EIA calls on the FSC Board of Directors to stop the re-association of HS Timber

The FSC at a crossroads in Eastern Europe

During its meeting this week, the Forest Stewardship Council's (FSC) Board of Directors will determine whether to end its disassociation with one of the largest timber processors in Europe, the Austrian HS Timber Group (formerly known as Holzindustrie Schweighofer). At stake is not only HS Timber's hoped-for shot at restoring its name after a series of scandals, but also the reputation and the future of the FSC itself.

If the FSC's Board of Directors chooses to end the disassociation and open the path for HS Timber to regain its FSC certification, it will signify an acceptance that FSC-certified companies don't need to actually ensure sustainable forest management, but must simply claim to act a little better than the status quo.

For real change, transparency and traceability are the only solution

Illegal activity thrives in opaque supply chains. This is true also in Romania, where a large portion of logs pass through hundreds of small and large log yards, in which traceability of the forest source is lost. But this same issue plagues FSC supply chains around the world. Aside from small-scale voluntary initiatives and pilot studies, the FSC has resisted calls to mandate transparency and traceability within its standard.

If the FSC wants to show that its certification label means more than, "a little better than the status quo," it needs to implement drastic reforms of its certification standards. The FSC needs to immediately publish maps of all its certified forest sites around the world. It needs to require physical traceability of its supply chains, and to make this information transparently available to the public, so that buyers of FSC-certified products can see not just a logo, but can learn where the wood actually came from. 

The FSC needs to stop hiding what it's certifying - and to make sure that its logo is no longer used to cover up illegal timber.

HS Timber's reforms fail to address the core problems

It's important to remember what led to the FSC's disassociation in the first place. The FSC's expert panel's 2016 investigation found "clear and convincing evidence" that among other things, Schweighofer:

1. Purchased illegal timber;

2. Has an inadequate due diligence system for assessing the legality of its timber purchases;

3. Has "itself violated several laws and regulations" in its timber sourcing;

4. Sourced timber from stolen forests;

5. Continues to associate with "individuals and companies with criminal and corrupt backgrounds";

6. Developed a bonus system that encourages illegal logging.

Since its disassociation in 2017, HS Timber has made some reforms. They have implemented the Timflow system, with GPS trackers on all trucks that deliver Romanian logs to their mills. They are collecting harvest permits from third party log yards. They've cut the number of Romanian supplier companies from over 1,000 to around 600. And, they're buying more from neighboring countries. As of 2019, their Romanian mills process around 1.2 million m3 of timber from Romania and 1.2 million m3 imported from neighboring countries, including Slovakia, Poland, Ukraine, and Bulgaria.

Unfortunately, four years after being disassociated from the FSC, HS Timber's reforms are quite limited compared to the full scale of the problems of illegal logging in Romania and the broader region. For example, as EIA noted in our 2018 report, HS Timber's Timflow system only provides physical traceability to the forest for around 25% of the logs the company processes in Romania. These numbers are still accurate today. Without real traceability, HS Timber has no way of accurately ensuring that the paper documents it receives from suppliers actually cover the logs it buys.

Romania: a high risk country for timber operations

In spite of international attention and domestic pressure, corruption and illegality continue to plague Romania's forest sector. 

EIA's 2015 report estimated that as much as 50% of the timber harvested in Romania was illegally sourced. This very high level of risk has since been corroborated by a number of other studies.

A study by the EU's Joint Research Commission (JRC), comparing timber volumes produced or imported versus timber volumes processed or burned in Romania, found that over 28 million m3 of timber used on the market in 2015 was unaccounted for by production and imports -- indicating that it could have been sourced illegally from Romania's forests.

A recent article published in Nature in 2020 analyzed satellite remote sensing data and found very high levels of over harvesting compared to national production estimates across Europe. For Romania, the study noted that, between 2008-2016, around 20 million m3 extra was cut each year than was officially recorded.

In 2019, the Romanian government's National Forest Inventory estimated that 38.6 million m3 of timber was cut in Romania each year between 2013-2018. This is over 20 million m3 above the 18.5 million m3 that was officially allowed to be cut each year.

All of these statistics, from multiple sources using a wide variety of methods, are remarkably consistent, and all of them indicate that 50% or more of the wood cut in Romania each year was done so illegally, in excess of legal harvest quotas.

In Transparency International's 2020 Corruption Perceptions Index rankings, Romania received a 44 - the lowest score among all EU countries, tied for last place with Bulgaria and Hungary. Violence against forest defenders is widespread. In recent years 6 forest rangers have been killed, and there have been 650 cases of violence against forest workers.

All of these sources point to the fact that timber, sourced from the open market in Romania, should be considered at very high risk of having been illegally logged, and any company sourcing wood in Romania should take extreme care to ensure the legality of its supplies.

HS Timber's lack of traceability, revealed

It was for all of these reasons that the FSC's expert panel, in their 2016 investigation report into allegations of illegal timber in HS Timber's supply chain, made as their first recommendation that HS Timber should only be allowed back into the FSC once they had established full traceability of all Romanian logs entering their sawmills from stump to mill gates.

In the past four years, HS Timber has implemented a traceability system allowing tracking of all trucks delivering Romanian logs to its mills. This system provides the company with traceability back to the forest for all deliveries sourced directly (around 50% of its Romanian logs), and with traceability to the supplier's log yard for all indirect purchases. However, HS Timber loses traceability for the other 50% sourced from hundreds of third-party depots. Instead, the company argues that it has "traceability of legal ownership", i.e., papers showing the claimed forest origins.

In our recent analysis, EIA used Romania's transparent traceability system, the Forest Inspector, to find out which forests HS Timber's third-party log yards receive their wood from. We estimate that, in the month of March, 2021, HS Timber received wood directly from around 500 forest sites. However, through their over 200 third-party log yard suppliers, HS Timber was exposed to timber cut in more than 2,500 different forest sites -- five times more than their direct sources. If any one of these 2,500 sites was subject to illegal logging (and given the 50% illegality rate for Romania's forest sector, this is quite likely), HS Timber's mills could have been contaminated with this illegal wood. Without physical traceability for these logs, HS Timber has no way to effectively keep this illegal timber out of its supply chain.

Despite the FSC expert panel's strong recommendation for full traceability from stump to mill gates, the FSC's Roadmap process for ending HS Timber's disassociation watered down the expert panel's recommendation to a requirement for traceability of "legal ownership". HS Timber says that the papers that it collects from its third-party depots fulfill this requirement. But as the FSC panel itself noted, "Romania suffers from a very high risk of illegality based on the use of fraudulently issued documents of all types." Even the head of HS Timber, Gerald Schweighofer, was earlier quoted in the Austrian press as saying that his company receives paperwork from suppliers, but that, "If they are fake or not, cannot be verified." So for HS Timber to now claim that they have traceability because they're collecting papers, cannot be considered sufficient due diligence in such a high risk country.

Traceability is possible, but HS Timber isn't doing it

Physical tracking of logs into and out of log yards is not rocket science. In 2018, HS Timber itself piloted an electronic system that did exactly that. Yet despite the existence of this technology, HS Timber does not require it of its third party suppliers, nor has it announced plans for implementation of such a system.

HS Timber imports 50% of the logs that it processes in Romania from neighboring counties, including many with elevated levels of risk including Slovakia, Poland, and Bulgaria, in addition to sawn wood from Ukraine. The company has reported little on the traceability of these logs.

HS Timber's political connections

Beyond the lack of traceability in its sourcing, HS Timber faces many other challenges. HS Timber is still involved in an ongoing investigation by Romania's specialized anti-organized crime prosecutors, DIICOT, which began in 2015 following the release of EIA's report. A subsequent 2018 raid indicated the severity of the suspected illegalities related to HS Timber's sourcing, which included the following: "misappropriation of public auctions, tax evasion, unfair competition, illegal logging and other offenses."

In January 2021, Romania's government Competition Council sanctioned HS Timber with nearly $13 million in fines for illegal price fixing of timber auctions. As part of the settlement, HS Timber admitted to the charges. Such actions ensured that HS Timber would win the auctions at below-market rates -- thus cheating the Romanian government and people out of millions of dollars of revenue, and closing the market to other companies who were unable to get access to timber stocks.

It is important to note that the Competition Council fined a dozen other companies for similar violations, with two other Austrian-linked FSC-certified companies in the number two and three positions; $11 million fines to Kronospan Trading SRL and associated companies, and $5.5 million to S.C. Egger Romania SRL.

For many years, Ukrainian prosecutors have been investigating a bribery case involving millions of euro of payments given by an HS Timber subsidiary to that country's former forest chief, Viktor Sivets, in exchange for preferential access to cheap timber. At the time, the company named in Ukrainian court records, Uniles, was a 70%-owned subsidiary of HS Timber. 

Currently, HS Timber is building a new sawmill in Belarus, at a time when the "last dictator of Europe", President Lukashenko, is doubling down on efforts to quell protests against his government. In fact, HS Timber has a long history in Belarus. In 2016, after Belarus issued a ban on all exports of raw logs, HS Timber imported nearly half a million cubic meters of logs from Belarus to its Romanian factories. Belarus' law states that the only person who could grant an exemption from the log export ban was President Lukashenko himself.

HS Timber: the tip of the iceberg of the FSC's Romanian problems

The FSC has grown quickly in Romania, and now covers nearly half of the country's forests and over 800 companies. However, the FSC's rush for expansion has come at a high price.

In its 2016 report, the FSC's expert panel noted with concern that "of the HS suppliers found to have legal issues almost 20% are FSC certified." However, in the subsequent years the FSC has failed to investigate the extent to which the illegalities found in HS Timber's supply chain permeated other FSC-certified companies in Romania.

In fact, HS Timber's number one supplier, and the largest forest manager in Romania, is the state-owned enterprise Romsilva. The FSC certifies 2.2 million hectares of Romsilva forests -- one third of all the forests in Romania. The former head of Romsilva resigned in 2016 following an investigation by Romania's respected anti-corruption authority DNA for graft and organized crime linked to the largest land restitution scandal in Romanian history. Allegations of corruption continue to plague Romsilva. In a 2020 report, Al Jazeera reporters interviewed several whistle-blowers, who described threats and physical violence faced by employees who refused to allow illegal logging in the forests they managed.

Since early 2020, the European Commission has held Romania in violation of European law for its failure to safeguard its Natura2000 protected areas. Romsilva manages the majority of Romania's Natura2000 forest sites, and continues to authorize destructive logging practices, including clearcuts well in excess of the legal 3 hectare limit, even in natural mixed forests. The majority of Romsilva's Natura2000 forests are, in fact, FSC certified. Despite the ongoing infringement case, the FSC has done nothing to stop Romsilva from continuing its destructive logging of these protected areas.

In EIA's recent analysis, we found that around one third of the approximately 3,000 forest sites where HS Timber's suppliers got logs from were in Natura2000 protected areas.

The FSC needs to clean up its house in Romania, before it opens the doors even wider.

The FSC's choice

If the FSC wants to be recognized as a leading certification of sustainable forest management, it must show that it can uphold its standards in the face of pressure from the largest timber companies.

It's true that HS Timber has made some reforms. But the criteria for FSC certification cannot be only "better than before", or better than the current status quo. Given the scale of timber illegality risks in Romania and the broader region, HS Timber's reforms are a mere drop in the bucket compared to their vast sourcing operations covering seven countries in central Europe.

The FSC's Board of Directors should not vote to let HS Timber back into the FSC until it has implemented real traceability in the high-risk countries it operates in. If the Board of Directors does, it will acknowledge that the FSC standard means little more than certification of the status quo.