Timber

What is requested of companies working in the timber value chain?

There are many laws and regulations that companies in the timber value chain have to abide. Historically the emphasis was on due diligence preventing trade in illegal timber and timber products which resulted amongst others in the 2013 EU Timber Regulation (EUTR) and the Timber Regulation and the Forest Law Enforcement, Governance and Trade (FLEGT) Regulation. In more recent years a shift can be observed to a broadening of the focus of due diligence towards responsible business conduct. It increases the scope to addressing adverse impacts related to include all responsible business conduct issues.* This type of due diligence covers the entire supply chain and its starting point is risk to people and environment, not the business, while recognizing that where risks to people’s human rights and the environment are greatest, there is strong convergence with risk to the business. The OECD Guidelines for Multinational Enterprises and UN Guiding Principles for Business and Human Rights are the international standards for responsible business conduct (RBC).

*The OECD Guidelines mention adverse impacts related to workers, human rights, the environment, bribery, consumers and corporate governance. While the UNGPs mention the International Bill of Human Rights (consisting of the Universal Declaration of Human Rights and the main instruments through which it has been codified: the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights), coupled with the principles concerning fundamental rights in the eight ILO core conventions as set out in the Declaration on Fundamental Principles and Rights at Work as an authoritative list of the core internationally recognized human rights. Although it also mentions that Depending on circumstances, business enterprises may need to consider additional standards. For instance, enterprises should respect the human rights of individuals belonging to specific groups or populations that require particular attention.

The international standards apply to “all business enterprises, both transnational and others, regardless of their size, sector, location, ownership and structure” and it “ exists over and above compliance with national laws and regulations”. The international standards are globally strongly recommended and they are increasingly translated into legislation. At the moment the European Union is developing such mandatory human rights and environmental due diligence legislation (ec.europa.eu/sustainable-corporate-governance)

Implementing the international standards

The expectations towards companies are set out in the international standards and its numerus guidance. The 2018 OECD Due Diligence Guidance for Responsible Business Conduct gives a clear overview of the 6 due diligence steps that companies ought to implement. Each step is accompanied with practical actions. As can be seen, due diligence is an ongoing process to improve responsible business conduct, in which companies continuously and proactively identify and address their actual and potential negative impacts on society, and report on this process and their results.

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Source: OECD (2018), OECD Due Diligence Guidance for Responsible Business Conduct

As can be seen, due diligence is an ongoing process to improve responsible business conduct, in which companies continuously and proactively identify and address their actual and potential negative impacts on society, and report on this process and their results.

What are challenges for companies?

Implementing the international standards comes with challenges, since it asks a more proactive stance of companies. Existing due diligence systems and measures often have to be enhanced and/or expanded.

Although it is not explicitly mentioned, a first step to implementing the international standards is mapping the value chain and ensuring traceability. This allows to correctly identify any potential and actual adverse impacts in the value chain. Impacts can be identified depending on its relationship with the company. A company may cause an adverse impact, contribute to it or be directly linked to it.* The type of relationship shapes the responsibility and appropriate response in addressing the adverse impact.

* The international standards categorise the relationship between a company and a potential and actual adverse impact into three types. A company could cause an adverse impact, contribute to it or be directly linked to it through it operations, products or services.

Due diligence as elaborated by of the UNGPs and OECD Guidelines are not intended to shift responsibilities from enterprises causing or contributing to adverse impacts to the enterprises that are directly linked to adverse impacts through their business relationships. Instead, in cases where impacts are directly linked to an enterprise’s operations, products or services, the enterprise should seek, to the extent possible, to use its leverage to effect change, individually or in collaboration with others.

Identifying impacts and its relationship with the company may be challenging due to a lack of data. Data received through the supplier reporting channels may be incomplete, inadequate and even false, for example due to corruption. This also hinders prioritising impacts on the basis of severity* and likelihood in order to be addressed in the appropriate sequence, since it requires an even greater detail of information. Prioritisation is needed since companies may not have the capacity to address a great number of identified adverse impacts at the same time.

* The most severe impacts ought to be prioritised. The severity of an impact can be determined by its scale, scope and irremediable character.

  • Scale refers to the gravity of the adverse impact;
  • Scope concerns the reach of the impact, for example the number of individuals that are or will be affected or the extent of environmental damage;
  • Irremediable character means any limits on the ability to restore the individuals or environment.

Addressing adverse impacts may be challenging since it’s not always obvious what a solution could be and how this should be implemented, in particular for companies that are further removed from the adverse impact but are still directly linked to it. In addition, adverse impacts could be partly caused due to one or more systemic issues and thus making it even more difficult to address the identified adverse impact.

Engaging with local stakeholder and those affected by the adverse impact could greatly support in all these challenges. They are in the ability to share information about the adverse impact and provide information on what would be needed to remedy the effect of the adverse impact. Furthermore, they are able to monitor the impact of the mitigating measures taken by the company. It comes as no surprise that stakeholder engagement is a fundamental requirement of the international standards. Engaging with these parties to realise these potential benefits requires a worldwide network and experience. Both of which companies often lack.

Certification

Certification schemes like FSC, PEFC and Rainforest Alliance are often used in the timber sector and can be one of the tools to implement due diligence as understood under the UNGPs and OECD Guidelines. Unlike uncertified timber, certified timber provides a higher level of traceability and through the certification audit systems it can provide companies with information to identify potential and actual adverse impacts (to the extent the audit covers the supply chain and issues).

Yet when certifications are used solely, they are insufficient to meet the norms set out by the international standards. This is underlined by Profundo in 2019, showing that the FSC and PEFC international standards cover a majority of social and environmental aspects of leading international standards but have limited coverage of these aspects in both chain of custody (CoC) standards.

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Source: OECD (2018), OECD Due Diligence Guidance for Responsible Business Conduct

Improvements have been made since, but still do not cover all aspects of the international standards. This seems also unfeasible due to the scope and inherent nature of the international standards that require companies to take a proactive stance towards due diligence.

Certifications schemes and initiatives such as the Local Impact Hub should be seen as complimentary and provide companies with support in implementing due diligence following the UNGPs and OECD Guidelines.