DFID Illegal Logging and Associated Trade programme

A Project Proposal Submitted to DFID by the Timber Trade Federation

Contents
1 Introduction
2 The Impact of Illegal Logging
3 The UK Timber Trade
4 Government
5 What could the UK trade do about illegal logging?
6 The Project Proposal
7 Objectives
8 Methodology
9 Deliverables
10 Work Programme
11 Management Arrangements

1 Introduction
The UK is the third largest net importer of timber in the world, after Japan and China, with an annual value of about £3 billion. Most of the timber traded is softwood lumber, originating from North America, Scandinavia, Russia or the Baltic, although UK production is becoming significant and is set to rise further. Tropical hardwood lumber accounts for a small proportion of UK imports but plywood is much more significant (see table below). The majority of UK timber is used in building and construction.

Table: Proportion of tropical timber imported to the UK

Though small in terms of overall UK trade the import of timber from tropical countries has had a significant impact on the UK timber trade during the past 12 years through the campaigning activities of environmental NGO’s. Although there is little agreement on how much “illegal timber” enters the UK all stakeholders agree that the UK does play a role, however unwittingly.

Central government is thought to purchase between 15 and 20% of the UK timber market, a business worth at least £500 million p.a. to UK traders, not including purchases made by local Government and non-Government Agencies.

2 The Impact of Illegal Logging
Illegal logging has a significant negative impact on developing countries in terms of:

• Lost public revenue (World Bank estimates US$ 10-15 billion p.a. globally)
• Provoking and sustaining conflict (Cambodia, Liberia, Congo DRC)
• Corrupting society, undermining the rule of law, maintaining evil political regimes
• Overcutting forests, short-term forest management regimes
• Direct and indirect loss of livelihoods and weakened human rights

The international community has responded to this crisis by developing a series of partnerships with developing countries to tackle illegal logging. The Forest Law Enforcement and Governance process began in SE Asia two years, culminating in a strong declaration of intent in Bali in September 2001. A similar process is underway in Africa, with Latin America following shortly. The EU is developing a policy paper on illegal logging that may result in an EU-wide environmental licensing agreement with participating countries. Almost without exception there has been an open and honest realisation of the scale and severity of the problem, and the joint commitment of all parties to do something about it.

3 The UK Timber Trade
UK timber traders formed the Timber Trade Federation (TTF) in 1892 to represent their collective interests. About 350 companies now make up the TTF’s membership representing about 87% of the UK timber trade. TTF is a not-for-profit trade association funded by member subscriptions as a company limited by guarantee, regulated under the Companies Act, 1985 (see Annex 1 for Memorandum of Association).

TTF members can be agents, importers or merchants, or a combination of the three, but rarely include retailers selling direct to the general public such as the DIY chains. The building industry is the largest single customer. Most TTF members are privately-owned companies, but there is a small number of large PLC’s and multinational companies seeking to acquire some of the smaller merchants.

The UK Timber Trade has itself been subject to pressures from environmental groups, through campaigns in the press and direct action. Several shipments of timber from tropical countries have recently been held up at UK and EU ports of entry as a result of pressure from environmental groups and more recently action by the authorities. Individual trade employees have begun to question the impact of their businesses on deforestation, and changed their purchasing policies as a result.

The TTF has responded to these pressures in the following manner:

• In 1992 some members of the TTF formed the Forest Forever campaign to better represent the environmental interests of the trade.
• Forest Forever developed a Responsible Purchasing Policy to help its members source timber from sustainably managed forests
• More recently the TTF has taken a leading role on behalf of its members to raise the standards of corporate governance and transparency in the UK timber trade, in recognition of the impact it could have promoting good forest management in developing countries.
• The TTF published a Code of Conduct in April 2002 covering environmental issues with a complaints procedure, independent arbitration and sanctions culminating in expulsion for non-compliance.
• TTF is fully engaged in the development of a bilateral agreement and subsequent action plan on illegal logging, between the Governments of Indonesia and the UK, and is actively following up sourcing legal supplies from Indonesia.
• The TTF is embarking on this study of Corporate Social Responsibility (CSR) with a view to improving the performance of the trade overall.

4 Government
The UK Government has had a leading role, through the G8 process, to develop measures to tackle illegal logging. Through the Whitehall Forestry group cross-department efforts have been well co-ordinated but the hard-hitting government Environmental Audit Committee report and NGO campaigns highlighting weak procurement policies challenged the UK government to improve its performance. The UK government response and related EC initiatives are summarised below:

• The UK Government is developing detailed timber procurement guidelines to enable its procurement officers to purchase timber in accordance with UK policy. This will require procurement officers to ensure all timber purchased by government has come from at least legal, and eventually sustainable sources. Implementation of this policy will require the UK Timber Trade to supply information proving the legal origin of any timber it supplies for central government contracts. Other governmental and non-governmental organisations are likely to follow suit, together with other major users. The UK timber market is thus set for a major change and the trade will have to respond.
• The UK Government has also signed a Memorandum of Understanding with the Government of Indonesia to work together tackling illegal logging – other such bilateral and multilateral agreements will follow.
• The EC is preparing a Green Paper on tackling illegal logging and considering a range of measures including whether to develop a licensing agreement to regulate imports of illegal timber into the EU.
• The EU has developed a Green Paper on CSR, opting for voluntary rather than mandatory social reporting, putting the onus back on the private sector to demonstrate progress on CSR issues.

5 What could the UK trade do about illegal logging?
The UK timber trade has little or no direct investments in logging or processing in developing countries. Its influence is therefore limited to purchasing decisions and supply chain management – but by sourcing supplies from the more responsible countries, or logging and wood processing companies UK traders can encourage best practice and sustainability.

The TTF can also play a crucial role researching and promoting good practice and feed this experience back into the development of TTF’s own social accounts. Is there scope for members to adopt more of a fair trade approach based on the existing voluntary code of conduct? Emerging research into stakeholder relationships demonstrates that a company’s future shareholder value depends on the quality of these relationships (Sears study, 2001, Schietz and Epstein, 2002). It may be that stakeholder perceptions of a company will be crucially dependent on that company’s record of sourcing timber from legal suppliers. Companies will have to work harder at building the trust of the consumer, its employees, civil society and government, and to benchmark performance and monitor progress year-on-year. Could progressive members of the TTF become pioneers in social accounting, and begin to publish more meaningful social and environmental reports (particularly with reference to corporate impact in developing countries)?

6 The Project Proposal
This study will explore trends in the industry structure and terms of trade, examine the corporate social responsibility drivers for the industry as a whole, and stakeholder perceptions of the industry and draw out any broad predictions of their future behaviour. A series of case studies will be undertaken of a sample of companies covering the range of different business types to produce practical guidelines for federation members based on best practice. In addition the study will advise government how to improve the enabling environment, which should be of interest to businesses and civil society organisations that work with the UK timber trade.

7 Objectives
1. Better understand the business environment and trends in the timber trade
2. Predict future business value based on the current perceptions of key stakeholders
3. Identify business options for TTF members to improve their CSR performance in response to stakeholder behaviour
4. Provide practical guidance to TTF members on dealing with CSR issues, feeding into the ongoing review of Purchasing Policy
5. Identify changes to government policy that might encourage CSR in the UK timber trade
6. Identify any further work required to tackle illegal logging including recommendations to development agencies, producer associations, and civil society organisations

8 Methodology
1. Literature review, consultations with trade members and observers to understand the nature, structure, operation and interlinkages
2. Form steering group, meet, agree study methodology
3. Rapid strategic analysis of the UK timber trade including broad options (based on expert opinion only rather than detailed analysis)
4. Stakeholder relations study of key stakeholder groups (see annexed proposal to “top ten group”)
5. Selection and consultations with representative sample of the trade (maximum 6)
6. Detailed study of each company – interviews with staff, analysis of business, management systems, and corporate drivers
7. Collate and analyse findings
8. Feedback findings to collaborating companies and steering group (workshop)
9. Complete report

9 Deliverables
1. Corporate Governance framework that individual TTF membership can adapt for their own use
2. Action plan for industry to improve stakeholder relationships
3. Best practice guidelines for timber sourcing for UK Traders
4. A framework for UK Government and local Government timber purchasing policy to assess timber suppliers
5. Outline of key Corporate Governance related data sets that TTF members could supply to TTF to demonstrate responsible governance to their entire customer base
6. Clear guidelines for overseas suppliers in terms of the data sets that they need to supply in order to provide ‘peace of mind’ to their UK customers

10 Work Programme

11 Management Arrangements
1. TTF will manage the DFID contribution through DFID’s accountable grant contract mechanism. TTF will subcontract consultants and other inputs as required and will report back to DFID on a quarterly basis.
2. TTF will establish a small steering committee (max 5 people) to provide strategic guidance on the study. The committee will include representatives of DFID, TTF, the timber trade, and institutions with CSR experience.
3. The steering committee will meet 3 times; at the study launch; half way through, and at the end.
4. TTF will establish a wider consultation group consisting of those companies keen to follow the study and individuals/organisations involved in the study. This group will meet twice, through 1 day workshops, to share experiences, debate issues arising from the study, and test emerging conclusions.
5. Short quarterly reports will be submitted to DFID at the end of March, June and September.

Prepared by:
Andy Roby
TTF

Submitted by:
Paul Martin
DG TTF

Annex 1: TTF Memorandum of Association
Annex 2: Corporate Relationships Study
Annex 3: Confidentiality Agreement for Case Study companies