DEFORESTATION INC | Major environmental auditing firms ignore or fail to recognise glaring environmental damage caused by loggers and other clients whose practices they certify as sustainable, undercutting an elaborate global system meant to fight forest destruction and climate change.
With alarming frequency, the auditors and so-called certification firms validate products linked to deforestation, logging in conflict zones, and other abuses, according to an investigation by the International Consortium of Investigative Journalists (ICIJ) and 39 media partners.
Certification helps the firms’ clients produce and promote teak yacht decks, high-end furniture, and other products in markets all around the world.
The ICIJ investigation, Deforestation Inc, showed how companies use the results of flawed audits to advertise products and operations as compliant with environmental standards, labour laws, and human rights, misinforming shareholders as well as customers. The damage can be devastating and long-lasting.
“A felled tree cannot be replaced in a man’s lifetime,” said a French prosecutor in a recent case involving a Spanish logging firm that had illegally cut down century-old oaks and other trees in privately owned forests in Southern France.
ICIJ found that many companies declared as sustainable forestry operations fell well short of their own claims or voluntary standards.
For instance, a Brazilian wood products company operating in the Amazon claimed that it was “certified with flying colours” despite having been fined 37 times since 1998 for stockpiling and transporting wood without legal documentation, among other violations.
A Japanese forestry company in Chile sourced timber from suppliers that used documents including false information on the origin of the wood.
A group of Canadian logging companies used a “sustainable forest management plan” certified by a local auditor to cut down trees in indigenous forestland, drastically altering the community’s territory and way of life, according to a court ruling.
Environmental crimes undocumented
ICIJ examined inspection records, environmental violation data, and court filings concerning companies in at least 50 countries.
The analysis identified 48 auditing firms that had declared sustainable the practices of forest-product companies that had been charged with violations such as logging in indigenous forestland and protected reserves, using false permits, and importing illegally harvested timber.
Since 1998, more than 340 certified forest-product companies have been accused of environmental crimes or other wrongdoing by local communities, environmental groups, and government agencies, among others.
About 50 of those firms held sustainability certificates at the time they were fined or convicted by a government agency.
Such cases are almost certainly undercounted, in part, because many government databases of environmental crimes don’t identify the companies responsible.
“It’s the whole system that we rely on, on certifications in general, that doesn’t work,” Grégoire Jacob, a consultant working in the forest-products industry, told Radio France, an ICIJ partner.
“We are led to believe we will have more virtuous products. Sometimes it’s true; sometimes it’s false,” he said.
Jacob was one of six current and former forestry auditors and consultants who told ICIJ and media partners in France, Canada, the US, and elsewhere that certification standards were inadequate and the procedures are ineffective.
Auditors miss red flags
The auditors themselves - who make up a growing US$10 billion (RM344.78 billion) industry - are rarely held accountable for downplaying or missing red flags in clients’ operations and sustainability reports.
Jonathan White, a lawyer at Client Earth with expertise in corporate responsibility and climate risk, said environmental auditing is governed by far fewer rules and guidelines when compared to highly regulated traditional financial auditing.
“In that unregulated space, you have a problem with accountability,” White said.
“If those kinds of verification bodies are to fulfil a role that is kind of robust… they have to apply scepticism and check claims that are made by companies. They have to go behind the information that companies provide.”
The global investigation also sheds light on governments’ weak efforts to stop the trade of conflict wood from authoritarian regimes in Myanmar and elsewhere. Sustainability certification firms also enable companies at the centre of such trade to mislead the public.
ICIJ’s findings reveal how some companies misrepresent their commitment to end the global climate crisis while they exploit precious natural resources under the “sustainability” banner.
Meanwhile, forested areas that, combined, are larger than the European Union have disappeared since 1990, and more and more forests keep vanishing to provide dubiously labelled products.
Marketing ‘sustainability’
Over the last two decades, publicly traded multinationals, small suppliers, and investment firms have used their association with voluntary forest-certification schemes to show customers and shareholders that they are committed to “environmental, social, and governance” (ESG) guidelines and ensure that their practices do not harm the environment.
So-called sustainability certifications provided by private bodies are not legally required but they have become virtual must-haves for companies that trade, produce, or use timber and other commodities associated with deforestation.
At the heart of this self-regulating system are international organisations such as the Forest Stewardship Council (FSC), the Programme for the Endorsement of Forest Certification (PEFC), and the Roundtable on Sustainable Palm Oil (RSPO).
They rely on third-party auditing firms to vet clients and certify that wood-product companies, palm oil producers, and others harvest responsibly and don’t use materials linked to illegal logging and other environmental crimes. (In 2007, JK Rowling’s US publisher agreed to her wish that FSC-certified paper be used for the final Harry Potter novel, ‘Harry Potter and the Deathly Hallows.’)
The environmental auditing sector is part of the US$200 billion (RM895.60 billion) testing, inspection, and certification industry. It includes specialised units of auditing giants such as KPMG and PwC, large, publicly traded companies such as the Swiss multinational SGS Société Générale de Surveillance SA, and smaller firms such as PT Inti Multima Sertifikasi in Indonesia.
The auditors typically perform risk assessments for their clients, inspect mills, interview company foresters, and ensure that operations and products are in line with voluntary environmental standards designed by private certification organisations.
Some of the auditing firms’ marketing materials trumpet goals such as “protecting the planet’s forests”, facilitating the “economically feasible exploitation of forests”, and “mitigating deforestation.”
Leading cause of climate change
The conversion of forests to other uses - such as agriculture or road construction - and industrial logging in primary (mature, natural) forests are some of the leading causes of climate change.
Scientists estimate that these practices are responsible for more than 10 percent of the world’s greenhouse gas emissions, which contribute to global warming.
Forest destruction also aggravates flooding and loss of wildlife habitat, and it contributes to a surge in infectious diseases in humans, according to some scientists. With fewer trees available, some pathogen-carrying bugs migrate to plants consumed by farm animals that end up in the food chain.
In 2021, US President Joe Biden and more than 100 other world leaders gathering at the United Nations COP26 climate summit in Glasgow vowed to end deforestation by 2030.
Since then, governments have promised - and others approved - stricter regulations. Private environmental auditing firms see the renewed forest protection movement as a business opportunity to promote their services helping clients combat forest loss worldwide.
Experts consider that in countries where deforestation is widespread and forestry governance weak, such as Brazil, voluntary certification is a better alternative to poorly enforced laws on forest management and supply chains.
But in Brazil, where an estimated 90 percent of logging is illegal, only a small percentage of companies are willing to open the books and apply for costly certifications, according to Marcos Planello, a forestry auditor based in Sao Paulo.
“It’s not a playground. There are people with guns in the forest,” he told ICIJ. “We [auditors] just search for areas when a company wants to be certified voluntarily.”
Certifications remain a valid way to “reduce risks,” Planello said. “But if a company wants to do something wrong, they will be able to do it.”
Damage that can’t be calculated
During the nine-month Deforestation Inc investigation, 140 reporters working with ICIJ followed loggers’ footprints from logged protected woodlands in Finland, clear-cut areas of South Korea to over-harvested indigenous-owned lands in British Columbia.
They talked to members of indigenous communities, forest-preservation advocates, forestry auditors, and industry insiders. They examined hundreds of court filings, violation data, and leaked documents in more than a dozen languages. The project spanned the world.
In April 2022, a leading environmental auditing firm certified an Austrian conglomerate’s wood products from Romania, a country known for its vast old-growth forests, as compliant with environmental standards.
Within months of the certification, Romanian authorities launched an illegal logging investigation into some of the Austrian giant's timber suppliers.
In the US, Italy, and New Zealand, yacht deck manufacturers, and timber traders continue to sport green labels on marketing materials even while importing teak from Myanmar, where trade in natural resources finances a military regime that toppled a democratically elected government in 2021.
In Finland, auditors monitoring the forest-management practices of two forestry companies did not mention in the audit reports that courts had fined their clients for felling trees in biodiversity-rich protected areas; the companies kept their sustainability certificates.
And in Indonesia, one of the world’s largest exporters of tropical wood and other forest products, environmentalists at the Bogor City-based Independent Forest Monitoring Network reported that in the last decade, auditing firms missed environmental violations by at least 160 companies.
ICIJ’s reporting partners at Tempo, an Indonesian magazine, found in addition that on some ocassions, the auditors did not follow up as required to demand the client take corrective actions to address the violations, which included the use of false permits, illegal logging, and destruction of elephant and tiger habitats.
The auditors’ laissez-faire approach made it possible for the Indonesian companies to use certification to obtain export licences for Europe and other markets where buyers were less likely to be aware of the violations.
Even when violators are punished, the penalties cannot compensate for the destruction of primary forests, wildlife habitats, and indigenous peoples’ lands, according to Danial Dian Prawardani, one of the forest-monitoring network’s researchers.
“The actual losses far exceed the material fines because ecological damage and social impact can never be measured,” Prawardani told Tempo.
Disillusioned auditors
Voluntary forest-certification organisations such as the FSC and the PEFC were founded in the 1990s after environmentalists and regulators failed to reach an agreement on creating an international legal framework for forest conservation.
Since then, more than a dozen such organisations and many affiliated programmes have been established around the world - each with its own criteria and label.
But FSC and PEFC remain influential. The two organisations say they have certified as “sustainable” more than 790 million acres of forest and thousands of products worldwide.
Consumers can find their logos stamped on a variety of everyday items, including notebooks sold at Target in Washington DC, candy wrappers in Berlin supermarkets, paper cups in Canadian hotels, and furniture, skis and adult diapers sold on Amazon.
Environmental groups and forestry experts who have compared the FSC and PEFC certification schemes have often described FSC’s standards as more rigorous and more in line with environmentalists’ preferences while criticising the PEFC’s approach as industry-aligned.
But in recent years, the reputations of both have been tarnished by a lack of transparency in their auditing and certification processes, scandals involving certified clients, conflict-of-interest allegations, and a lack of oversight of affiliated auditors.
Three former forestry auditors interviewed by ICIJ said they took the job because they believed that it could have a positive effect on the operations of forest-product companies. However, they said they gradually became disillusioned with the system.
As more brands became willing to pay for green certifications, both organisations relaxed their standards and the process became less effective, auditors and forestry experts told ICIJ.
“A lot of people thought it would be a good idea to have these voluntary standards because they see a lot of horrible forestry going on,” said Bob Bancroft, a biologist, and former forestry auditor based in the Canadian province of Nova Scotia.
“Now they’re relieved if they see a green label on a product in the grocery store. They feel that’s fine and have a clear conscience buying it,” he said. “And that’s what’s wrong with what’s happening here.”
FSC: We’re a good label
FSC director-general Kim Carstensen responded to the criticism in an interview with ICIJ and German broadcaster WDR.
“We believe we are a good label on a number of criteria. We have a governance system that involves stakeholders. We have strict environmental regulations. We have strict social rules as well,” Carstensen said.
In an ideal world, he added, governments would play a larger role for forest protection.
“But the situation is not an ideal world,” he said. “So in a situation where a government allows logging in an area where there is a question of whether this is responsible management or not-so-responsible management, we think certification should still play a role, and we think FSC certification could be the case in that situation.”
As a “voluntary tool”, FSC “does not claim it can solely solve multi-layered problems such as deforestation,” a spokesperson added in a statement.
‘Only a small percentage of audited cases’
PEFC head of communications Thorsten Arndt said: “The credibility of PEFC and other certification systems has been assessed multiple times,” adding that the United Nations has recognised the group “as an indicator for progress towards the sustainable development goals (SDGs) and the biodiversity agreement” as a series of social and environmental goals.
Arndt wrote that PEFC sets and revises its standards based on “the latest scientific knowledge, research, and relevant emerging issues” to ensure that forests are “managed sustainably”.
Arndt also disputed critics’ claims that PEFC is industry-friendly, saying that the organisation was founded by small- and family-forest owners and that the forest-product industry remains only one of nine stakeholder groups that set PEFC standards, along with indigenous communities, trade unions, and other non-industry actors.
For their part, auditing firms said that the third-party verification system has overall contributed to improving the management of forests around the world and increased scrutiny, and required greater transparency of forest-product companies.
Firms contacted by ICIJ conceded that there may be cases where an auditor overlooks or misunderstands problems, or even clients’ fraudulent intentions. But, they said, those represent only a small percentage of the audited cases.
“To the critics who claim that certification is simply greenwashing public relations, I would say that they are trying to use the exception to prove the rule,” said Linda Brown, co-founder of US-based auditing firm SCS Global Services.
In search of a solution
Governments around the world have started to pay attention to the companies’ claims that they are eco-friendly but, so far, only a handful have taken action.
In 2021, consumer-protection agencies in the UK and the Netherlands examined hundreds of company websites and determined that 40 percent of claims of eco-friendliness “could be misleading consumers.” An Australian anti-competition committee launched a similar examination last fall.
The European Commission, the EU’s executive branch, is considering legislation targeting so-called greenwashing practices, defined as marketing that relies on “misleading environmental claims.”
The commission is responding to findings that nearly half of such claims, across several economic sectors, “may be false or deceptive”.
A leaked draft of the proposal indicates that EU countries would impose “effective, proportionate and dissuasive” penalties on companies that make environmental claims, unsupported by evidence, about their products.
It also says authorities would rely on “independent verifiers” to demonstrate that the claims have substance. A first official draft of the legislation is expected late this month.
It is not clear at this stage whether auditors will be under scrutiny in the EU or other jurisdictions that are considering anti-greenwashing measures.
Auditors, certification firms evade spotlight
Grant Rosoman, a senior adviser to Greenpeace International who specialises in forest issues, remarked that auditing and certification firms generally evade the spotlight that exposes the company making the product or the company selling the product.
“The certification bodies in between don’t tend to surface as part of the picture,” Rosoman said, “even though, in a sense, they are one of the biggest parts of the problem in terms of the weaknesses in these systems.”
When auditing is poorly done, “a lot of bad practices slip through,” said Rosoman, who has researched certification systems and auditors.
“These problems allow deforestation to continue on the ground, allow human rights (abuses) to continue, allow illegalities to continue.”
SCILLA ALECCI is an investigative reporter for ICIJ.
Contributing reporters: Agustin Armendariz, Jelena Cosic, Emilia Diaz-Struck, Miguel Fiandor, Karrie Kehoe, Brenda Medina, Delphine Reuter, Margot Williams (ICIJ), Anne-Laure Barral (Radio France), Allan de Abreu (Piauí), Attila Biro (Context), Petra Blum (WDR), Krisna Pradipta (Tempo), Stefan Melichar (Profil), Francisca Skoknic (LaBot), Kirsi Skön (YLE), Lina Verschwele (Der Spiegel). - Mkini
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