1. Where do the products come from?

Traceability is the ability to track sources of wood from final products through the supply chain to – as close as is practical – their origins. A clear sense of all the links in the products’ supply chain will be useful for the procurement manager to assess:

• Whether the sources of wood can be accurately identified.
• Whether the products have the properties they are claimed to have.
• For instance, whether:
• The wood was harvested and processed in compliance with relevant laws
• The wood comes from sustainably managed forests
• The unique ecological and cultural features of the forest where the wood was sourced have been maintained
• The products were manufactured with environmental controls in place
• Harvesting and manufacturing processes complied with social standards.

Tracing the origin of wood and paper-based products is not always straightforward. Supply chains can sometimes link many wood producers and dealers across several countries, and procurement portfolios can be complex, with multiple supply chains (Figures 2 and 3).

It may be easier to establish traceability for solid wood products than for paper-based products. Paper products are manufactured in pulp mills that typically draw wood from many sources. In the most complex cases, a network of dealers buying wood from many different loggers, landowners and sawmills may supply a pulp mill (Box 1). In a sawmill, logs usually lose their link to individual landowners in a sorting yard in the same way an agricultural business would combine grain from individual farmers in a common silo. The wood collected from sawmills – often chips that are by-products of solid-wood products manufacturing – further lose their individual identity during the paper making process.

Understanding the position of a company in the supply chain can help identify priorities and key areas of influence. Also, depending on the location and/or complexity of the supply chain, the need for due diligence is greater in some places than in others.

Requesting documentation from suppliers is a common method of tracing the origin of raw materials. A supply chain can be regarded as a chain of legally binding contractual relationships; purchasers can trace the supply chain through contracts, and require that their suppliers commit to providing raw materials that were harvested in compliance with the law, or meet other customer specifications. In places where the law – both background law and contract law – is strong and properly enforced, sales contracts can be a good compliance mechanism.
In addition to sales contracts, other documents for tracing the origin of raw materials include:

• Licensing permit(s) from the relevant authorities giving permission to harvest
• Certificate of a sustainable forest management standard
• Certificate of origin
• Chain-of-custody (CoC) certificate
• Certificate of legality
• Harvesting/management plans
• Phytosanitary certificates – issued by state/local authorities regarding the plant health requirements for the import of non-processed products
• Bill of lading – a receipt for cargo and contract of transportation between a shipper and a carrier that describes the goods being transported and is issued when the shipment is received in good order.
• Export documents
• Transportation certificates

All of these documents should carry appropriate stamps and seals from the relevant governmental agencies. However, false documentation can be common in certain countries and additional systems to trace the raw materials back to – within the limits of feasibility – their origins (Question 1) may be needed in some cases. Working with those directly involved in the supply chain will help develop a better understanding of the challenges, costs and other impacts associated with implementing additional tracking systems. Forest managers, forest owners, government agencies and certification bodies active in the area can provide useful information.

A high degree of vertical integration makes traceability simpler. However, in some countries such as in the United States, companies are becoming less integrated, selling off their forest lands and thereby externalizing traceability.

2. Is information about the products credible?

Knowing the context and conditions surrounding the harvesting of the raw materials and the manufacturing processes of the products is important. A knowledgeable buyer will be in a better position to properly assess the social and environmental claims of a product (e.g., wood was harvested under a Sustainable Forest Management (SFM) regime, etc.).

When information to support the claims of the product is not complete, accurate, or enough for the buyer to properly assess these claims, monitoring and verification are used to add credibility to the process. In some cases information may come from long and well-established business relationships. In other cases the buyer may wish to consult outside sources for additional information.

Monitoring and verification can take three forms:

1. Self verification – a producer monitors and reports about its own harvesting and manufacturing processes. Typical outputs include sustainability reports, emissions reports, reports on social indicators, resource usage reports, recycling reports, etc.
2. Second party verification – a buyer verifies that a supplier and/or the products of that supplier conform to a certain standard.
3. Third party verification – an independent party verifies that a supplier and/or its products conform to a certain standard. Independent, third-party verification is generally considered to provide more assurance.

Monitoring and verification systems tend to be designed differently depending on which part or aspect of the supply chain (production in the forest or manufacturing processes) they address:

Production in the forest – the classical monitoring system – forest authorities enforcing relevant laws – can be a reliable system where governance is strong, but it may not be adequate where governance is weak (Question 3. Concerned business, environmental groups and labor and trade organizations, generally agree that independent, third-party verification of forestry operations is desirable, particularly in areas of high risk (Box 2). Forest certification systems are intended to provide an alternative in this part of the supply chain.

Voluntary forest certification schemes have been developed to guide the marketplace. These systems allow interested producers to be independently assessed against a locally appropriate standard and to be recognized in the marketplace through a label that certifies compliance. The appropriateness of the standard includes having the right content for the right place, but also entails the process by which the standard was defined and implemented.

Forest certification

There are two major international systems for forest certification: the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Certification Systems (PEFC). Both are used by community and family owned forests and large landowners and/or industrial operations. These systems have similarities, but they also have differences that are considered important by their respective constituencies. Environmental organizations tend to prefer the FSC, while landowners and tenure holders tend to prefer PEFC. The choice of systems varies by geography, and many forest companies are certified to both systems depending on the location of their operations.

Table 2 provides an overview of the general characteristics of these two systems.

Table 2 is NOT meant to be an exhaustive comparison. A proper comparison should include more detail of aspects such as compliance with international standards, system governance, accreditation, certification, criteria used as basis for the systems, performance on the ground, and others (Nussbaum and Simula, 2005). A list of comparisons can be found in Section III of this guide. Some of these comparisons represent the interests of specific stakeholder groups that claim there are significant differences between the certification systems.

Manufacturing processes – once raw materials leave the forests and reach mills and factories, they may no longer differ significantly from those of other industries if processing facilities are located in developed areas. However, when mills and factories are in less developed areas there may not be enough government enforcement of environmental and social standards. Self- and third-party verification systems can be useful to report and verify status and progress in relation to general standards and organizational commitments (e.g., to reduce emissions or increase recycled content).

Environmental Management Systems (EMS) and Social Management Systems (SMS) can be useful in the manufacturing process. An EMS is generally defined as a series of processes and practices seeking to assess and reduce the environmental impact of an organization, while an SMS encompasses the management of interactions between an organization and its social environment. In general, EMS and SMS have four major elements (EPE, 2007; SMS, 2007):

• Assessment and planning – identification of environmental and social aspects of interest, establishment of goals, targets, strategy and infrastructure for implementation.
• Implementation – execution of the plan, which may include investment in training and improved technology.
• Review – monitoring and evaluation of the implementation process, identification of issues.
• Adaptive management and verification – review of progress and adjustments for continual improvement. Different EMS/SMS have various degrees of third-party verification.

The presence or absence of viable EMS and SMS programs can be useful in assessing a supplier’s efforts to improve environmental and social performance and enhance compliance with pre-determined standards (EPE, 2007). Third-party verification systems, including chain-of-custody certification (Table 2) and some ecolabels (Box 3) can also be of help.

3. Have the products been legally produced?

There is no universally accepted definition of illegal logging and trade. Strictly speaking, illegality is anything that occurs in violation of the legal framework of a country. It is generally acknowledged that legality is not a synonym for Sustainable Forest Management, and that what is sustainable may not always be legal (World Bank, 2006; Contreras-Hermosilla et al., 2007). Some examples of what have been considered illegal forestry activities are given in Box 4.

Illegal logging is a fundamental problem in certain nations suffering from corruption or weak governance. International trade is one of the few sources of influence sufficient to create the political will to make improvements. Several international processes4 have taken up this issue, and national efforts have started to appear as a result. During the last five to 10 years, illegal logging and illegal trade have risen to the top of the international forestry agenda.

Illegal logging of wood and paper-based products entails a complex set of legal, political, social, and economic issues. Poverty, lack of education, financial issues, population growth, and weak governance are all enabling factors for illegal activity. Illegal activity has many drivers that make it challenging to address this issue. These drivers are often associated with a range of items from short-term economic gain to local and national actors including communities and governments:

• Local (and often national) governments may receive higher revenues as a result of illegal land conversion and increased timber production.
• Because illegally logged wood can be sold at lower prices, it depresses the profitability of legally harvested wood while improving the competitiveness of industries that use illegal wood.
• Many people may derive an income from illegal forest activities.

Illegal logging and illegal trade can create serious problems:

• Government revenue losses – the World Bank estimates that governments lose revenue equivalent to about US$ 5 billion per year (World Bank, 2002A).
• Unfair competition – market distortion and reduction of profitability for legal goods; the World Bank puts this cost at more than US$ 10 billion per year (World Bank, 2002A).
• Increased poverty – occurs indirectly when governments lose revenues.
• Support and funding of national and regional conflicts.
• Unplanned, uncontrolled and unsustainable forest management.
• Destruction – areas important for biological conservation, ecosystem services, and local livelihoods.

Between 8-10% of global wood production is estimated to be illegally produced, although the great uncertainty of these estimates is also acknowledged; most of this illegally produced wood is used domestically, although a significant portion enters the international trade either as finished products or raw materials (Seneca Creek and World Resources International, 2004). Estimates of illegal logging in specific countries and regions vary depending on the nature of the activity and the variability of laws and regulations (Figure 4).