New York, NY 10003 Emerging Trends in Social Innovation and Investment

Individual Assignment

The New School

April 8th 2014

Jonathan Leonard

FSC & SMARTWOOD: SPEEDBUMPS, PITFALLS, AND ADJUSTMENTS IN FOREST CERTIFICATION

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The Forest Stewardship Council (FSC) commands one of the most widely recognized certification seals in the world.

The Players

Another major success in various certifications is the Rainforest Alliance and their iconic frog.

The FSC created a revolutionary set of rules for forest management, and applied them to the world’s forests via accredited groups. These groups’ abilities are verified by another organization: Accreditation Services International (ASI) - a component of the FSC.

FSC/ASI’s largest accredited certifier is SmartWood; a component of the Rainforest Alliance.

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What happens when two leading NGOs become bedfellows in the name of forestry management certification? Great things can be accomplished, but also grave mistakes can lead to epic blunders. This research paper focuses on the latter, and investigates a series of missteps in an attempt to learn the lessons of historical error.

When pursuing a complex certification process, we sometimes learn more from when things go wrong than when they go right. With the idea of forging forward by looking backwards and using observations to make concrete policy adjustments, we examine four instances involving FSC/ASI & Rainforest Alliance/SmartWood where things didn’t go to plan.

The Premise

Table of Contents

Case 1: Forestal Venao – Peru – August 2007 PG 4 (Forestry Practices and the Environment)

Case 2: Gibson Guitars Fiasco – Tennessee – 2009 to 2011 PG 6 (Gifts, Donors, and Conflicts of Interest)

Case 3: FSC vs. SmartLogging PG 7 (Competition or Complementary?)

Case 4: SIFORCO & SODEFOR – 2011 - Democratic Republic of the Congo PG 9 (Human rights abuses)

Conclusions Drawn and Lessons Learned: PG 11

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Case  1:    Forestal  Venao  –  Peru  –  August  2007  (Forestry  Practices  and  the  Environment)                   A  Peruvian  logging  company,  Forestal  Venao,  was  called  into  question  in  2007  by  a  number  of  indigenous  groups  and  local  scientists  for  suspected  illegal  logging  practices;  illegal  logging  is  common  along  the  Peruvian/Brazilian  border.    What  is  not  common  about  the  situation,  was  that  Venao  had  two  separate  timber  certifications:  a  general  Smartwood  certification,  and  a  Chain  of  Custody  (CoC)  certification.1    Things  were  further  complicated  when  WWF  Peru  became  implicated  due  to  the  involvement  of  its  Certification  and  Development  of  the  Forest  Sector  (CEDEFOR)  programme.               When  the  possibly  illegal  actions  of  a  certified  organization  are  bright  to  light,  the  implications  are  far  reaching.    Much  more  significant  than  just  the  forest  in  question,  the  entire  seal  and  certification  process  is  cast  into  doubt,  and  issues  of  trustworthiness  surface  in  earnest.    In  this  case,  attention  was  first  signaled  by  Brazil's  Federal  Environmental  Agency  (IBAMA)  which  suspected  a  transnational  logging  operation  that  was  in  violation  of  Brazil's  sovereignty.  (Certification  issue:    Certified  forests  along  porous  border  regions)    Venao  was  further  accused  by  researcher  Dr.  Davd  Salisbury  of  the  Amazon  Frontiers  Research  Center  of  the  illegal  construction  and  use  of  numerous  roads  through  the  Amazon,  totaling  more  than  100K  in  length.  (Certification  issue:    Illegal  road  construction  of  a  certified  group).    Salisbury  went  on  to  describe  Venao  as  “infamous  in  Ucayali,  Peru  for  their  indifference  to  laws,  indigenous  people,  and  the  rainforest  environment...  this  is  exactly  the  type  of  company  that  Smartwood  and  the  Forest  Stewardship  Council  should  be  blacklisting,  not  certifying.”2               This  powerful  quotation  from  Dr.  Salisbury  begs  us  ask  the  question:    How  did  Venao  get  certified  in  the  first  place?    How  could  a  company  that  has  a  poor  environmental  reputation  with  local  scientists  and  indigenous  groups  be  performing  to  Smartwood/FSC  standards?    This  scenario  evoked  a  host  of  reactions  from  civil  society  and  government  actors.    Whistleblower  NGO  FSC-­‐Watch  stated,  “We  call  on  the  FSC  Secretariat  to  cancel  Venao's  certificate(s),  and  to  de-­‐accredit  SmartWood.”3      WWF  Peru  completely  denied  affiliation  with  Venao  in  a  statement  which  included,  “we  carred  out  a  'pre-­‐scoping'  mission  to  Foestal  Venao....  from  which  we  concluded  it  would  not  be  in  the  best  interests  of  WWF  to  support  or  provide  technical  

1 Manejo Forestal, Certificacion y Cadena de Custodia. January 2010. Pg 9 & 12. http://www.trazabilidadforestal.com/documentos/exposicionguiomar_bsd.pdf 2 Dr. David Salisbury’s email to Rainforest Alliance cited in Round River Conservation Studies. The Race for Peru’s Last Mahogany Trees: Illegal Logging and the Alto Purús National Park, March 2007, p43 3 FSC Watch. Certification of Forestal Venao, Peru: another FSC Credibility disaster, courtesy of SmartWood and WWF. July 20 2007. http://www.fsc-watch.org/archives/2007/07/20/Certification_of_Forestal_Venao__Peru__another_FSC_credibility_disaster__courtesy_of_SmartWood_and_WWF

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assistance....  WWF  expressed  its  concerns  to  SmartWood  in  an  official  letter.”4    The  FSC  accreditation  program  formally  requested  that  SmartWood  investigate  the  situation  on  the  ground.               At  this  point,  the  FSC  certification  itself  has  been  compromised  because  of  this  precarious  position  and  the  organization  stands  to  get  a  lot  of  mud  on  its  face.    But  it's  not  just  the  certification  seal  or  the  FSC's  reputation  which  is  at  stake,  but  also  the  reputation  of  SmartWood's  parent  organization  The  Rainforest  Alliance,  The  World  Wildlife  Fund,  and  USAID  (for  providing  technical  assistance  to  Venao).    In  October  of  2007,  SmartWood  took  the  advice  of  the  FSC  and  launched  an  investigation  into  four  major  complaint  issues.  

1. Venao  is  illegally  logging  in  Brazilian  territory.  Results:    The  SmartWood  investigation  team  received  rassurement  from  Peru’s  national  forestry  management  organization  (IRENA)  that  Venao’s  operations  remained  on  the  Peruvian  side  of  the  border.      However,  the  team  was  unable  to  get  Brazilian  verification,  and  IRENA  hardly  has  a  clear  and  trustworthy  record  in  the  forest  sector.  

2. Venao  constructed  illegal  roads.  Results:    although  unregistered,  the  majority  of  these  roads  were  constructed  by  oil  companies  in  the  1980s.    Since  then,  numerous  logging  groups  have  expanded  and  used  the  roads.    Roads  going  through  indigenous  territory  we  created  with  the  permission  and  assistance  of  those  groups  -­‐  legally.    Not  enough  evidence  to  accuse  Venao  directly.  

3. Venao  logs  illegally  in  a  protected  watershed.  Results:    SmartWood’s  research  team  conducted  local  interviews  and  decided  that  this  logging  activity  was  attributed  to  other  logging  groups,  and  that  Venao  has  no  part  in  it.  

4. Venao’s  logging  causes  serious  damages  to  local  Brazilian  ecosystems.  Results:    The  SmartWood  investigation  team  discovered  that  indigenous  leaders  onhte  Brazilian  side  had  a  negative  view  of  Venao’s  activities.    However,  the  group  was  unable  to  do  an  EIA  on  the  Brazilian  side.    On  the  Peruvian  side,  they  verified  that  all  of  Venao’s  operations  follow  technical  norms  and  have  properly  trained  personnel  on  site.  

 Regardless  of  whether  we  believe  that  SmartWood  was  negligent,  or  whether  Venao  is  

criminal,  one  thing’s  for  certain:    debacles  like  this  harm  the  credibility  of  all  organizations  involved.    It  could  be  more  tactful  for  a  certifying  organization  to  use  more  caution,  listen  to  more  indigenous  views,  and  be  more  conservative  with  its  issuing  of  certificates  to  avoid  the  hassle,  headache,  and  expenses  of  retroactively  re-­‐establishing  the  certification’s  legitimacy.          

      4 World Wildlife Fund. WWF Statement on FSC certification of Forestal Venao in Peru. August 13, 2007. http://peru.panda.org/?111100/WWF-statement-on-FSC-certification-of-Forestal-Venao-in-Peru

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Case  2:    Gibson  Guitars  Fiasco  -­‐  Tennessee  -­‐  2009  to  2011  (Gifts,  Donors,  and  Conflicts  of  Interest)      

The  Gibson  guitars  fiasco  takes  place  on  the  polar  opposite  end  of  the  market  chain  from  the  Venao  issue.    In  this  case  a  Tennessee  guitar  manufacturing  company,  Gibson  Guitars,  was  raided  by  US  Federal  Fish  and  Wildlife  officials  for  suspected  violations  of  the  Lacey  Act  –  a  new  piece  of  US  legislation  which  forbids  US  companies  from  importing  wood  obtained  from  illegal  sources.5    What  makes  this  case  particularly  noteworthy  is  that  Gibson  was  the  holder  of  a  SmartWood/FSC  “Controlled  Wood”  certification  –  specifically  designed  to  ensure  the  legality  of  wood's  origin.  (Certification  Issue:    Failure  to  identify  illegal  factors)    Things  became  more  scandalous  when  the  public  learned  that  Gibson  CEO  Henry  Juszkiewicz  was  a  board  member  at  the  Rainforest  Alliance  (the  parent  organization  of  SmartWood).    An  article  in  the  local  'Tennessean'  newspaper  further  asserted  that  Gibson  gave  annual  gifts  to  the  Rainforest  Alliance  for  up  $390,000  per  year.6  (Certification  issue:    Clientelism  and  conflict  of  interest)  

Conflicts  of  interest  are  an  inherent  danger  to  certification  processes.    On  the  one  hand,  it’s  easy  to  see  how  a  certification  program  would  encourage  its  partners  and  associates  to  undergo  the  certification  process  and  to  assist  them  along  the  way.    But  how  close  is  too  close?  And  when  does  an  accredited  auditor  cross  the  line  between  assistance  and  favoritism?    Although  the  Rainforest  Alliance  firmly  asserts  that  it  keeps  its  SmartWood  certification  team  out  of  reach  of  its  fundraising  apparatus,  the  organization  took  further  precaution  by  giving  Henry  Juszkiewicz  a  “leave  of  absence”  from  the  Rainforest  Alliance  board  until  the  investigations  were  completed,  and  suspending  any  donations  from  Gibson.       The  Controlled  Wood  certification  has  been  criticized  for  only  requiring  the  presentation  of  appropriate  documents  and  not  requiring  any  kind  of  independently  controlled  checks  or  verification.    It  has  been  called  a  “self  certification”  by  its  critics,  said  to  be  lacking  in  due-­‐diligence,  and  has  become  the  center  of  negative  attention  in  quite  a  few  instances.    So  what  can  an  organization  like  SmartWood  do  to  prevent  fiasco’s  like  this  from  occurring  in  the  future?     Because  the  Controlled  Wood  certification  is  based  on  FSC  standards,  SmartWood  cannot  fundamentally  alter  it.    Altering  the  standards  would  also  delegitimize  organizations  which  hold  the  original  Controlled  Wood  certification.    One  strategy  the  Rainforest  Alliance  used  to  circumnavigate  these  sensitivities  is  to  create  a  new  certification  scheme  which  incorporates  and  strengthens  the  Controlled  Wood  certification.    However,  even  a  progressive  solution  such  as  this  has  its  own  pitfalls  which  are  illustrated  in  case  3.  

5 Environmental Investigation Agency (EIA). The U.S. Lacey Act. 2008. http://eia-global.org/lacey/ 6 The Tennessean. Gibson Presses for the Return of Ebony Wood. November 26, 2011. http://archive.tennessean.com/article/20111126/BUSINESS06/311260016/Gibson-presses-return-ebony-wood

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Case  3:    FSC  vs.  Smartlogging:  competition  or  complementary?       When  numerous  organizations  are  feeling  out  the  certification  process,  they  can  attempt  to  build  upon  one  another’s  work  and  improve  it  in  specific  ways.    However,  these  potential  improvements  can  also  be  perceived  as  potentially  threatening  to  the  group  whose  work  is  being  improved  upon.    In  2007  SmartWood/Rainforest  Alliance  announced  their  own  new  certification  process  (not  using  FSC  standards)  called  “SmartLogging.”    The  move  left  many  forest  experts  scratching  their  heads  about  whether  this  was  an  attempt  to  undermine  and  overtake  the  FSC  system,  or  a  genuine  attempt  to  address  some  of  the  inadequacies  of  the  FSC  in  the  name  of  the  greater  good.     In  certain  ways  the  SmartLogging  certificate  is  complementary  -­‐  mainly  for  its  accessibility  to  small  companies  or  individual  tree  cutters;  largely  overlooked  by  the  FSC  standards.7    However,  in  other  ways  it  is  perceived  as  being  in  direct  competition  with  the  FSC’s  existing  system  -­‐  of  which  SmartWood  is  the  largest  accredited  audit  group.  (Certification  Issue:    Partners  becoming  competitors)     Thus  far  the  Rainforest  Alliance  insists  that  the  certification  is  geared  towards  small  or  medium  sized  landowners  who  have  no  forestry  management  plans,  and  despite  being  an  independent  performance  driven  3rd  party  certification  system,  does  not  directly  compete  for  certification  with  any  of  the  FSC  certified  forests.    In  rebuttal  to  an  accusation  that  SmartLogging  was  poised  to  compete  directly  with  the  FSC,  Richard  Donovan  of  the  Rainforest  Alliance  said  that,  “we  are  implementing  SmartLogging  in  places  like  the  eastern  United  States  where  small  landowners  have  no  management  plans,  and  cannot  qualify  for  FSC.    We  are  also  incorporating  the  FSC  Controlled  Wood  policy  into  our  SmartLogging  work.”8  As  of  2014,  seven  years  after  this  statement  was  made,  the  vast  majority  of  SmartLogging  certifications  are  held  in  the  Eastern  United  states  by  companies  with  no  management  plan  who  could  not  apply  for  FSC  certification.9     So,  what’s  worth  noting  is,  that  even  though  the  new  SmartLogging  certification  was  not  entering  into  competition  with  the  FSC  for  forests,  it  was  perceived  by  some  actors  as  doing  so.    This  could  be  because  it  was  a  competitor  on  the  market  end  of  forest  products  -­‐  something  which  likely  made  the  FSC  marketing  teams  raise  an  eyebrow.    The  perception  of  competition  or  disrespect  from  a  partner  organization  in  the  certification  process  can  create  substantial  rifts  -­‐  despite  the  operational  realities  and  possible  operational  complementarity  of  the  new  process.    On  the  other  end  of  the  spectrum  are  certifications  which  actually  are  in  direct  certification  competition,  but  through  a  lack  of  communication  or  capacity  have  not  divided  

7 Rainforest Alliance - SmarWood. SmartLogging: Independent, Performance-based Certification for Responsible Loggers. July 2007. Page 7. http://www.rainforest-alliance.org/sites/default/files/site-documents/forestry/documents/smartlogging_overview.pdf 8 FSC Watch. Rainforest Alliance to launch new certification scheme to rival FSC. November 2007. http://www.fsc-watch.org/archives/2007/11/13/Rainforest_Alliance_ 9 Rainforest Allance. List of SmartLogging certification clients. March 2014. http://www.rainforest-alliance.org/forestry/certification/transparency/smartlogging-clients

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responsibilities  clearly  or  coordinated  their  actions.  (Certification  Issue:    Miscommunication  and  overlaps/gaps  between  certifications)  

The  rapid  introduction  of  multiple  certification  seals  can  also  serve  to  confuse  consumers  and  oversaturate  the  certification  market.  (Certification  issue:    flooding  the  market  with  seals)    Many  think  that  the  monopolization  of  certification  seals  is  the  most  effective  way  to  get  uniform  public  recognition  and  trust  for  a  certification  process  -­‐  it’s  easier  to  trust  fewer  brands  than  to  wade  through  many.10      

                                         

10 Food Navigator. Too many eco-labels could hinder uptake. Jan 10, 2013. http://www.foodnavigator.com/Market-Trends/Too-many-eco-labels-could-hinder-uptake-says-Organic-Monitor

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Case  4:    SIFORCO  &  SODEFOR  –  2011  –  DRC  Congo  Basin    (Human  Rights  Abuses)    

In  2011,  the  only  two  SmartWood/FSC  certified  forestry  companies  in  the  Democratic  Republic  of  the  Congo  were  both  accused  of  human  rights  violations.    These  abuses  stemmed  from  protests  staged  by  local  residents  complaining  about  the  companies’  operating  procedures.    In  May  2011,  protests  against  the  company  SODEFOR  turned  ugly  and  resulted  in  the  death  of  at  least  one  protester.    According  to  Greenpeace,  SODEFOR  is  “one  of  the  largest  and  highly  controversial  logging  companies  in  the  [DRC]  which  has  a  track  record  of  social  conflicts  that  have  resulted  in  violence,  arbitrary  arrests  and  human  rights  violations.”11  

In  April  of  2011  protests  erupted  against  the  other  Congolese  FSC  certified  company  SIFORCO  for  a  failure  to  deliver  on  its  local  investment  promises  of  a  school  and  health  clinic.    In  response  to  the  protest,  SIFORCO  called  in  local  security  forces  who  beat  protestors,  raped  6  women  (including  3  minors),  made  arrests,  and  burned  property.    SIFORCO  can  be  considered  an  accomplice  to  this  human  rights  violation  because  the  soldiers  were  transported  in  SIFORCO  trucks,  and  were  paid  by  the  company  after  the  protest  was  dispersed.12    (Certification  Issue:    Certified  companies  participating  in  human  rights  abuses)  

Greenpeace  was  the  first  organization  to  lodge  a  comprehensive  complaint;  and  raised  numerous  grievances.    The  issue  most  relevant  to  our  case  study  is  their  investigation  into  the  due  diligence  practiced  by  the  SmartWood  accreditation  group  in  their  certification  of  SODEFOR.    Greenpeace’s  Complaints  Panel  reported  that  the  original  certification  audit  performed  by  SmartWood  didn’t  properly  address  Congolese  political  complexities  and  state  dysfunctions.13  

Prior  to  the  reports  of  these  violations,  SmartWood  had  granted  two  certifications  to  these  companies  -­‐  Controlled  Wood  and  Chain  of  Custody  (CoC).    Controlled  Wood  certification  calls  for  the  “publicly  available  written  policy  commitment”  on  a  number  of  key  issues,  including  “wood  harvested  in  violation  of  traditional  and  civil  rights.”    The  Greenpeace  investigative  panel  could  not  find  any  public  policy  documents  matching  this  description.    This  issue,  along  with  a  lack  of  documentation  toward  employee  training    towards  FSC  goals,  were  adequate  grounds  for  SmartWood  to  withhold  certification.  (Certification  Issue:    The  certification  of  companies  that  do  not  actually  meet  standards)  

11 Monga Bay. Locals clash with ‘sustainable’ FSC logging company in the Congo. May 22, 2011 http://news.mongabay.com/2011/0522-hance_congo_conflict.html 12 Global Witness. Criminal complaint accuses senior manager of Danzer Group of responsibility over human rights abuses on Congolese community. April 25, 2013. http://www.globalwitness.org/library/criminal-complaint-accuses-senior-manager-danzer-group-responsibility-over-human-rights 13 Greenpeace. Complaints Panel Report: Formal Complaint by Greenpeace against SODEFOR’s association with FSC. January 2012. http://www.greenpeace.de/sites/www.greenpeace.de/files/Crisis_for_FSC_in_the_Congo_Basin_0.pdf

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The  Greenpeace  panel  further  discovered  that  the  original  SmartWood  audits  showed  a  general  lack  of  understanding  of  the  complex  social  and  political  circumstances  of  the  Congo  Basin,  and  didn’t  recognize  the  clear  absence  of  a  functioning  state  apparatus.  (Certification  Issue:    certification  is  especially  challenging  in  failed  or  dysfunctional  states)    Smartwood’s  original  audit  documents  suggest  that  it  focused  on  speed  over  accuracy,  and  the  documents  failed  to  convince  the  Greenpeace  panel  of  the  audit’s  scope  and  quality.  (Certification  Issue:    Awarding  certificates  without  due  diligence  having  been  performed).  

One  strong  response  to  these  human  rights  violations  came  from  the  FSC  when  its  Board  of  Directors  decided  that  Danzer  was  in  clear  violation  of  the  FSC’s  Policy  for  Association.    Kim  Carstensen,  Director  General  of  FSC  added  that  "The  way  Danzer  acted  on  the  ground  clearly  put  FSC’s  reputation  at  risk"14     14 Informacje Zlecone. Forest Stewardship Council disassociates from the Danzer Group. May 21, 2103 http://zlecone.pap.pl/palio/html.run?_Instance=cms_siz.pap.pl&_PageID=5&depID=185838&_CheckSum=270054276

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Conclusions Drawn and Lessons Learned  

It  should  be  duly  noted  that  although  this  research  points  out  a  few  of  Smartwood  and  FSC’s  less-­‐than-­‐brilliant  moments,  it  is  no  way  intended  to  suggest  that  they  are  illegitimate  or  lack  a  genuine  concern  over  the  health  of  the  forest.    In  many  ways,  they  are  the  pioneers  of  a  new  era  of  certification  and  have  blazed  a  new  trail  -­‐  and  fallen  into  all  its  pitfalls.    In  retrospect,  we  have  the  advantage  of  investigating  and  learning  from  each  of  these  instances  which  went  awry.     Many  lessons  can  be  gleaned  from  these  negative  experiences;  both  for  the  organizations  involved  and  for  any  incoming  organization  or  group  which  hopes  to  contribute  to  the  world  of  forestry  certification.    Many  of  these  lessons  are  also  applicable  to  certification  processes  in  general,  and  can  serve  as  issues  to  plan  around  when  moving  towards  successful  certification.  

With  the  help  of  our  4  case  studies  we  have  identified  a  number  of  potentially  dangerous  situations  which  can  crop  while  pursuing  an  effective  certification  outcome.    These  situations  have  included:    border  region  policies,  illegal  road  construction,  clientelism  &  conflict  of  interest,  failure  to  identify  illegal  activities,  certification  brand  competitions  &  market  flooding,  human  rights  abuses  by  certified  companies,  certification  of  poor  performance  companies,  challenges  in  dysfunctional  states  or  regions,  abusive  interactions  with  indigenous  people  living  in  forestry  concessions,  and  performing  due  diligence  before  granting  a  certification.     It  is  this  researcher’s  sincere  hope  that  the  FSC/ASI  and  the  Rainforest  Alliance/SmartWood  both  learn  from  these  misadventures,  and  that  they  encounter  no  such  similar  unfortunate  events  in  the  future.    As  for  anyone  else  entering  into  a  certification  process,  I  encourage  them  to  use  caution  while  moving  forward.    It’s  easy  to  get  overzealous  with  the  proliferation  of  a  certification  seal;  and  become  hasty  with  its  auditing  process.    But,  to  avoid  serious  mishaps,  certifiers  must  balance  the  benefits  of  being  widespread  with  upholding  the  integrity  of  their  seal.    I  further  encourage  any  certification  body  to  incorporate  solid  policy  statements  regarding  any  relevant  certification  issues  identified  by  the  case  studies  above.     Despite  criticisms  and  mishaps,  I  do  sincerely  believe  that  these  certifications  are  beneficial  to  the  world’s  forests  at  large,  and  that  the  Rainforest  Alliance  and  the  FSC  both  deserve  credit  for  their  enormous  efforts  towards  ensuring  the  future  existence  of  the  earth’s  forests.