¦ The Forest Footprint Disclosure project is in its second year.
¦ Investors endorsing the FFD represent US$5.6tr in assets under management.
¦ DLH, Weyerhaeuser and Stora Enso all lead their market sectors in the review.
¦ The 2011 review will include a greater focus on Asian companies.

“Forests are fundamental for jobs, wood, food, fuel and medicines and it is in the interests of everyone to protect them.”

That was the opening statement from Stephen O’Brien, parliamentary under-secretary of state for the Department of International Development, at the release of the second annual review of the Forest Footprint Disclosure (FFD) project.

The aim of the FFD initiative, which was started in 2008 by the Global Canopy Foundation, is to provide a tool for increasing transparency and encouraging sustainability in procurement policy of companies trading in so-called “forest risk commoditites”; timber, wood products, soy, beef, leather and palm oil. Their declarations in the FFD review can then be used by investors to make ethical choices.

Highlighting growing awareness of the project, 150 delegates from the worlds of finance, industry and retail attended the launch of the second review in London.

Underlining its importance, Mr O’Brien told the audience that competing demands on the forest resource – not least from the 90% of the 1.2 billion people living in extreme poverty who depend on it for their livelihoods – had to be regulated but also balanced with the need to reduce carbon emissions.

Changing the buyers’ market

He added that the Lacey Act in the US, the EU’s forthcoming Illegal Timber Regulation (ITR) and due diligence processes in the private sector were changing the buyers’ market. The FFD project could catalyse a change in private sector supply chain management by helping business assess its impact on forests, which could affect its future value. “Being part of the initiative is a way of managing this avoidable corporate risk – as well as encouraging better business,” he said. “Improving forest governance benefits the bottom line.”

During 2010, FFD contacted companies with direct exposure to forest risk commodities, working with them to disclose supply chain policy to investors endorsing the project. There are now 57 of the latter, representing US$5.6tr in assets under management.

“The companies put their policies out into the public arena and so have a duty of care not to mislead investors,” said Tracey Campbell, FFD director. She added that FFD made it clear that it didn’t verify company disclosures, relying on the fact that their statements were now available to endorsing investors.

“However, we do recognise that it is also important that we avoid looking like greenwashers if we don’t pay any attention to what NGOs or other companies are saying about the actual operational practice of our respondents,” she said.

“In this year’s annual review the major contentious reports on particular commodities were listed so that investors could get the information direct from source if they so wished. We are reviewing this policy for 2011 with our steering committee to see if this approach meets the needs of our endorser base.”

More companies were approached to disclose their impact on the world’s forests in 2010 – 285, up from 217 in 2009 – with the review extending to primary producers in developing markets and buyers in the US. A 27% response rate was achieved (up from 16% in 2009).

Timber industries were particularly well represented among respondents, which FFD attributes to the sector’s forestry and chain of custody certification schemes and its preparations for legislation such as the EU’s ITR and the Lacey Act.

“Regulation has sharpened the attention of timber users worldwide,” said Ms Campbell.

The FFD’s “scoring system” is based on how well-developed a company’s policy and implementation infrastructure is. So a company that can give detailed statistics on the proportion of their commodity which is certified by an accredited scheme, will score higher than one that makes vague statements. Glossy brochures boasting corporate social responsibility ambitions count for little if they aren’t backed by full and clear operational detail.

Industry sectors are divided according to FTSE’s categorisations and sector leaders are identified relative to a peer group from the same industry sector.

Timber businesses set the pace

Based on their answers to the disclosure request, two forest products companies – DLH and Weyerhaeuser – shared the lead in the “Industrials, construction and autos” sector.

“It shows that committed companies can achieve high standards in managing the important issue of deforestation,” said Peter Kristensen, DLH’s vice-president corporate social responsibility and environment.

“We are pleased that our current policies continue to show sector leadership in the management of natural capital while running a successful business,” said Cassie Phillips, Weyerhaeuser’s vice-president, sustainable forests and products.

Stora Enso Oy took the top slot in the “Basic materials” sector. “Responsible wood procurement throughout the whole supply chain is crucial and is a means to secure sustainable forest management,” said Hert Pircher, Stora Enso’s vice-president, sustainability.

Asian focus

This year the FFD will extend its reach by focusing on gaining acceptance of the project in Asia, particularly China. “Asian companies have been slow to respond on these issues even though for many of the names we approach the loss of rainforest we are trying to prevent is happening right on their doorstep,” said Ms Campbell. “We will go to China and engage direct with the companies there.”

The launch event also underlined that pressure on business to sign up to initiatives like the FFD and increase their commitment to sustainable sourcing is set to grow in coming years.

Mr O’Brien said DfID wanted to take the forest certification process further, particularly in countries with weak governance, and was committed to the EU Forest Law Enforcement, Governance and Trade initiative (FLEGT) focused on helping countries move towards greater transparency in the supply chain.

Freddie Wolfe, of Hermes Equity Ownership Services Ltd, said that a company’s transparency over its efforts to reduce its forest footprint was also essential for today’s asset managers.

“Deforestation is a key risk for long-term investors,” said “It is responsible for around a fifth of global carbon emissions and for long-term investors such as pension funds, climate-related effects will structurally and systematically affect the markets in which we invest and the underlying value of our portfolios.”