indicate that in order to

build market robustness for certified products, the following

steps are needed: better marketing strategy and branding

for certification and eco-labeling programs13, transparency,

international policy support, and assistance for certification

costs. Aggressive, dynamic, and branded marketing is

necessary in both developed and developing countries to

increase demand for certified forest products and match

consumer preferences for labeling. Standardization and

harmonization amongst certification schemes will be needed

as well, without sacrificing environmental quality14.

12Interview with US Forest Stewardship Council, 2011

13Linking with well-recognized labels may be the way to help increase market

share for relevant certified forest products; organic and fair-trade schemes have

consistently produced price premiums and label recognition, but lack standards

for sustainable forestry (Bennett 2008).

14PEFC has recognized dozens of schemes around the world, including SFI and

several national European ones, allowing forests and CoC certifications obtained

from other certifying bodies to use the PEFC logo (Fischer, et al. 2005). Questions

as to the rigor of these programs exist, however.

Developing countries must legislate and enforce sustainable

forestry practices. Further steps that will enhance

certification effectiveness include international policy such

as encouraging China to implement enforced trade laws

barring illegal wood products from entering the country.

Indeed, the most success may be found by using certification

in tandem with significant tax and subsidy reform (Winkler2011). Developing countries can join the REDD+ program,

and link carbon financing to certification projects, thus

providing co-operatives and small community farms to

financing for certification costs and for lost revenue from

reduced impact logging (Putz and Nasi 2009). New

technologies will help with oversight of forests, including

infra-red sensing from satellites and finger printing of trees

and products to determine where the wood came from

(Campion 2011). Additionally, countries could attempt to

adjust wood product prices to more accurately reflect the

social and environmental costs of deforestation by taxing

non-sustainable wood or subsidizing forest certification.

Companies that are interested in certified products and eco-

labels should evaluate schemes on their environmental and

social rigor and brand strength. Committing to certification

and labeling programs that use metrics and audits will

reduce reputational risk from consumer backlash or future

lawsuits. To reduce supply chain risk from illegal or

unsustainable wood sources, companies can consider

partnerships with NGOs, sourcing directly from community-

managed forest enterprises and investing in transparency

and tracking.

Finally, this study found a gap in the literature for consumer

and company demand for certified forest products in

developing countries. This is an area for further research, as

it is a key component for future efficacy of certification as a

deforestation and degradation avoidance tool.

C


13/14

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